Feb 5, 2009, 6:34 PM
Post #3 of 18
The peso has been losing ground due to the global financial crisis, and other factors specific to Mexico.
1. Remittances (money sent home) are down.
2. Oil is down.
3. Manufacturing is down
4. The financial situation in the US and elsewhere is likely to reduce tourism to Mexico.
5. Foreign direct investment is likely to go down.
The items above are all very important to the Mexican economy, as described in the quote below. At this point, all are pointed in the wrong direction.
Workers’ remittances now occupy second place as a source of foreign exchange in Mexico, behind maquiladoras and ahead of tourism and foreign direct investment.
The other issue is the Mexico has had a drastic peso devaluation in the not too distant past, around 1994. The peso value dropped by a factor of two in a very short time, triggering an economic crisis, which was also tied to the Zapatista uprising. People who remember the 1994 devaluation and economic crisis are likely to be skittish about another possible devaluation, which explains the intensity of rumors. The 1994 crisis had major negative impact on the Mexican people, economically and psychologically. People lost their homes, you name it. A very bad thing.
So I would suggest that there are real economic factors behind the weakness of the peso, as well as psychological and historic factors.
Of course, it is an ill wind that blows nobody good; a peso devaluation is potentially a good opportunity to buy property in Mexico, as well as an opportunity to travel first class at low prices. These opportunities do not last long, so act quickly if the opportunity arises. This of course assumes that you have assets and/or income denominated in US dollars or another strong currency.
If you are asking me what will happen, I have no idea. I think that the country has better economic management today than it did in 1994. I hope and expect that an economic crisis can be averted. Which does not mean that the peso is going to increase in value in the near future.