Would-Be Mexican Resort Languishes in Wake of Peso’s Dive : Development: Ambitious plans for coastal Huatulco were put on hold as funding dried up, but residents and local business people remain optimistic.

If Purgatory and paradise converged, it might look like this 22-mile swath of nearly virgin Pacific Coast.

Rusting beams jut from concrete skeletons on cliffs and near beaches, gray hulls of what were to be luxury villas, palm tree-ringed hotels and Jacuzzi-laced condos.

The view through unfinished bay windows, though, needs no completion: pristine beaches necklaced by blue surf and wave-smashed boulders, jungle trees and cacti, fishing boats plying azure waters.

Six months into Mexico’s economic crisis, million-dollar vistas are far more plentiful than buyers in the coastal region of Huatulco (pronounced wah-TOOL-koh), the government’s biggest resort project since it carved Cancun from jungle 25 years ago.

Construction loans have withered, investors have balked and soaring inflation and taxes have pushed businesses to the brink.

“The reality is what you see,” said Juan Maurer, a developer whose construction company had 300 workers at the height of the 1980s building boom. “Everything has stopped.”

Yet Huatulco, one of the most spectacular of Mexico’s remaining coasts targeted by developers, is not just another victim of zealous boom overtaken by economic bust.

A tenacious optimism persists among local residents and business people, hopeful that tourism’s ship will come in before creditors come calling. Maurer and other developers are pursuing construction of some villas and other projects--largely without help from banks.

“In the U.S. they say Mexico is down. But it is not real,” said Rogelio Marruffo Rodriguez, an accountant whose clients include local businesses struggling to survive. “We think our life here at this moment is better than people who don’t have [anything].”

That hope, in part, reflects the rapid changes wrought by progress. Little more than 10 years ago, this region southwest of Acapulco was a wilderness lacking electricity, water lines, phones and sewers. The few local families subsisted on fishing and farming.

Then the National Trust for Tourism Development, known by its Mexican acronym, Fonatur, undertook a project to turn the area’s fish-laden bays and jungled cliffs into a resort wooing 800,000 tourists a year.

The idea was to bring wealth and work to the coast of Oaxaca, one of Mexico’s poorest states.

Moreover, Huatulco was to be a showcase, proof of the government’s ability to create jobs and preserve the environment. It was to be Cancun without the high-rises, Acapulco without the pollution.

The work transformed Huatulco. The government built a sewage plant, cut new roads through the jungle and widened old ones. Big-name hotel chains, including Holiday Inn and Sheraton, opened establishments. Flea markets sprouted for peddlers of tourist souvenirs and handicrafts.

Middle-class residents borrowed heavily from banks to break ground on dozens of small hotels and restaurants.

Then came December, 1994, and the plunge in the peso’s value. The government raised interest rates as high as 100% in a vain attempt to dissuade foreign investors from fleeing. It increased the sales tax 50%. Inflation soared as the cost of imports skyrocketed.

“We thought it was an opportunity. We thought it was a good investment,” said hotelier Maria del Carmen Perez, who borrowed heavily from banks. Now she cannot afford to finish the remaining four of 12 rooms in the small Hotel Posava Chahue that she owns with her husband. The loan famine also stymied plans to build a swimming pool and 30 more rooms.

“Now we only have enough to eat, and that’s all,” she said.

Interest rates have dropped somewhat in recent weeks, providing some relief. But problems remain.

Frames of unfinished hotels and restaurants line the streets. Money is in short supply for advertising in the United States and elsewhere. It is hard to find Huatulco touted in American newspapers.

Tourists who do come to Huatulco rave about the natural beauty, the snorkeling, deep-sea fishing and horseback tours. But they gripe about the night life--there is none.

“If I were to rank my time there on a scale from one to 10, my days were a 10, but my nights were a three or a four,” said David Lin, 28, a New York doctor who vacationed here in April.

Maurer, the local developer, is optimistic. He said the currency crisis has depressed land prices to levels that are renewing foreign investor interest.

He plans to hire up to 100 workers after lining up a French investor to fund construction of nine luxury cliff-side villas, with expected sale prices of $500,000 each.

Nonetheless, the investment climate remains uncertain. Fonatur still hopes to expand the current 1,800 hotel rooms to 26,000.

“It will take more time--maybe 10 years,” said agency spokeswoman Martha Figueroa. “If not for the economic crisis, it would maybe be five years.”

“You have to change the way you work,” Maurer said. “Our goal now is to convince the American people it’s the moment to gamble in Mexico.”