Word: pesos
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...peso's troubles are expected to have little direct impact on the U.S. As Mexican wages grow cheaper in dollar terms, some U.S. firms may find it more attractive to move jobs south. But Mexico may become less attractive for firms like auto manufacturers that would still have to bring in dollar-priced American-made parts for final assembly. "Mexican products will be more competitive on the global market, and there will be more jobs created in Mexico than otherwise would have been the case," says Robert Hormats, vice chairman of Goldman Sachs International. And the prospect of gradual improvement...
...irony of the peso's misfortune is that it happened to a country that up until a year ago gave all the signs of being on a durable winning streak. Mexico has steadily climbed out of the debris of the debt crisis of the early 1980s, when a dip in the price of oil, its most valuable export, left the nation unable to pay its bills. For years afterward Mexico was a dirty word to foreign investors, who left it to starve for development capital. Rebuilding credibility required a long stretch of austerity and the sale of inefficient state operations...
...surprise of many, Salinas left office instead with the peso still hovering at an unrealistic four to the dollar. Even without a devaluation, he reckoned, the underlying strengths of Mexico's economy would continue to draw investors, however nervous they might be about his nation's political stability. What he failed to calculate was the impact of rising interest rates around the world, especially in the U.S., which gave investors attractive alternatives for their money. Another possibility is that Salinas, who would very much like to be named the first head of the World Trade Organization, which will be created...
Though Serra had reassured investors just days earlier that the peso would remain stable, Zedillo directed him to blame a climate of insecurity spawned by the rebels for a change in policy. Within 24 hours the peso lost 12% of its value. Then came the bombshell. Despite an earlier promise of no further devaluations, Serra abruptly made public on a television show that the peso would be permitted to float against the dollar...
...Serra found a roomful of sour expressions. To make matters worse, he lacked answers to many of the group's questions and bristled when asked why he hadn't resigned after having broken his promise to the financial community. "Everyone's been yelling and screaming all year for the peso to be devalued," says Kathleen Heaney, head of Latin American equity research at Bankers Trust. "But the way it was done really freaked people out. Wall Street doesn't like surprises. You get penalized when you do that...