Mexico Girds for Impact of Asian Trade

After the peso collapsed in the 1994-95 financial crisis, Mexican exports soared, forming the backbone of an impressive recovery. Now the specter of just such an export boom from crisis-bound Asia has given Mexican government and business leaders something new to worry about--a prospective flood of cheap Asian imports and an export slowdown.

Largely in response to such fears, the Mexican stock market--one of the world’s best performers last year--has fallen 13% since Jan. 1 as investors anticipate tougher conditions. The peso has weakened by nearly 5%.

President Ernesto Zedillo this week warned that Mexican firms will face greater competition from Asian nations whose currencies have weakened dramatically, allowing them to sell their products at lower prices.

“Recent events lead us to expect, let us admit, more difficult international competition during the coming months,” Zedillo said at a ceremony honoring export leaders.

At this point, the threat seems modest against the gains of 1997. Hector Chavez, director of analysis for Santander Investments, said the recent declines of the peso and the Bolsa--the Mexican stock exchange--”reflect a change of expectations from the beginning of the year--from very good to good.”

Still, the government is vigilant. Commerce Secretary Herminio Blanco told an industrial conference in Guadalajara this week that Mexico had established a monitoring system to guard against improper Asian imports.

Mexico’s electronics and textile industries would likely be hardest hit as cheaper Asian products compete for U.S. market share and even for the domestic market, said Jorge Escamez Ferreiro, president of the National Chamber of Export Commerce. He predicted that Mexican exports would rise between 10% and 12% this year, versus the 15% jump of 1997.

Mexico’s electronics factories are heavily concentrated along the U.S. border and especially in Baja California.

The nation achieved economic growth approaching 7.5% in 1997 thanks to strict austerity measures and economic restructuring that followed the 1994-95 crisis. Exports have risen 127% over the last four years to top $110 billion in 1997. The growth rate was the country’s highest since 1981.

But Central Bank Gov. Guillermo Ortiz said this week that the uncertain Asian scenario is one factor in the slight reduction of Mexico’s projected 1998 growth rate from 5.2% to 5%. He said first-half growth would stay strong thanks to the momentum built up in 1997, although the forecast for the latter part of the year is less certain.

Ortiz added that he expects the nation’s current-account deficit to rise to about 3% of Mexico’s gross domestic product, double the percentage of 1997. He attributed the increase to the combination of an expected export slowdown, sharply falling oil prices and higher imports.

To keep the recent oil price slide from further aggravating the current-account deficit, newly appointed Finance Minister Jose Angel Gurria on Jan. 14 abruptly slashed government spending for 1998 by about 1.7%.

Most analysts welcomed that step as a clear sign that Mexico would tackle any threat to its robust recovery head-on, even if it means cutting services for citizens who have already been punished by austerity programs since the crisis.

Consumer demand has finally begun to revive, and that has encouraged more imports of capital and consumer goods, the major factor in an unexpected surge in the commercial deficit to $722 million in December.

The peso firmed slightly Friday to 8.475 to the U.S. dollar, but has remained volatile.

The stock market rose sharply at the end of trade Friday, with the Bolsa index gaining 2% to 4,569.36. But after last year’s relentless 55.6% rise, the Bolsa has declined steadily despite generally strong earnings by Mexican firms.

Robert Randolph in The Times’ Mexico City bureau contributed to this report.