Mexico Shrinks Its Import-Export Gap

Mexico’s trade deficit tumbled to a 21-month low in July as a booming U.S. economy fueled exports and moderate consumer spending limited imports.

The country had a $168-million trade gap in the month, down from $352 million in June and the smallest since October 1997. The deficit is also smaller than the $462-million deficit forecast by a Bloomberg News survey of economists.

“It seems like the export sector is still performing very well,” said Carl Ross, a Latin America economist with Bear, Stearns & Co. in New York. “The export story is still there.”

Exports surged 12% from July 1998 to $10.2 billion, and imports rose 3.5% to $10.4 billion. Mexican companies have exported at a record pace this year because of the booming U.S. economy.

Mexico sends about 80% of its exports to the U.S., which shows few signs of losing its appetite for Mexican goods as it extends a nine-year economic expansion. The attachment to the U.S. economy enabled Mexico to be the only major Latin American country to stave off recession late last year when a credit crunch hit the region.

And a stronger economy means a better credit rating, sparking talk that Mexico could be detaching itself from the rest of the region in the eyes of investors. Mexico’s debt yield spread of 658 basis points is the tightest of major Latin countries tracked by a J.P. Morgan & Co. bond index. What’s more, Moody’s just raised the country’s credit rating to BA1, one notch below investment grade.

“We now have to consider Mexico as very separate from the South American countries,” said Larry Krohn, chief Latin American economist at Donaldson, Lufkin & Jenrette in New York.

Many Mexican companies stepped up exports after the North American Free Trade Agreement, which lowered tariffs among the U.S., Mexico and Canada, took effect in 1994. A peso devaluation the following year forced many companies to boost exports to stay alive, and they continue to reap the benefit of earning in hard currency.

“It took us from 1994 until now to learn how to enter international markets,” said Ignacio Rivero, chief executive of chemical maker Tekchem. “Now we’re seeing the results of five years of learning.”

With double-digit export growth, Mexico’s trade deficit is on track to end the year at less than $6 billion, according to a central bank survey of economists.

July’s trade shortfall is less than one-fourth the $738-million deficit recorded a year ago.

Mexico’s export-assembly factories, know as maquiladoras, are pacing export growth, rising 11.5% from a year ago.