The wheels are coming off Mexico's economic wagon. So does that mean Ross Perot was right? We think not. But Perot, that cantankerous billionaire entrepreneur turned politicalfirebrand, scores high on one count: He predicted back during the debate over the North American Free Trade Agreement that Mexico would devalue its peso significantly once it had the NAFTA pact in the bag.
A primary plank in his anti-NAFTA harangues was that thousands of U.S. jobs would be sucked south of the border by the lure of cheap labor. While the devaluation means Mexican labor just got a whole lot cheaper for U.S. and Canadian companies, Perot's argument still is oversimplified and overly alarmist.
Higher-tech manufacturing companies, for now, still generally will find a lack both of skilled workers and adequate infrastructure when they investigate shifting production south of the border. Cheaper labor doesn't always translate into cheaper end product, once all such factors are considered.
Up until the peso's 40 percent free fall against the dollar began in mid-December, the only sucking sound had been that of U.S. products pouring over the border into Mexico. Certainly, with a dollar now costing closer to 5.75 pesos compared with roughly 3.5 less than a month ago, that rush of imported products to Mexico will slow dramatically.
But many of those U.S. and other foreign companies that already have Mexican manufacturing capability still stand to benefit from greater exports of their Mexican-made products. And, although the Mexican economy is now squarely in the dumper, the cheaper peso stands to help those Mexican companies that do or can export significantly and that still have access to capital.
As this week's Page 1 story by Mexico City correspondent Richard Higgs clearly details, within Mexico's plastics industry it is the small processors that are likely to bear the brunt of the blow from the plunging peso.
Heavily reliant on imported materials and machinery, and already burdened by sky-high local interest rates, such ``micro'' firms - as they are called in Mexico - simply do not have the financial wherewithal to endure such a currency shock.
Many will go under. And many Mexican workers will lose their jobs.
Another big loser in this crisis is the Mexican government, which has suffered a credibility meltdown in the eyes of the international financial community. Last month, just days after offering public assurances that its policy toward the peso would remain unchanged, the new Zedillo government changed it.
The resulting collapse of investor confidence is understandable and deserved. Such confidence takes years to build. But it can-and in this case, has-been shattered literally overnight. There will be pain for many as a result. And Mexico's road back to financial stability will be rocky.
But, no, the NAFTA dream is not dead. For those companies that are able to survive the current crisis, the dream simply is going to take much longer to realize.
