Global economic convulsions sent the value of the Mexican peso in relation to the US dollar plummeting to new lows this week. In some areas of the borderlands and in the Mexican interior, the value of the peso briefly dived from about 10 to 14 or 17 to the dollar-a drop comparable to or greater than the 1994 peso devaluation. The dramatic hit to the peso, which had been so strong against the dollar in recent months that talk of the “super peso” reemerged, will have significant effects on the US-Mexico border economy.

For starters, Mexican money exchange houses saw business evaporate this week. “There are no retail sales,” shrugged an employee of a money exchange outlet in Nuevo Laredo, Tamaulipas. “Sales plunged because we do not have any buyers.”

In Matamoros, Tamaulipas, the former president of the an association of money exchange outlets in the border city reported business was down 30 percent.

“We know this is not exclusive to Mexico, that it is a world crisis,” said Genaro Alonso Tavera.

The sudden shift in exchange rates began to be noticed in the flow of two-way traffic between Mexico and the United States. Traffic lines to the United States, where the price of dollars had soared, were visibly shorter at the international crossings leading from the Tamaulipas border cities of Matamoros, Reynosa and Nuevo Laredo.

On the US side, merchants in Laredo, Texas, worried that Mexican customers who keep them in business would cut back on shopping. The scenario facing Laredo businesses is similar in other US border cities where Mexican shoppers usually keep the economy humming.

The peso’s downturn is also bad news for private Mexican businesses and public institutions that have their debts in dollars.

On the other hand, some Mexican border businesses could benefit from the peso plunge. Longer lines at Matamoros gasoline stations were already reported as Mexican fuel became a bigger bargain.

Jose Luis Garcia Arenas, president of the money exchange branch of the Ciudad Juarez Chamber of Commerce, urged calm and predicted the exchange situation as well as the Mexican economy would stabilize.

To halt the wild downward spiral in the peso’s value, the official Bank of Mexico began making more dollars available for purchase this week. It was the first time Mexico’s central bank was forced to step in to prop up the peso since 1998.

According to Mexican economist Rogelio Ramirez, US and international economic indicators made the peso’s slide virtually inevitable. “What changed wasn’t reality but the government’s recognition of reality,”
Ramirez said.

Despite the Bank of Mexico’s intervention, the peso continued showing weakness as the week drew near an end. On Thursday, October 9, banks in Ciudad Juarez across from El Paso, Texas, finished the day paying 12.29 pesos for each dollar and selling 12.96 pesos for each dollar. Rates at money exchange outlets were slightly better for dollar seekers.

Gerardo Esquivel, an analyst with the College of Mexico, said decreasing migrant dollar remittances and declining prices for oil, Mexico’s principal export, were likely to affect the peso for some time.

“It’s possible to conclude that the Mexican peso will tend to stabilize in the near future at a level greater than it had shown in recent months, but less than the panic levels and nervousness we’ve observed in recent days,”
Esquivel said.

***

Sources:
-- Norte, October 8 and 9, 2008. Articles by Antonio Rebolledo.
-- Enlineadirecta.info, October 8 and 9, 2008. Articles by Gaston Monge, Hugo Reyna and Federico Zuniga Garcia.
-- Diario de Juarez, October 9, 2008.
-- Univision, October 9, 2008.
-- La Jornada, October 9, 2008. Articles by Juan Antonio Zuniga and the Notimex news agency.
-- El Universal, October 9, 2008. Article by Gerardo Esquivel.

Frontera NorteSur (FNS): on-line, U.S.-Mexico border news Center for Latin American and Border Studies New Mexico State University Las Cruces, New Mexico

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