Amid signs investors are running out of patience, the Mexican Stock Exchange and the peso were battered again Monday, continuing a slide that began last week.
Analysts here and in the United States said the tumbling stock market reflects the restlessness of those who kept their money in this country on the promise that the economy would have begun to recover by now.
"Investors have no compelling need or desire to be in Mexico," said Brian Barish, an analyst at Lazard Freres & Co. "People want out."
As a result, the Mexican Stock Exchange Index plunged 100.3 points, or 4.19%, to its lowest level in three months. It was the biggest single-session decline since Feb. 27, when the index dropped 6.85%.
Monday's trading accelerated the slippage that occurred last week, when the index tumbled a total of 122.64 points, or 4.88%.
The peso tumbled more than 10 centavos Monday to 6.4975 per dollar in its widely watched 48-hour contracts.
Monday's selloff took place amid rumors, denied by the central bank, that Bank of Mexico Governor Miguel Mancera had resigned. Traders said the rumor made a bad day on Mexico's financial markets worse.
Stocks were already falling on worries about the economy and expectations of a rise in interest rates during today's weekly central bank auction of T-bills, or cetes.
"A change in the central bank would be terrible. But that doesn't seem likely . . . and there's zero in terms of fundamentals that would cause people to get this nervous," said Gray Newman, an economist with James Capel.
Added analyst Barish, "There is no sense of panic."
After the peso plunged in December, officials implemented deep government spending cuts and a tight money policy, arguing that drastic measures would shorten the painful crisis. Finance Minister Guillermo Ortiz declared then that "during the second half of the year we should clearly start to see a turnaround."
But now, the third quarter has ended and recovery remains just a promise. The government's own figures show that unemployment continued to rise in July and that inflation was up again during the first two weeks of September, the most recent numbers available.
"Soon," President Ernesto Zedillo last week told a government-business Alliance for Economic Recovery, "our programs will bring real relief to those who have seen their potential for spending and investing closed off."
Government sources had said that Zedillo would announce details of an economic plan during a weekend meeting with industrialists in the Gulf of Mexico state of Veracruz. Instead, he reiterated his commitment to sound public financing, lower inflation and an exchange rate policy that encourages exports.
Such statements no longer satisfy investors expecting a strong government initiative in response to the economy's lackadaisical performance. Nor have they been impressed by programs such as the infrastructure fund announced last month to encourage recovery in the construction industry.
"What is Zedillo doing?" asked one Mexico City analyst. "We have not seen significant details of the [economic recovery] plan announced in May. Investors are wondering, 'How are they going to get themselves out of this?' "
Mexico has received high marks from the International Monetary Fund and the U.S. Treasury Department for meeting economic targets established as conditions of the $50-billion international bailout arranged in January. However, the severe measures taken to meet those targets have raised interest rates sharply, leaving many businesses and consumers unable to pay.
"Increases in non-performing loans continue to place a significant strain on the banking system," the U.S. Treasury told Congress in the latest monthly progress report on U.S. loans to Mexico. The report, released last week, estimated that 13% of loans owed to Mexican banks are in default.
Still, when interest rates fall, offering debtors some relief as they did last month, investors take their money out of the country, weakening the peso.
Dependence on high interest rates to maintain the currency's stability does not auger well for growth, and growth is what interests investors.
"Mexico has lost momentum," said a major institutional investor. "People are losing interest. It has become clear that it isn't going to get better quickly."
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The Bolsa, Hot and Not
The Mexican stock exchange's Bolsa index has started to fall again after recovering from last December's plunge in the peso. Weekly closes, except latest:
Source: Bloomberg Business News