MEXICO’S FINANCIAL UPHEAVAL : Faced With a Big Bill : Earners of Pesos May Feel a Strong Pull to <i> el Norte</i>


Mario Zamorano has worked hard for the past two years as a computer systems manager at the Swedish-owned Industrias Ynos packaging plant here, earning higher wages and grabbing a bigger piece of the good life as a member of Tijuana’s swelling middle class.

But the 26-year-old college graduate from Los Mochis recently became an innocent victim of Mexico’s currency crisis: The peso devaluation has left him with roughly 40% less spending power in the region’s increasingly dollar-based economy.

Like many Tijuanans, Zamorano receives wages in pesos, but pays most of his financial obligations and buys many consumer goods in dollars.

“It disconcerts me and confuses me. There will be changes because of this, including cuts in spending. There won’t be so many trips to San Diego to buy things,” Zamorano said.


Zamorano faces a future of austerity and adjustment, as do hundreds of thousands of other Mexicans along the U.S.-Mexico border. Their lives and jobs are increasingly dependent on the dollar, and many must now reduce and rearrange their spending.

Ultimately, such prolonged hardships will likely translate--as in the past--into another spate of illegal immigration by Mexicans frustrated by financial instability at home and attracted by the new strength of dollar-based wages in el Norte , experts predict.

“Past devaluations have been a powerful inducement to migrate in the past and I would expect a devaluation of this magnitude would have at least as great an effect as the past ones,” said Wayne Cornelius, former head of UC San Diego’s U.S.-Mexico Studies Center and a specialist on immigration issues.

The difficulties of people like Zamorano are spilling over into other arenas of the economy--even to maquiladoras, the foreign-owned assembly plants in Mexico that stand to gain from a suddenly cheaper source of labor.



Such factories are in a “sticky situation,” because of pressure from investors to restrain wages, said Alfred Rich, Zamorano’s boss at Industrias Ynos and chairman of the Western Maquiladora Trade Assn. Maquiladoras will raise wages 7%--the maximum allowed by the Mexican government--but obviously not enough to compensate employees for the peso’s fall.

“We have to take care of our two stake holders: our investors who want more return on their investment and our employees who obviously don’t want their standard of living to be reduced,” Rich said.

Meanwhile, U.S. border businesses are already taking a hit. Retailers from San Diego to El Paso are reporting declines in sales to the Mexican consumers they have come to depend on.


Such as Zamorano. With his monthly rent now 1,200 pesos--up from 800 pesos last month, because it takes that many more to equal the $235 that his landlord demands--he is cutting back on weekly shopping trips across the border to buy gasoline, groceries and clothes with dollars.

Nor is this a nickel-and-dime matter. San Diego County firms alone sold an estimated $2.6 billion worth of goods and services to Tijuana residents last year. Those spending levels are sure to decline, said Chuck Nathanson, director of San Diego Dialogue, a UC San Diego research group that focuses on the border economy.

In El Paso, where about 40% of all locally produced goods and services are bought by residents of the Ciudad Juarez area, retailers are already feeling the pinch. “It’s volatile and people are just holding on to their money until they see what happens,” said Kathryn Lawrence, director of international marketing at the El Paso Chamber of Commerce.

In Nogales, Ariz., Mexican shoppers have all but disappeared since the devaluation hit two weeks ago, said Alex Kory, owner of Alexander’s men’s specialty shop.


“You could take a bowling ball and roll it down the middle of the streets here. Our retail sales have gone down to zero. Mexicans are in a state of political as well as economic confusion,” Kory said.

It was a different story until two weeks ago. Armed with a strong peso, Mexicans had developed an enormous appetite for imported goods, which the Mexican government encouraged by lowering trade barriers and signing the North American Free Trade Agreement in late 1993.

Even before the peso strengthened in the late 1980s, Tijuanans were in the habit of conducting major transactions in dollars, whether they were paying the rent, hiring a plumber or buying a computer. Fast-growing Tijuana has always been a seller’s market--and sellers, especially since the devastating 1982 devaluation, have insisted on dollars for what consumers wanted most: U.S goods and services.

Tijuana landlords could demand rents in dollars because a severe housing shortage put them in the driver’s seat. The shortage was exacerbated by growing employment, now exceeding 70,000, at the city’s maquiladoras. Those jobs attracted young professionals such as Zamorano, as well as poor, unskilled workers who migrated to Tijuana from Mexico’s interior.


And paying in dollars was no problem for Tijuanans--as long as the peso remained strong and stable. Now, those goods and services are suddenly more expensive and Zamorano and others must either find Mexican-made substitutes, negotiate or economize.

Or leave. But for his part, Zamorano said he has no intention of going north.

“Everything I need is right here,” Zamorano said in an interview at his plant east of downtown Tijuana. Moreover, his work specialty and advanced education would mean a loss of income unless he had a work permit. He has no practical choice but to wait things out and hope that the peso stabilizes or gains strength.

In the meantime, he has canceled plans to buy a new television and a set of tires. And he’s negotiating with his landlord. “I’ve talked to him and he said he will make an adjustment. Until he does, I’m not going to pay the rent,” Zamorano said.



Continuing to Tumble

After gaining a little on Thursday, the Mexican peso fell again Friday. Pesos per dollar, daily closes since Dec. 19:

Dec. 19: 3.46


Friday: 5.65

Source: TradeLine