MEXICAN FINANCIAL UPHEAVAL : The Peso--Profit and Pain : Consumer Impact: U.S. Is the Winner, Mexico the Loser--at Least for Now

Winners and losers in Mexico’s fiscal crisis strolled through the light rain in this border city Thursday, trying to balance their personal ledgers and reassess their Christmas plans.

Tijuana car salesman Fabrizio Maldonado, for example, said the devaluation of the Mexican peso means he might have to forgo that $900 Christmas necklace he was planning to buy in San Diego for his girlfriend.

And his used-car business is hurting: Fewer Tijuanans will be able to afford the cars he buys for dollars in the United States and transports back for sale in Tijuana.

On the other hand, Bonnie Rodriguez of Marina del Rey planned to make a special stop in Tijuana to load up on leather goods and blankets.

And Laura Cruz, an immigrant living in Santa Monica who sent $300 to her mother in Mexico to buy Christmas presents, was, in effect, sending her significantly more than that. “At least this money can help a little more,” she said.

Then there is Dick Harris of San Diego, who makes twice-weekly forays to wager at Tijuana’s off-track betting parlors. He said the devaluation didn’t rattle him: “I’ll keep coming. I place my bets in dollars.”

One way or the other, the peso devaluation ordered by the new government of President Ernesto Zedillo is already having a striking and direct impact on the millions of Americans and Mexicans whose lives and jobs are tied to the border, though the effects are as varied as the many facets of the border economy.

Those profiting are U.S. consumers buying goods in Mexico with dollars that have gained about a third in purchasing power over the last three days. Conversely, Mexican shoppers who are in the habit of buying goods and services in the United States have lost that much and more. Some money exchange houses in San Ysidro were demanding 5.1 pesos per dollar Thursday--up about 45% from a week earlier.

More unsettling for many Mexicans now living in the United States was the message of turmoil and instability in their homeland.

At One Stop Immigration in Los Angeles, a community-based organization that provides legal and education services for immigrants, the office has been flooded with worried immigrants over the last few days who are concerned about losing real estate, bank accounts and other possessions in Mexico.

“What (people) are concerned about is that they know this political instability is bad,” Executive Director Jose Gutierrez said. “ . . . They’re worried that all the promises of the Mexican government will go up in smoke.”

The devaluation was partly aimed at persuading Mexican consumers to buy more goods in Mexico instead of the United States, to ease the growing trade surplus the United States has enjoyed with Mexico since passage of the North American Free Trade Agreement.

By making U.S. goods and supplies more expensive for Mexican consumers and factories, the devaluation should eventually stimulate the Mexican economy, said John Williamson, fellow at the Institute for International Economics in Washington.

“This makes Mexican goods more competitive, and that’s one of the purposes,” Williamson said.

But paying the price are U.S. retailers and service providers accustomed to selling to Mexicans.

“Our local economy is based on Mexico, and suddenly it will take more pesos to come and buy our goods and services,” said Eliud Garcia, executive vice president of International Bank of Commerce in Laredo, Tex. “So there is going to be a decline in sales here if the devaluation holds up at this level.”

Roger Stolley, general manager of the 116-store La Plaza shopping mall in McAllen, Tex., where 35% of customers are Mexican, said he expects any negative impact to be short-lived. The loss in spending power that Mexicans suffered in past devaluations was soon regained in wage increases, Stolley said.

“Historically, devaluations may have hurt us for a couple of weeks, but then they get more pesos and they come back and buy. The fact is, we still have products that might sell for 30%, 40% or 50% less than over there,” Stolley said.

But until those kinds of market adjustments are made, Mexican shoppers can look forward to confusion and leaner times--despite a government-ordered freeze on wages and prices for 60 days.

Veronica Estrada, spokeswoman for the Tijuana Tourism and Convention Bureau, said stores in the city’s bustling Avenida Revolucion shopping district were already raising prices Thursday to reflect the more powerful dollar--a double blow to Tijuanans shopping for Christmas presents.

“Everything is out of control. This is very sad for Tijuanans who have been saving money all year to buy presents. Only people who have a lot of money are not affected by this,” Estrada said.

But many Tijuanans crossing into San Diego on Thursday said the devaluation wouldn’t stop them from shopping in the United States, where they say the prices and quality of many items are still superior to those in Mexico.

The devaluation is expected to make many Mexican food staples whose prices are controlled by the government dramatically cheaper for dollar shoppers. In fact, past devaluations have led to hoarding of some Mexican supermarket items by U.S. shoppers.

But Lloyd Butler, a disabled veteran who is one of thousands of expatriate Americans living in the Tijuana area, doesn’t expect those costs to stay down for long. ‘They’ll jack the prices up in a week or two, just like they did the last time they had one of these.”

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The Peso’s Plunge

The Mexican peso lost more than 20% of its value Thursday, the largest drop against the dollar in a decade. Pesos per dollar:

Nov. 28: 3.448

Thursday, December 22: 4.80 (*)

* New York close

Source: TradeLine

- MAIN STORY: A1

- Q&A;: D3