[IWAR] MEXICO peso devaluation possible

From: 7Pillars Partners (partnersat_private)
Date: Thu Jan 29 1998 - 12:19:21 PST

  • Next message: 7Pillars Partners: "[IWAR] INTERNET AOL under attack by hackers"

    Posted at 9:48 p.m. PST Wednesday, January 28, 1998 
       
                   Peso may have to be devalued, Mexican officials say
                                            
       The Dallas Morning News
       
       MONTERREY, Mexico -- Devaluacion.
       
       Just the mention of the ``d'' word, which means devaluation in Spanish,
       is enough to scare millions of Mexicans.
       
       But in the last two days, two high-ranking government officials have
       said that the peso may have to be devalued in response to the fiscal
       crisis in Asia and falling oil prices.
       
       The first direct warning came Tuesday from Jose Sidaoui, vice-governor
       of the Bank of Mexico, the country's central bank.
       
       ``If we don't work hard to and increase our productivity, the adverse
       international conditions could cause a depreciation of the peso. It's a
       possibility that cannot be ruled out,'' Sidaoui said in a radio
       interview.
       
       On Wednesday, Herminio Blanco, minister of commerce and industrial
       development, went a step further, saying in a public forum that Mexico
       would take preventive measures to offset a major devaluation.
       
       ``The reduction in government spending will help us,'' minimize the
       impact, Blanco said. Two weeks ago, the government announced a $2
       billion cut in public spending in response to the drop in oil prices.
       
       The fall of the Asian currencies means that those countries will be more
       competitive in the international market and that cheap Asian products
       may invade the Mexican market, weakening the peso, the officials said.
       
       Blanco said that, if necessary, the Mexican government is prepared to
       monitor and control Asian imports to prevent unfair competition.
       
       Neither Sidaoui nor Blanco said how much the peso might be devalued.
       
       In recent weeks, however, the Mexican currency has consistently dropped
       in value. On Jan. 1, the peso traded at 8.05 to the dollar. On Wednesday
       it traded at 8.36 to one, a loss of 31 centavos, or 3.8 percent of its
       value, in four weeks.
       
       The Mexican stock market has hardly fared better. On Wednesday, the
       Bolsa closed at 4546.33 for a loss of 37.16 points, or 0.81 percent, for
       the day. Since Jan. 2, the first trading day of this year, the market
       has fallen 12.63 percent.
       
       The current peso devaluation warnings from Sidoui and Blanco are a sharp
       contrast to December 1994, when the administration of President Ernesto
       Zedillo, who had been in office for less than three weeks, insisted
       until the last minute that the currency was in no danger of falling.
       
       The 1994 devaluation was triggered by a series of political events,
       mainly the assassination in March of that year of presidential candidate
       Luis Donaldo Colosio. In the nine months following the assassination,
       nearly $20 billion in capital was sent out of the country due to
       political uncertainty.
       
       The devaluation in turn triggered a five-quarter recession, the deepest
       in Mexico's modern history. More than 1 million people lost their jobs,
       and interest rates on consumer goods skyrocketed from an average of 18
       percent to 110 percent. To top it off, hundreds of thousands of people
       defaulted on loans, forcing the government to implement the biggest
       banking bailout in the country's history.
       
       Ordinary citizens like Gina Cantu believe that if the peso is devalued
       again, the consequences won't be as drastic as in 1994.
       
       ``Three years ago people panicked because they had been told all along
       that everything was OK and that they should't worry about anything,''
       said Cantu, who works at a bank in Monterrey.
       
       ``I think the government learned its lesson and is telling us to prepare
       for a devaluation just in case there is one,'' she said. ``I don't think
       that those who have money are going to rush to buy dollars and provoke
       another stampede.''
    



    This archive was generated by hypermail 2b30 : Fri Apr 13 2001 - 13:03:32 PDT