From Brownsville to El Paso, Mexico's debt crisis has spread to the United States, bankers and city officials told Congress' Joint Economic Committee yesterday.
Laredo, between Brownsville and El Paso on Texas' long border with Mexico, suffers from the highest unemployment rate in the country--27.2 percent--because the double devaluation of the peso cut the ability of Mexicans to buy U.S. goods. Some retail stores on the border near El Paso had sales drop as much as 80 percent in the past year.
"While Mexico caught pneumonia last year, the exposed border region had a heart attack," said Sen. Lloyd Bentsen (D-Tex.), who ran the hearing on his state's economic woes.
"Things are getting so bad we are contemplating bottled sunshine to sell to the rest of the country," said Cameron County Judge Moises V. Vela of Brownsville. He was one of the four Texas witnesses who detailed the economic problems of the region, which, until the debt crisis hit Mexico last August, prospered from the flow of retail trade and real estate purchases coming from south of the border. In Texas, county judges serve as chief executive officers.
Brownsville banker Robert M. Duffey Jr. said that besides unemployment and business failures, the only economic statistic rising in the border towns is bank deposits--mostly flight capital from Mexicans who have been moving dollars into an American safe haven as fast as they can.
"It's the kind of capital that went to Switzerland from the United States long ago," said Duffey, chairman of the Texas Commerce Bank-Brownsville.
Deposits in his bank have almost doubled since 1980--from $475 million to $850 million in June--and increased by $23 million in the first six months of the year. Mexico's attempts to stop this hemorrhage of dollars appears to be having some effect, as the 1983 increase is far below the $187 million increase in deposits last year.
His biggest problem, though, is finding safe investments for that money.
"We have almost $100 million available for quality extensions of credit, a scenario not unlike our peers in the marketplace. Placing funds in quality loans is, however, a distinct challenge," he told the committee.
The hard times along the Texas-Mexican border stems directly from the sharp devaluation of the peso over the past year. Its value, and therefore its purchasing power, has been cut by about one-sixth, from about 27 pesos to the dollar less than a year ago nearly 150 pesos to the dollar today.
Vela, the county judge, said retail sales in Brownsville decreased $136 million in the six months from October to last April, with 200 businesses closing down and "many others teetering on the brink of financial disaster." Unemployment stands at 16.1 percent and the city's sales tax income has dropped 42.45 percent in the past year.
Real estate sales, once booming, are so low that some houses stay on the market for as long as six months without even having a prospect take a look at them, said Brownsville banker Duffey.
In El Paso, which, with the Mexican city of Juarez, forms the largest populated area on the border, many retail business have closed and unemployment stands at 12.2 percent, banker Merriman Morton said.
"As goes Mexico, so go the American border communities," said El Paso County Judge Pat F. O'Rourke.
The recovery, however, is increasing production in 129 plants set up in Juarez by U.S. companies to assemble products for sale in this country. As a result, the border economy is the strongest within Mexico and "there are positive signs indicating the worst is behind us," said Morton, president of the El Paso National Bank.