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Peso Continues Slide on Concerns About Fox's Plan

Traders push down the currency to 11.31 per U.S. dollar as the president's economic blueprint faces opposition in Congress.

November 26, 2003|From Bloomberg News and Times Staff Reports

The U.S. dollar is buying a record number of pesos as traders push down the Mexican currency on concerns about opposition to President Vicente Fox's economic growth plan.

The peso's value fell to 11.31 per dollar Tuesday from 11.29 on Monday and has dropped from 10.7 per dollar in early August. Those values are based on large transactions at banks.

The slide is a boon to American tourists in Mexico as their dollars buy more. But the decline is eroding Mexicans' purchasing power.

The peso has been under pressure in recent months as many Mexican lawmakers have opposed key elements of Fox's proposal for a tax system overhaul that would increase tax collection, offset expected oil revenue declines and meet a funding shortfall of 1.5% of gross domestic product the government estimates it will face in coming years.

Fox wants to apply a value-added tax to food and medicine to raise revenue. But many in the nation's Congress reject the idea as placing too heavy a burden on the poor.

Fox's failure to push through his tax plan this year raises concern about his ability to pass other growth initiatives, such as opening electricity production to foreign investment, said Jose Barrionuevo, head of Latin America research for Barclays Capital Inc. in New York.

"There's a very good chance there'll be no reforms for the remainder of the Fox administration," Barrionuevo said. "No reforms means no investment and a lower peso."

The peso also has been depressed by concerns that Mexican exporters are losing market share to cheaper Chinese producers in the U.S. market, which buys almost 90% of Mexico's exports. China this year overtook Mexico as the second-largest seller of foreign goods to the United States.

A weaker peso can make Mexican goods more competitive in world markets.

The government said Monday that exports rose to $15.1 billion in September from $14.7 billion in the same month of 2002.

The dollar buys 26% more pesos today than in spring 2002, when a buck was worth about 9 pesos.

The Mexican stock market has rallied for much of this year despite the peso's weakness, but share prices have pulled back in recent weeks.

The market's main IPC index gained 124.08 points, or 1.5%, to 8,288.81 on Tuesday, but is down 4.1% from the record high set Nov. 13. The index is up 35.3% year to date.

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