U.S. Crisis Unsettles Mexico

The U.S. crisis comes at a time when worries already exist over the state of the Mexican economy and the tax reform looming in the Mexican Congress, including a possible hike in the border region sales tax from its current 11 percent to 16 percent.

(LAS CRUCES, NM) - The partial shutdown of the U.S. government is unsettling the Mexican economy. As the crisis took shape last week, the Mexican peso dipped to 13.34 units per dollar, an amount which represented the second largest depreciation in 2013. The pending October 17 showdown over the U.S. debt limit is likewise contributing to the jitters, said Gabriela Siller, an analyst for Mexico-based Banco Base.

In the Mexico-U.S. border region, Mexican business leaders expressed worry that the political gridlock on the Potomac could deepen and trigger devastating consequences on the assembly-for-export, or maquiladora, industry. In Ciudad Juarez and other border cities, the foreign-owned maquiladora sector constitutes a dominant or major part of the economy.

Longer export times, reduced market demand and idled assembly lines are among the concerns voiced by Ciudad Juarez business representatives.

“The economy is flowing at the moment, but we don’t know how it is going to behave at the end of the year,” said Rodolfo Martinez Garza, president of the Association of Customs Agents in Ciudad Juarez.

Martinez added that the last quarter of the year is the biggest season of import-export activity, and that unstable economic circumstances could result in stagnation. “There is a lot of uncertainty for investment and this is very negative for Ciudad Juarez,” Martinez said.

According to Mexico’s National Council of the Maquiladora Industry and Export Manufacturing, any effects of the U.S. shutdown should be measurable in industrial production after October 20.

Thomas Fullerton, economist for the University of Texas at El Paso, said the impacts of the U.S. government shutdown on the maquildora industry- which also supports thousands of jobs in his city- could be worse than the previous one in 1995-96 because of the still-incomplete recovery from the 2008 economic crash.

In Ciudad Juarez, many business, community and political leaders oppose the sales tax hike and warn of an outflow of pesos to neighboring Texas and New Mexico, where sales taxes are much lower, if the Mexican Congress increases the tax this fall under the proposal advanced by the Pena Nieto administration.

This week, a coalition of popular organizations, tire and used car industry groups delivered at petition with 12,733 signatures against the sales tax hike to Congresswoman Martha Beatriz Cordoba. A member of the Citizen Movement party, Corboba has emerged as a leader against a higher tax.

The political turmoil and debates in both Washington and Mexico City occur at a moment when indicators reveal some adverse trends in the Mexican economy. On October 8, the International Monetary Fund projected that Mexico’s 2013 growth rate would be a mere 1.2 percent-far less than the growth in the 3 percent range widely predicted earlier in the year.

In the Latin American and Caribbean group of nations, Mexico’s growth performance puts it in the same general camp this year as Brazil, Venezuela and Jamaica.

Agustin de la Torre, chief economist for the World Bank, was surprised by the weak Mexican growth report.

“We do not have an easy explanation on why Mexico did not recuperate,” de la Torre said. “Without a doubt, there is an enormous contrast between the perception that investors have of Mexico in light of structural reforms on the one hand and the low growth this year on the other.”

In other news commanding attention, the Organization for Economic Cooperation and Development (OECD) announced this week that Mexico’s 3.5 percent annual inflation rate made the country the third highest in the category among member nations this year, after Turkey and Iceland. The OECD attributed the inflation to increased energy (7.1 percent) and food (4.0 percent) prices.

In continuing a policy of the Calderon administration, the government of President Enrique Pena Nieto has programmed a series of regular gasoline price increases.

OECD Secretary-General Angel Gurria, meanwhile, warned that Mexico and the other countries belonging to his organization will fall back into recession next year if the double threat of the U.S. government shut-down and debt ceiling is not resolved.

“The current political crisis in the U.S. is not only unnecessarily putting growth and stability at risk but also the entire world economy,” Gurria said.

Sources: Arrobajuarez, October 9, 2013. Nortedigital.com.mx, October 9, 2013. Article by Nancy Gonzalez Soto. El Diario de Juarez, October 8 and 9, 2013. Articles by news agencies and editorial staff. La Jornada, October 3, 9 and 10, 2013. Articles by Roberto Gonzalez Amador and Notimex.

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Center for Latin American and Border Studies
New Mexico State University
Las Cruces, New Mexico

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