Sunday, October 12, 2008

Mexico feels our fiscal pain

By Chris Hawley, USA TODAY

NUEVO LAREDO, Mexico — Economists have their numbers, and taco vendor Jorge Flores has his.
From a half-empty parking lot at an industrial park, Flores measures Mexico's economic health in terms of steaming hot tacos, orange sodas and scoops of fiery green salsa. And the taco index is looking shaky.

"I used to come here with 300 tacos and sell them all before noon. Now I sell 180 in the same time," he says, pointing out factories that have cut hours, stopped overtime and frozen hiring. "I don't even come here on weekends anymore."

Like many Mexicans, Flores fears that the U.S. economic crisis is beginning to spill over to Mexico, the United States' biggest trading partner after Canada and China. Migrants are sending home less money, banks are tightening their lending, and U.S. consumers are buying fewer cars, televisions and other Mexican-made products.

"It would be a delusion to say we won't suffer some consequences of this great crisis," Mexican Treasury Secretary Agustín Carstens said in a speech last week. "Exports, tourism and (migrant) remittances are all going to feel the effects of this phenomenon."

Signs of trouble:
• Manufacturing exports to the United States dropped 3.8% in August, compared with the previous year, and that was before the U.S. stock market took a nose dive in September. Automakers were hardest hit, reporting a 13% decline in exports to the United States, according to Mexico's National Institute of Statistics, Geography and Information Processing.
• Consumer confidence since July is the lowest in at least six years, according to the Bank of Mexico's monthly survey.
• Mexico's IPC stock index declined almost 28% since May.
• Migrants sent home 12% less money in August compared with a year ago, the largest drop on record, the Bank of Mexico says. These remittances are Mexico's second-biggest source of foreign income, after oil sales, and totaled $1.9 billion in August.

Playing it safe
In Nuevo Laredo, on the border with Texas and the crossing point for 40% of all U.S.-Mexican trade, everybody from shipping agents to machinery makers are getting ready for a slowdown.

Trucks rolling into Mexico with U.S. goods or raw materials for factories are down to 4,000 a day from 5,000, says Fabian González, a Mexican customs supervisor.

Nuevo Laredo Mayor Ramón Garza says the decline is costing his city millions of dollars in customs duties that the Mexican Treasury Department shares with local governments.

At Herrajes Méxicanos, a metalworking company that supplies parts for factories, manager Ramón Baez says he cut his staff to 25 from 40 because of a recent 40% drop in sales.

One of his best customers is an electronics maker that buys metal weights to put inside telephone handsets. The client used to buy 70,000 weights a week, but now purchases only 10,000.

"All of my regular clients have lowered their orders," Baez says. "Everyone's waiting for the market to calm down."

In many ways, Mexico is still better off than the United States.
"Usually the people say that when the United States catches a cold, Mexico gets pneumonia. But this is not exactly the case today," President Felipe Calderón told a group of New York financiers last month. "Our country is now better prepared to mitigate the negative effects."

The government says Mexico is safe from a credit meltdown like that plaguing U.S. markets because of careful lending and tight banking rules put into place after Mexico's financial crash in the mid-1990s.

Bad mortgages are less of a problem, too, the International Monetary Fund said in an April study. Millions of Mexicans still build their homes one room at a time, buying blocks and mortar whenever they save the cash. Others buy houses through government mortgages guaranteed by contributions deducted from workers' paychecks. Private lenders, like banks, account for only one-third of mortgages.

The peso has remained strong between 10 and 11 to the dollar. The government is less dependent on foreign lenders, after reducing its foreign debt to 5% of gross domestic product over the last decade, from 40%.
What really worries business leaders is not a financial implosion, but less consumption — as average Americans and Mexicans get nervous about spending money, says Miguel Marón Manzur, president of Mexico's National Chamber of Manufacturers. "That is something that is going to be reflected in the entire exporting sector," he says.

That's bad news for border cities, which are already wrestling with a drop in cross-border tourism because of crime.

Silver lining
Still, Garza, the Nuevo Laredo mayor, and others say there may be a silver lining to the economic crisis, at least for Mexico.

A prolonged U.S. slump could eventually prompt American companies to move more work to Mexico to save costs, says Jaime Loera, president of the Nuevo Laredo Manufacturers Association. High fuel costs make it more expensive to ship goods from China, making Mexico more competitive, he says.
Much depends on how quickly the U.S. economy bounces back, says Carlos Montoya, managing director of another industrial park here. So far, no companies in his park have closed factories or canceled deals.

"There could be a drop, but I think we wouldn't see it until next year or so," he says. "It all depends on the duration of this situation we're living through."
Hawley is Latin America correspondent for USA TODAY and The Arizona Republic
Submitted by: dallas647

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