| | |  Travel & Outdoors | August 2008 
Weakening Dollar Losing Buying Power in Mexico
 Chris Hawley - Arizona Republic
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 |  | People get really upset when they come here and you can only give them 9.8 pesos for a dollar now. It was above 10 for so long that people got used to it.
- Dayami Aguilar |  | | | |
Mexico City - Adios, Cancun?
The plunging U.S. dollar already has forced many Americans to give up vacations in Europe. Now, the dollar has lost a tenth of its value against the Mexican peso since January, meaning that beach trips to Acapulco, Puerto Vallarta and other sunny points south of the border are quickly becoming more expensive, too.
The dollar's value had been stable for years in Mexico, even as it fell against other currencies like the euro. But on Monday, after months of steady decline, it hit a six-year low of 9.67 pesos. Although it had recovered slightly by Wednesday, the dollar's continuing weakness could have an effect on tourism, migrants and the $347 billion in trade between the two countries.
"We stopped going to Europe because of the falling dollar," said tourist Ronald Scott Braithwaite of New Haven, Conn., as he visited Mexico City's Metropolitan Cathedral with his wife. "Maybe if the dollar keeps going down we won't be able to come here, either."
The sagging exchange rate means American retirees in Mexico have to pay more for rent and migrants can't send back as much money to their families. Tourists also get fewer pesos per dollar at the ATM, and labor costs for U.S.-owned manufacturing plants have gone up. Eventually, the cost of Mexican fruits and vegetables could rise.
Because of the weaker dollar, an American retiree renting a house for 10,000 pesos a month is paying $98 more a month than in January. A 1,000-peso-a-night hotel room that would have cost a tourist $91.45 then now costs $101.21
And that's not counting Mexico's inflation rate of nearly 5 percent, which also has helped raise prices.
"You see the difference when you go out and buy dinner. Things have gotten more expensive," said Margie Harrell, a Palm Springs, Calif., retiree living on Lake Chapala near Guadalajara.
Partly because of the exchange rate, Mexico City is now nearly as expensive for foreigners as Washington, D.C., according to a study released in July by Mercer LLC, a U.S. consulting firm. Monterrey's cost of living is on par with Midwestern U.S. cities such as Detroit and Cleveland.
The strengthening peso is something new for Mexicans, who for decades were used to seeing the peso repeatedly crash. During Mexico's last financial collapse in December 1994, the peso lost 56 percent of its value in less than a week.
Because of such crises, many Mexicans have stashed their savings in dollars and are now finding their nest eggs have shrunk, said Dayami Aguilar, a clerk at a currency-exchange booth on Mexico City's Zócalo plaza.
"People get really upset when they come here and you can only give them 9.8 pesos for a dollar now," she said. "It was above 10 for so long that people got used to it."
American shoppers also could eventually feel the sting of the higher peso, said Raúl Feliz, a professor at Mexico City's Center for Economic Research and Education.
The United States imports $210 billion in goods annually from Mexico, from lettuce to mobile phones. A stronger peso makes those goods more expensive.
In the case of fresh produce, the effect probably won't be seen until next year because crop prices already have been set for the winter growing season, said Jesse Driskill, president of the Fresh Produce Association of the Americas.
The rising peso also could threaten assembly plants, known as maquiladoras, that export to the United States, said Jorge Pedroza Serrano, president of the Maquiladora Association in the border state of Chihuahua.
"It does hurt our competitiveness because it makes our operations more expensive," Pedroza said. "We're all asking ourselves how long the peso is going to keep this up."
Tourism also could suffer, especially in areas like Baja California and Puerto Vallarta, that depend on Americans and get few European visitors, said Ana Beristain de Maya, a professor of tourism management at Southern Anahuac University in Mexico City.
"Tourists compare destinations, and if our country is more expensive, people will go to other places," she said.The dollar's slump also means migrants in the United States can send less money home to their families. The average wire transfer of $350 yielded 369 pesos less than it would have in January, enough to buy 9 gallons of milk or 30 pounds of chicken.
Overall, remittances from Mexican migrants totaled $11.6 billion through June, down 2 percent from last year, the Bank of Mexico said.
The weakening dollar does have an upside for American exporters because it makes U.S. goods cheaper for Mexicans. It also means Mexicans' pesos go further in American shopping malls along the border. However, stores in Nogales, El Paso and other border communities said they aren't benefiting because stepped-up border security has made it inconvenient for shoppers to come to the U.S.
"Whatever they gain with the stronger peso they lose on gas waiting to cross the border," said Olivia Ainza-Kramer, president of the Nogales-Santa Cruz County Chamber of Commerce.
Republic reporter Sergio Solache contributed to this article. |
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