Mexico growth pinch: Less expansion, weaker peso to affect border

by Diana Washington Valdez / El Paso Times
Posted: 12/30/2011 12:00:00 AM MST

Hundreds of businesses in Juarez have closed their doors this year,... (Special to the Times)«1»The Mexican economy will grow at a slower pace next year and the peso will continue to weaken slightly against the dollar, according to experts who also say the U.S. border will feel the effects.

Eight U.S. and Mexican economists who are surveyed each quarter by the University of Texas at El Paso predict that Mexico's economic output will grow 3.5 percent next year, which is down slightly from their third-quarter forecast of 3.6 percent.

"Likewise, the consensus forecast of total investment growth for 2012 was amended from 5.4 to 4.5 percent," the published forecast said. "In contrast, the outlook for government consumption growth in the upcoming election year was revised slightly upward to 3.0 percent."

As the United States' largest trade partner, Mexico's slow-growth trend is expected to have a mixed impact on the border region, including possibly a decline in U.S. retail sales because the peso will not buy as much at American stores.

Jose Contreras, a longtime businessman in Juárez, said Mexico needs to expand its exports to other countries in addition to the United States.

"The Mexican congress gets bogged down in politics and does not focus on solutions," Contreras said. "Mexico needs to adopt an export mentality. Like Brazil, it can make products and export them to all parts of the world."

Analysts at the Federal Reserve Bank of Dallas said in a report, "Mexico Rides Global Recovery but Still Faces Hurdles," that Mexico is affected by what goes on in the U.S. economy. The report was released this month.

"Significantly, Mexico's economy remains coupled to the U.S., which still suffers from uncomfortable slow growth even though demand for durable goods such as autos, home appliances, televisions and other consumer electronics led the Mexican manufacturing export rebound," the Federal Reserve report said.

In the aftermath of the U.S. recession, assembly plants or maquiladoras are not receiving as many work orders and therefore are not generating as many jobs as in previous years. "We have a great need for jobs, many jobs" said Consuelo Rentería, a Juárez resident and coordinator of a new program that hires people to do maintenance work throughout the city.

She said the program was recently launched by Chihuahua Gov. César Duarte and state congressman César Tapia.

"We have about 300 people, men and women, enrolled in the jobs program," Rentería said. "They are taught to paint homes and other small buildings, to remove debris from public areas and to do other odd jobs. For this, they receive a monthly salary of (about $230)."

According to the Mexican government, nearly 46 percent of the nation's population lives in poverty. The number of poor people jumped from 45.5 million in 2006 to 58 million in 2011.

The income threshold for poverty in Mexico is about $150 a month for a family of four. Juárez has Mexico's sixth-largest urban poor population, at 494,726 out of a total of 1.3 million people, or about 38 percent of the city's residents.

Rentería said fluctuations in the peso hurt low-income families the most.

"The peso is trading at 13 to the dollar, but as soon as we cross over to El Paso, it costs us 15 pesos to buy one dollar, and this means we can't buy as many things as before," she said.

The peso fell more than 14 percent in value against the dollar since July, reducing the purchasing power of Mexican citizens, while creating opportunities for others.

For example, Mexico's Banco Central credits a cheaper peso for a boost in remittances (money sent to Mexico by its citizens living abroad), which are a significant source of income for Mexico. The $1.9 billion in remittances for October reported by the central bank was a 10.4 percent increase over the same month last year.

Federal Reserve officials in a December report said that the peso weakened probably as "a result of 'flight to safety' amid the European debt crisis and global economic slowdown."

Jim Peach, an expert on the Mexican and border economies, said drug cartel violence also played a role in Mexico's economy. The effects have been more regional than national. Peach is a professor at New Mexico State University.

"Violence can affect tourism and investment, as we've seen in Juárez and other places," Peach said. "Drug cartel wars and gangs led to a rise in extortions and kidnappings for ransom, which forced many small businesses in border cities to close down or move."

Ironically, according to a Federal Reserve Bank of Dallas report, "Despite unprecedented drug cartel-related violence, particularly along the northern border, 42 percent of FDI (foreign direct investment) was channeled to states adjacent to the U.S.

"Five of the most violent states, Baja California, Chihuahua, Durango, Nuevo Leon and Tamaulipas, were among the country's top ten FDI recipients in 2010," the report said.

Contreras said security conditions for businesses in Juárez are starting to improve.

"Thanks to the governor's influence and advances in our city's law enforcement, some small businesses in Juárez are starting to reopen after they were shut down because of the extortions from organized crime. But this is happening very slowly."

Contreras echoed Consuelo Rentería's plea for investments to create more jobs.

"We need more entrepreneurs in Juárez with a vision for the city's future growth," he said. "We need jobs with better salaries."

Peach said structural reforms in Mexico's financial system have made it easier for the country to weather economic crises.

"It's not the same political cycle of the past, where the government went on a big spending spree every six years," said Peach, referring to the country's six-year presidential term and past major currency devaluations.

According to a study by Dover-Kohl, consultant for the city of El Paso, four factors drive El Paso's economy: the Juárez economy and its maquiladora industry; Fort Bliss; the U.S. national economy; and peso-dollar exchange rates.

El Paso Mayor John Cook, who remains optimistic about the region's short- and long-term future, said $70 billion worth of trade takes place between Juárez and El Paso each year. He said that's why reducing the wait times at the international bridges is the City Council's No. 1 priority.

"Because of just-in-time manufacturing, nobody wants to warehouse anymore," Cook said. "We are looking at implementing new technologies to facilitate trade transportation more efficiently, and as a way to reduce traffic congestion at the bridges."

Cook said the city is continuing to pursue a $140 million monorail system to transport goods across the border that tractor-trailers right now haul each day across the bridges.

The mayor and others recently traveled to Mexico City to discuss the project with high-level officials, and he is working to set up a meeting with Department of Homeland Security Secretary Janet Napolitano to gain her support.

"We already have the investors lined up to finance the project. This is a longer-term project, one we could see in about five years," Cook said.

Basic border improvements, which began under NAFTA- related programs, continue to arrive as investments in the future.

Earlier this month, the North American Development Bank announced a $549,488 grant to install 600 residential water hookups to Práxedis Guerrero, a poor village in the Valle de Juárez across the border from Fabens.

The village is about three miles east of the new Tornillo-Guadalupe international bridge project, which is near San Agustin, another village that Mexican developers said they plan to transform into an unprecedented border community of the future.

Diana Washington Valdez may be reached at dvaldez@elpasotimes.com; 546-6140.

The 2012 Mexico economy

The University of Texas at El Paso consensus forecast from a fourth-quarter survey of eight U.S. and Mexican economists:


Mexico's economic output will grow 3.5 percent next year instead of 3.6 percent.

The economy in Mexico grew 4.5 percent in the third quarter, up slightly from the second quarter.

The peso will continue depreciating, probably to an annual average exchange rate of 13.24 pesos to the dollar.

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