Devalued Peso Draws US Business, Tourists
THINGS aren't all bad for Mexico: Nike Inc. has just announced it will start making shoes here this year.
The Beaverton, Ore., athletic-gear giant says a 40 percent devaluation in the peso will prompt it to shift some shoe manufacturing south of the border. The company says it wants to take advantage of the drop in Mexican production costs.
American consumers might assume that the only change Nike's decision means for them is a switch from the ``Made in Taiwan'' label on their cross-trainers. But it could also signal that President Ernesto Zedillo Ponce de Les emergency economic plan is having some of its desired effect: boosting domestic output and favoring exports while discouraging imports.
That would mean a more stable Mexico with more jobs. And that would affect the United States in areas ranging from illegal immigration - most experts expect it to grow in the short term, but job growth would relieve the principal reason for it - to transborder commerce.
After falling 13 percent in two days, the Mexican stock market rebounded a bit on Wednesday. The market fell apparently out of fear about the country's liquidity and mistrust of Mr. Zedillo's ability to make his emergency plan stick. Attention has been on immediate aspects of this financial crisis.
With more than $600 million of the bonds Mexico uses to finance its short-term debt coming due this week, the Bank of Mexico was forced to raise interest rates on the bonds to record-high levels in an attempt to draw investors to new issues. Even that step failed, and only about 20 percent of a Tuesday offering of $400 million in ``Tesebonos'' was sold.
Mexico's uncertain financial future caused a panic among both national and foreign investors, who pulled out of the Mexican stock market in droves. The exodus sent a wave of panic across Latin America, pushing down markets from Santiago, Chile, to Sao Paulo in Brazil, to Buenos Aires in Argentina, before rebounding Wednesday.
Many analysts say Mexico's stock crash reflects an unwarranted degree of pessimism about the country. But some say investors aren't likely to return in appreciable numbers soon, complicating an economic recovery.
BUT foreign tourists, especially those from the US and Canada, are expected to begin arriving here in greater numbers. With the peso taking such a steep dive, Mexico's beaches and cultural attractions look all the more attractive.
``If it's snowing when I get home, I may just pick up my paycheck and head right back down here,'' says Nigel Strike, a Vancouver aluminum-gutter installer, who is enjoying the sun in the colonial city of Guanajuato, north of Mexico City. Mexico's tourism secretariat estimates that tourists arriving from the US alone will increase 9 percent to 7.6 million.
Mr. Strike says his unexpectedly cheap vacation almost allowed him to go home with pockets of cash - until he blew much of what he had left on an expensive dinner for his Mexican hosts. That's the kind of talk Mexico's tourist industry will want to hear this year, especially since the industry depends equally on foreign and domestic travelers.
Mexican consumers, above all the middle class that has grown over recent years, will be hard hit. The government predicts that consumption will drop by more than 4 percent, with purchasing power sliding more than 7 percent. Many analysts say they find even those figures too optimistic.
As for inflation, the government predicts it will hit 19 percent. But with everyday consumer items already jumping up in price (the price of milk soared 15 percent this week), doubt is growing about the government's ability to keep inflation where it says it will. The price of many imported products, which prospering Mexicans had flocked to in recent years, is already up 30 percent.
Charles Griffith, president of the American Chamber of Commerce of Mexico here, says inflation could run closer to 30 percent. That might make middle- class workers demand more than the government's 7 to 10 percent annual-wage increase target.
In an ominous sign, the Mexican Federation of Workers (CTM) this week issued a statement to its locals advising them to seek 15 percent to 56 percent salary increases in negotiations.