Word: peso
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Dates: during 1970-1979
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...present crisis began in September, when intense speculation forced the government to cut the overvalued peso loose from its two-decade mooring at 12.5 to the U.S. dollar. Wary of Mexico's swollen, $24 billion debt and mounting balance of payments deficit, investors began a precipitate capital exodus, dropping the value of the peso more than 40%. In late October, renewed trading forced a second round of devaluation, tumbling the peso to 24.5 to the dollar-half its previous value. Inflation bounded, approaching an annual rate of 30%. Worse, the government has announced huge jumps in the price...
...Latin American-or indeed any-standards, the Mexican peso has been a remarkably stable currency. Since 1954 its exchange rate has not budged from 12.5 to the dollar. Mexicans were understandably astonished, therefore, when Treasury Minister Mario Ramon Beteta suddenly appeared on their TV screens last week to announce a change. From now on, he said, the peso would float freely-in other words, its value would be determined by supply and demand...
Bankers and businessmen were not overly surprised by the news. Rumors of a peso devaluation had been in the air for months, fueled by a huge Mexican trade deficit ($3.7 billion in 1975), stubborn 15%-a-year inflation and high foreign debt ($13 billion). A devaluation was also sought by tourist operators, whose business declined 4% in 1975, owing largely to price increases that had made once cheap Mexico City as costly for Americans as many European cities. Said President Luis Echeverría Alvarez: "In the end, there will be more jobs, more production, more exports and more tourism...
Perhaps, but the peso's sharp devaluation could also do harm in Mexico. Prices of the $6.6 billion worth of consumer and capital goods that Mexico imports will rise sharply in peso terms. In the wake of Beteta's announcement, many sales clerks worked until midnight changing the price tags on merchandise. At the Puerta de Liverpool department store, for example, refrigerators went up 20% overnight, color TV sets more than 30%. To ease the burden, Echeverría has already promised raises for workers, civil servants and pensioners-a generous but inflationary move...
Apart from tourists, the Americans most affected will be the investors who have poured billions into peso-dominated bonds and savings accounts. At the old exchange rate, for example, $2,000 would have bought a 25,000-peso bond that at 12% would pay interest equal to $240 a year. At 20 pesos to the dollar, the bondholder's principal has shrunk to $1,250, and his interest to $150 a year...