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1. -El Codo- on February 27, 2009 5:25 PM

   Years ago Mexican merchants wern’t connected to the internet so retail prices lagged sometimes for months. Today even tiny corner markets react within days to raise peso prices to counteract a devaluation. Increases in price of course should be determined to what the market will bear but in Mexico merchants, storekeepers and hotels sometimes raise prices when business is bad. I keep my economic equalibrium by noting that almost everything in Mexico depends to some degree on the cost of transportation which means the price of gasoline and diesel.

   Mexican banks may inhibit purchasing pesos with dollars by instituting a lower maximum for dollar conversions. Sometimes the limit can sag to fifty dollars. Rural banks may not have access to wire service notification and so they may limit dollar peso conversions to an hour or two or refuse to purchase dollars altogether.

   I am shortly going to find myself in the position of having to deal with money conversion in the midst of an economic crisis. I plan on stopping at a bank before I get to the Mexican border. I will obtain dollars in the smallest denomination possible. For my needs, two-hundred dollars should tide me through the next week. I will continue on to the first convenient bank and then if possible cash my dollars for pesos. If the banks and ATM aren’t accepting dollars then I’ll hole-up for awhile until things settle down. That shouldn’t be longer than a day or two.

   Long ago I came to the conclusion that waiting for the peso to devalue “more” to obtain more for the dollar was foolish. For instance as of writing the Mexican Peso was selling just short of 15 to the dollar. Six months ago the peso was selling for 10 to the dollar. This sounds good for saving money but in fact gasoline, tolls, and market items have also inflated in peso terms. The actual savings due to devaluation is closer to twenty-percent. If a person were to travel to southern Mexico, Oaxaca and Chiapas, the savings would be around thirty-five percent but bear in mind that popular destinations like Oaxaca abd San Cristobal de Las Casas will be first in their state to endure inflation.

   Mexican treasury officials learned a brutal lesson during the sexenio of Carlos Salinas de Gotari, whose administration refused to value the peso in realistic terms. The crash devaluation of 22 December, 1994 ruined any chance of retaining a favorable legacy for the outgoing president and today he is regarded as an arch villain by most Mexicans.

   Forecast: As a student of the Mexican economy I am not optimistic. The peso is under siege and may drop to twenty-to-one against the dollar in the near future. One economic aspect that I’ve never really crunched is one where both the USA (indeed the world) and Mexico were in deep crisis together. For many years Mexico has alternately counted on oil production plus tourism, and manufacturing for foreign export to keep the economy in balance. Today, all of the foreign income has been just about curtailed yet the country must import basic grains and foodstuffs, plus a good portion of its Magna Sin gasoline and about all of its butane.

   Even the normally optimistic Mexican tourism bureau predicted that 2009 will see a fifty-percent drop. Border maquiladoras are manufacturing something like twenty-percent of what they did just two years ago. In Tijuana and Ensenada businessmen are wailing that their business is down some eighty-percent but border violence is probably responsible for most of that decline.

   Predictions are futile because of endless permutations that are possible with regard to outcome. I gave a figure of twenty-to-one as a possible figure for the peso. I did so because one of the most important actions of a treasury in trouble is to stem foreign debt (balance of payments) by continued devaluation of the peso. Chinese imports and American clothing and electronics would definetly be curtailed if they suddenly became three times as expensive.