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Mexicans Are Worried About Their Plummeting Peso — But One Economist Says They're Lucky

Low oil prices, rising US interest rates, and China’s deceleration have all impacted Mexico’s currency which has reached historic lows.
Photo by Alan Hernández

In recent months the value of Mexico's peso has dropped nearly every day and is now hovering around 19 to the US dollar — an historic low. Many Mexicans are already hurting, and more are worried of what is to come, but economists say they are lucky the situation is under better control compared to other Latin American countries.

"The upper class is not affected but the rest of us suffer," said Cristobal Casimiro, as he sold toy violins from a blanket laid out on the street in a middle class district of Mexico City. "I have problems in sales. How can we compete? A toy is not a basic need."


Laura Valdepeña, who runs a small cosmetics store in the upscale Condesa neighborhood, said she was also feeling the pinch.

"In my store products from the US are already expensive and they are getting even more so," she said. "I need to search for cheaper products to maintain my business."

Georgina Weller said her job in an indigenous rights NGO has been directly impacted by the peso's volatility.

"I travel a lot to present reports," she said. "We have lost our budget. All of our money is going to expenses."

The Mexican peso's value against the US dollar has dropped by 27 percent since mid 2014 when it was valued at around 13 pesos. It topped 16 pesos by December with the depreciation accelerating rapidly after that. The currency reached a historic low of 19.10 pesos last Thursday and, although it has recuperated slightly following an uptick in the oil price and some good news from China, most observers expect it to remain around that level for the next week.

The Mexican government has tried to halt the devaluation of its currency by regularly auctioning hundreds of millions of dollars in an effort to stabilize the situation — but the peso has kept falling.

The most obvious cause for the depreciation is the fall in the price of Mexican oil that has plummeted from more than a $100 dollars per barrel in 2014 to less than $20 dollars per barrel last Thursday. One third of the Mexican government's income comes from oil sales.


The other major factor is the US Federal Reserve's decision to increase interest rates in December, after leaving them unchanged since 2008.

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The deceleration of the Chinese economy, which is one of the main markets for Mexico's raw materials, is also having an impact.

Veteran leftist leader and two-time runner up in presidential elections Andrés Manuel López Obrador said last week that while such external factors impacting the peso were real "they are affecting us more than they should."

Speaking in the northern city of Los Mochis, he added, "This is because the Mexican economy is very feeble and weak."

The Mexican government, meanwhile, insists that the peso issue is being overblown, and that what problems there are, are not its fault.

"The peso is undervalued," Finance Minister Luis Videgaray said at the World Economic Forum in Davos. "The concern is global, this is not something that originates in Mexico."

Most orthodox economists agree.

Well-known analyst Raúl Feliz stresses that the Mexican economy still appears relatively stable compared to others in the region where other major oil producers have slipped into recession with high inflation. In Mexico growth is sluggish, but not negative, and inflation appears to be under control.

"We are not Brazil and definitely we are not Venezuela," Feliz told VICE News. "My forecast is that by the end of this year inflation it's not going to surpass 3 or 4 percent."


Feliz credited the government with resisting the temptation to lose control of macroeconomic stability a few years ago in the context of seemingly insatiable Chinese demand.

"Five years ago, when most of Latin America was contracting debt to sell more to China, Mexico stood steady," he said. "Now that China — the one that all Latin America wanted to do business with — no longer exists."

The Brazilian real depreciated against the US dollar by 57.58 percent from October 2014 to the same month of 2015, and inflation remained above the target range at 9.9 percent.

Last week the Venezuelan Central Bank revealed that inflation rose 108.7 percent in the first nine months of last year, and independent observers believe it is much higher than that. The black market exchange rate is multiple times the official rate.

Related: Venezuela Declares an Economic Emergency and Releases Data Showing How Bad It Is

Few Mexicans, however, are taking comfort in the idea that the situation is worse elsewhere.

Instead the peso's weakness is widely seen as yet more proof that the kind of growth required to start eating into the poverty that affects about half of the population is not going to happen any time soon.

For many, the best hope might be having a relative in the United States.

"I think the devaluation is great for the Mexicans who are there [in the United States] and send money here," said Braulio Arenas Ramírez, as he cheerfully sold tacos. "I don't mind because I have family members living the US and they send us money."

Follow Alan Hernández on Twitter: @alanpasten