Mexico's Plunging Peso
FOR Americans, a drop in the value of the Mexican peso against the dollar will mean better bargains in Tijuana or maybe a cut rate on a visit to Cancun.
But those who have invested heavily south of the border, perhaps through mutual funds, will find the roughly 40 percent drop in the peso's value since mid-December dampening their New Year's fiesta.
The United States has another reason to take notice of the financial turmoil of its No. 2 trading partner. The devaluation represents a ``no confidence vote'' on a Mexican economy that was assumed to be headed in the right direction. This is the kind of trouble Americans don't want to see on their southern border.
President Ernesto Zedillo Ponce de Leon, whose expertise is in economics, has been strangely silent on the slide. He may now speak Monday. His top economic advisers have been mum too. The theory seems to be that nothing should be said until a comprehensive, sure-fire economic recovery plan can be announced.
The peso was due for a devaluation. The question is why it fell further than anticipated. The approach of the first anniversary of the insurgency in Chiapas State has brought on fears of political instability. Reports that the government and Zapatista rebels will begin new talks should have a calming effect. Another theory holds that Mexican traders, who understand the underlying strengths of their economy, are on vacacion this week, while workaholic US traders, back from holiday weekends and hearing no assurances from Mexico City, are frantically trying to shed pesos.
The devaluation is likely to play into the ongoing debate over NAFTA, the trade agreement that is one year old Jan. 1. It will make Mexican imports cheaper and US exports more expensive and eventually move the trade balance in Mexico's favor.
The fundamental strength of the Mexican economy, and the bargains now available there to American investors, should begin to come into play to shore up the peso. But dealing with the damage inflicted on the Mexican economy will test Mr. Zedillo's leadership for some time to come.