Word: pesos
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...peso has plummeted 35 percent since its initial devaluation on December 20th, from around four pesos to the dollar to, as of January 4, about 5.4 pesos to the dollar. In truth this was not totally unexpected. The four-to-one exchange rate that President Salinas kept in place was regarded as somewhat unrealistic, and Wall Street had been waiting for an announcement of devaluation...
This expensive peso meant that jobs were somewhat scarce, and thus contributed to some of the rural unrest. When the rebels seemed to be readying for a new round of attacks, President Zedillo decided to lower the peso by about 12 percent. Then, in a surprise to almost everyone, he allowed the peso to float against the dollar. Investors were used to being warned well in advance of a devaluation. This sudden move scared them, causing them to start unloading Mexican securities. The peso continued to drop...
...plunge in the peso has caused much panic, both within the Mexican government and among outside investors. President Zedillo has released a plan which he hopes will keep inflation at around 15 percent in the short term and have growth at around 1.5 to two percent. This is quite a bit different from the four percent inflation and four percent growth that had been predicted a month ago, before the devaluation. In addition, he hopes to cut government spending by about 1.3 percent. More ominously, though, nearly $8 billion in foreign investment has fled the country since the drop. This...
...Mexico get out of her crisis. Because of the devaluation, the country's goods will be cheaper. As a result, manufacturing should go up, creating jobs. (Incidentally, this increase in jobs should hold back the wave of illegal immigration that has also been predicted in the wake of a peso devaluation). NAFTA also guarantees Mexico a certain amount of foreign investment--which is much needed right...
...should also be glad NAFTA has forced Mexico to face certain global economic realities. The expensive peso was unrealistic, but could be kept high under a protectionist economic policy...