Weakened peso hits the Mexican border economy.

Weakened peso hits the Mexican border economy.

Tijuana : Mexico | Jan 20, 2009 at 4:58 PM PST
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With a strenghtened dollar that reached an exchange rate of more than 13 to 1 against the peso since early October, Baja has both celebrated and resented the hazy effects of worldwide economic recession.

Even with the aftermath of Barack Obama becoming America’s newly elected president, the tides of uncertainty have not cleared off, and change is not expected to happen anywhere soon, according to regional economic analysts.

“Here in Mexico affected businesses like real estate and tourism are aware that an upturn in the U.S. economy might no be expected until late 2009, and for its effects to impact the border region it might take until early 2010,” said Roberto Rudametkin, financial analyst for the entrepreneurial association Coparmex.

After a brief period during which tourists and expatriates saw their spending power enhanced with a weakened peso, the ups and downs of the Mexican economy have brought certain advantages and disadvantages to Americans.

“In México, people try to find safe haven under economic uncertainty, and their shelter is to invest in buying American dollars, and recent events like worlwide recession, the elections, devaluation and even the death of secretary Mouriño triggered panic among people,” said Rudametkin.

Exchange rates went from a record low of 10 to 1 in September to an ironic record high of over 13.50 pesos to one dollar a month later, which prompted the Bank of Mexico to take some action.

In early October, investors in government bonds called CETES sold these and made an exorbitant demand for dollars. The Bank announced that it would sell 400 million dollars per day after the 9th of October to stabilize currency exchange rates, which strenghtened the peso down to a current 12.50 to 1 rate.

However, a weakened peso had a mixed reaction in Mexico, as it does not represent a win-win situation for either this country or the United States.

Although Americans might think that their buying power might increase here, the effects of a weakened peso dry out many virtual advantages.

Take for example tourism. Although a weekend in Rosarito or dining out in Ensenada might seem more appealing with a stronger dollar for both restaurant owners and their American patrons, truth is that overall costs remain the same, given that many craft stores, hotels and restaurants’ prices are in U.S. dollars.

As the U.S. seeps deep into economic recession, Mexico has seen its tourism and manufacturing industries affected, local specialists explained. Hotels in hot tourist spots like Puerto Vallarta and Cabo are close to empty, and car manufacturing plants like Ford’s in Hermosillo, Sonora is meeting increased pressure, as Americans are buying an average 30 percent less cars, according to recent statistics.

“We are looking at quite a challenge given that the first thing that Americans are spending less in travel and leisure, but we are trying to counter that with promotion efforts in nearby California and special discounts for visitors, both Mexican and American, that hotels and other businesses have set up to attract more tourism to our state,” said José León Zumarán, Ensenada delegate for Baja’s State Tourism Office.

However, Rudametkin assured that although panic followed a quick increase in the peso-dollar exchange rate, it is likely that this is just a temporary economic storm and not a major devaluation. Cetes bonds in circulation amounted to over 30-thousand million dollars, while Mexico’s international reserves accounted for over 90-thousand million dollars, according to data analyzed by Rudametkin, so there is not enough pesos in the country to buy all circulating dollars, he said.

“What’s happening is that we’re somehow importing U.S. inflation at a 12 to 1 exchange rate, which is benefitting exporters and impacting importers, but this is going to be temporary, and exchange rates should be below 12 pesos again early next year,” said Rudametkin.

firefalcon is based in Ensenada, Baja California, Mexico, and is a Stringer on Allvoices.
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