Blue Christmas : Mexico’s Dark Economic Skies Cast a Cloud Over Shoppers

The Christmas season is in full swing here, but excuse retired nurse Clemencia Cuenca for not feeling festive. She’s seen Mexico’s nearly 50% annual inflation rate slash the value of her pension and the peso’s devaluation push the cost of gift items such as imported toys and perfume out of reach.

As she window-shopped this month in Mexico City’s crowded central district, Cuenca said she would spend half as much on gifts this year as last--not so much because of what has happened, but out of fear that worse times lie ahead.

“There is a horrible uncertainty. Things have gotten worse and worse, and you don’t see any reason for them to get better,” Cuenca said of Mexico’s economic crisis, the deepest since the 1930s.

The uncertainty has cast a heavy pall over the Christmas season. The holidays, traditionally a period of frenetic shopping by Mexicans rich and poor, this year mark the one-year anniversary of the country’s shattering currency devaluation.

A steep drop-off in consumer spending is the main reason Mexico’s economy--the sum total of goods and services--is expected to shrink by about 7% in 1995 compared with last year, said Jeffry Taylor, senior Latin American investment strategist at Bear, Stearns & Co.

Feeling the brunt of shoppers’ frustration and uncertainty are retailers, whose sales of items from cars and compact discs to clothing and wine have fallen sharply from last year. Thousands of Mexico’s store owners have gone broke trying to sell goods no one can afford.

“Sales are going bad. When people come in to shop, they all say the same thing: ‘It’s too expensive,’ and they blame me. They don’t realize my costs are up 100%,” said Antonio Alvarez, owner of Compania Jugetera Cobre, a toy store in the central district.

And high prices and diminished spending power aren’t the only dampeners: Credit card interest rates are 75% and higher, meaning few can afford to buy gifts now and pay later.

Nearly all shoppers--whether interviewed in the downtown district frequented by the hard-pressed masses or at the swank Centro Santa Fe shopping mall peopled by Mexico City’s wealthy--say they are cutting back on Christmas gifts, explaining that they may need all the resources they can muster in the months ahead.

Most Mexican consumers are already coping with severely reduced means. While the annual inflation rate has been nearly 50%, average wages have gone up only 16%, meaning most Mexicans lost a third of their purchasing power. Anyone with debt was further hurt by interest rates that doubled or even tripled over the last 12 months. About 43 of every 100 credit cardholders in Mexico missed their October payments.

“I was going to buy a car this year, and I couldn’t. I feel sad about working hard and not meeting our objectives,” said civil engineer Rafael Arguelles, who was shopping with his family at Centro Santa Fe.

Added his wife, Elsa: “You get depressed because you don’t have enough to get by on.”

The government reports that retail sales overall are down 20% so far in 1995. Shoe sales, for example, are down 30% from last year; clothing, down 50%; compact disc sales, off 50%; and wine sales, down 30%.

But some categories, particularly those of “big ticket” items that require financing, are suffering even more. New car sales, for example, are down 73%, analyst Taylor said.

“Sales of durable goods have really plummeted because credit isn’t being extended and people’s confidence is not there,” he said.

“I feel resigned. I have to work a lot more for the same things. Blue jeans cost twice as many pesos. Gasoline is so high that it makes it difficult to go anywhere in the car,” said Enrique Yanez, a restaurant manager interviewed at Centro Santa Fe.

Peter Treadway, Latin American strategist for the Smith Barney investment firm in New York, said the effect on Mexican consumers is hard to overestimate, both for the individuals and the economy as a whole.

“Mexico is in what I would call a depression, and the consumer is the No. 1 victim,” Treadway said. “It will be years before consumers feel as wealthy as they did in 1994.”

Although much is made of how some Mexican exporters have seen sales boom, Treadway emphasized that internal consumption accounts for two-thirds of Mexico’s economy.

To top off traditional retailers’ problems, many are losing huge amounts of business to Mexico City’s hordes of ambulantes, sidewalk vendors who sell often-illicit goods at cut-rate prices, clogging streets in many areas of the city and outraging shopkeepers. As Mexico’s economic problems have mounted, the ambulantes have proliferated.

Although such selling is illegal in most parts of the city, authorities often turn a blind eye in many well-traveled areas during this, Mexico’s season of hard times.

Said Pedro Castro, a laboratory worker, stepping among the ambulantes on a sidewalk close to Mexico City’s zocalo, or central square: “It produces a sadness when you hear all the talk of [holiday] parties and you have to struggle just to make it. What I earn will be going to pay off what I owe.”

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