Mexico accelerated the peso's daily devaluation rate today in an effort to boost export income and slow capital flight.
The peso, trading at the close of this week at 206 to the dollar, will now drop in value by 17 Mexican cents every day. For the past 14 months, the peso has been devalued at the rate of 13 centavos daily.
If maintained unchanged through next year, as is expected, the new rate will be equivalent to an annual devaluation of 30 percent against the U.S. dollar. The decision to speed the pace of the peso's slide was made now "to avoid sharp changes" in the exchange rate in the future, to promote exports and to "arrest the outflow" of capital from Mexicans traveling and buying goods abroad, the finance ministry said.
The move is expected to help Mexico achieve a substantial foreign trade surplus next year despite an anticipated slight drop in oil prices, government and independent economic analysts here said. The decision also should counteract "the speculative dollar trading that often occurs here at holiday time," Joanne Curley, an economist at Ecanal, a private Mexican economic consulting firm, said.
Curley said the government's move "should ease worries about a major devaluation" during the Christmas holiday season, an opinion shared by other financial analysts. After three confidence-shattering devaluations in 1982 drove the peso down from 25 to 150 to the dollar, Mexicans have nervously anticipated further sudden plunges in their currency's value. The gradually implemented daily devaluations, introduced last year by the administration of President Miguel de la Madrid, were intended to restore public faith in the peso and to enable corporate planners to design longer-term financial strategies.
But Mexico's persistently high inflation rate, expected now to approach 60 percent for 1984, has fast been eroding the peso's real value and the competitiveness of Mexican export goods, analysts here have argued. Finance Minister Jesus Silva-Herzog acknowledged last month that the 13-centavo daily peso slide had been based on a projected 1984 inflation rate of 40 percent.
Budget and Planning Minister Carlos Salinas de Gortari told congress two weeks ago that inflation in 1985 will be slowed to 35 percent. Most private analysts here now project a 40 percent inflation rate for next year, higher than the government's target but just half last year's 80 percent and far below the unprecedented 99 percent registered here in 1982, when many economists feared that Mexico was heading toward spiraling South American-style hyperinflation.
Despite the long-term trend toward lessened inflation, the continuing real rise in the cost of living has exerted strong downward pressure on the peso. U.S. currency exchange houses along Mexico's northern border have been charging upwards of 230 pesos for a dollar in recent weeks.
Such speculative trading is banned in Mexico, though practiced widely in private. Futures traders at the Chicago Mercantile Exchange this week placed the peso's value next December at 318 to the dollar, in contrast to the official exchange rate of 268 to the dollar now expected to be in effect here a year from now.
Mexican business leaders hailed today's move as a welcome display of economic "realism" on the government's part.
Evidence has been growing that Mexican products are increasingly costly in relative international terms. The best measure of this, economists say, is the pattern of trade along the U.S.-Mexican border, where bargain-conscious Mexican consumers shop on both sides of the frontier. A recent study published by Banamex, a state-owned commercial bank, showed that the $218.2 million surplus tallied by Mexico in this border trade in the first half of 1983 had been nearly wiped out by rising Mexican prices.
But as the finance ministry noted in announcing today's devaluation, Mexico's overall foreign trade balance has never been better. Despite a self-imposed cutback in oil exports of 100,000 barrels daily in November and December, Mexico in 1984 is still expected to surpass last year's record $13 billion trade surplus. The central bank now has more than $8 billion in foreign reserves, the most ever, the finance ministry said.
In 1985, economists project, Mexico's exports will hold steady while its expenditures on essential imports will rise.