Platform : Mexican Crisis or Russian Strife, Southern California Feels It : The Peso Crash: ‘Not a Happy Year’

The Mexican peso has dropped 35% in value against the dollar since Dec. 19, when that nation’s government began devaluing its currency in response to falling foreign reserves and a mounting trade deficit. Mexican President Ernesto Zedillo has announced a new economic plan calling for deep sacrifices that will likely affect many in Southern California. LORENZA MUNOZ talked to economic experts and to Mexican citizens living in Southern California about their perceptions of what the crisis means.

JEFFRY FRIEDEN

Professor of political science, UCLA; specializes in Latin American issues

The most obvious effect is that it raises the value of the dollar in Mexico. Dollars will buy more and pesos will buy less. Anybody in Mexico who buys imported goods will find them more expensive. The devaluation is likely to lead to higher rates of inflation and as imported goods become more expensive, the cost increases will probably be passed on.

With the pacto (the recent government-initiated agreement with business and labor leaders to limit wage and price hikes), Zedillo was trying to keep the effect of the devaluation on inflation to a minimum. But if wages are controlled and prices are going up, then (consumers) lose in real terms.

For Mexicans in the United States earning in dollars, the money they send home will be worth more to their families. If they go back to visit, then their money will also be worth more.

The devaluation is associated with a great deal of uncertainty, like the crises in 1982 and 1987. It is likely to have a recessionary effect. If that happens then unemployment will go up and the economy will stagnate. On the other hand, Mexican goods will be more competitive in Mexico and in foreign markets.

MANUEL PASTOR

Professor of economics Occidental College

The prediction is for a 14% increase in prices and a 10% increase in wages. But I think the 14% (prognosis) is probably unrealistic and it will actually be more. There is already a 50% increase in the price of imported products and some of that will get passed along (in consumer price increases). It’s not a happy year for Mexico. I think it will be one of the most difficult years Mexico has had because the expectations were so high.

ERNESTO RIVERA

Born in Guanajuato, Mexico, moved to L.A. 14 years ago

Prices have doubled in Mexico. Automatically the cost of everything rises with the dollar. It’s as if we were paying the cost at dollar prices, but we only have pesos. I don’t think too many people will immigrate here (because of the devaluation). Mexico has gone through this before and they have overcome the crisis. People come to this country because they have families here, not because the peso is worth less.

LALA SIMS

Born in Mexico City, moved to Los Angeles 11 years ago

I travel a lot to Mexico. The devaluation will affect me because I have money invested in Mexico, and now I have less. Also if they don’t control inflation, a hotel that normally costs you $80 a night will cost $150, so the higher value of the dollar is not even felt.

HECTOR GARCIA

Born in Michoacan, Mexico, moved to Los Angeles 13 years ago

I send money to Mexico, so my dollars will be worth more and that’s good. But things will get more expensive and that cancels out the dollar value. The money I send won’t be enough for anything.

My mother (in Mexico) is telling me that things are already much more expensive.