Bordering on Chaos

By WALTER ISAACSON

Mexican and American towns suffer from peso jitters

The border of Mexico and the U.S. is going through the most important crisis in the past few decades," declared Mexican President Jose Lopez Portillo on a visit to Tijuana. If anything, that was an understatement. Last month's devaluation of the peso created an absolute mess for businesses in both countries. On the Mexican side, supermarket shelves were stripped clean of basic necessities by Americans who found their dollars worth three times as many pesos as they were a year ago. On the American side, merchants whose lifeblood is Mexican patronage were left standing beside silent cash registers.

In a frantic attempt to find stopgap solutions, the government of Mexico's outgoing President threw a one-two punch that has now transformed this confusion into surreal chaos. It issued a vague edict forbidding Americans to take home certain foods from Mexican markets, and it imposed ill-conceived currency restrictions designed to stem the tide of money flowing out of the country. The result: border towns on both sides are suffering even more.

The food-export ban was issued because the government believed, with some justification, that Americans were cleaning out Mexican stores of staple foods, many of which are subsidized by the government. By setting the official exchange rate at 70 pesos to the dollar, the August devaluation sent the price of a dozen tortillas down to the equivalent of 27-c- (vs. 82-c- on the U.S. side of the border) and a pound of sugar to 7-c- (vs. 30-c-). These items, along with eggs and meat, were among more than two dozen restricted for export.

Mexican customs officials are enforcing the new controls haphazardly at best. Neither shoppers nor officials seem to know how many of which items can be taken across the border, or what is supposed to happen to those caught with too much. "People just don't know what is going on," said Alex Harrison, a retired American buying Kahlua liqueur (not banned) in Juarez last week. Among the horror stories is the saga of Bob Walz, 60, of Tucson, who filled spare tanks in his pickup truck with 250 gal. of diesel fuel in Mexico at 16-c- a gal. He was arrested at the border for "disrupting the economy of Mexico" and spent five nights in jail.

"The list is very confusing," admits Octavio Munoz Corral, president of the Juarez Chamber of Commerce, who is futilely struggling to persuade Americans to keep buying below the border. Indeed, the uncertainty has been the main factor keeping Americans from shopping for much of anything in Mexico. "The tourists are scared away," says Salesman Manuel Vasquez, surveying his empty marble-products shop in Juarez, which logically should be packed with Texans seeking more for their dollar. "Our business is off about 50%. Capitalism works. This type of stupid socialism doesn't."

The situation is even grimmer for merchants on the American side, where Mexican customers can no longer afford to shop with their devalued pesos. The stores of south El Paso, just across from Juarez, are almost deserted. "All our business came from Mexico," says Frank Roches, owner of Palace Jewelry. "They have no money now." Business is off 65% at the S.E.I. Fed Mart department store in the California border town of Calexico, and Owner Sergio Farias has laid off 180 of his 230 employees.

Compounding the crisis are the currency controls instituted by Lopez Portillo, who unjustly blames much of his country's economic plight on sacadolares, wealthy Mexicans who have been sending their money out of the country to safer havens. The scattershot regulations restrict the amount of currency that anyone can take out of Mexico. Tourists, except those visiting just the border areas, must declare all the cash they bring in. Foreign-owned industries may have trouble sending profits home; most Mexican businesses are hard pressed to obtain foreign currency for paying off outside debts; and banks are not releasing dollars for checks or credits owed to foreign merchants. Only Mexico's central bank has the authority to hold or trade foreign currencies. Despite having established an official exchange rate, it is keeping all U.S. dollars to pay off its national debt.

Blocking currency movements with regulations tends to be as fruitless as trying to control water with a rake. Trade has been severely stymied. "There is no practical way to handle transactions with Mexico," says Mark Miles of the El Paso Chamber of Commerce. "If we got a check from a Mexican, there is nothing we could do with it. And what do we do with pesos?" Says Doug Fuller, a Southern California Ford dealer: "It's kind of a catch-22. They can't get dollars and we can't take pesos."

The Small Business Administration is trying to help American merchants ride out the crisis by establishing a $200 million assistance program that includes Government-backed loans at 14.5% interest. Many sinking border businessmen see this as scant support. "We don't want SBA aid," says Calexico furniture-store Manager Roberto Platero. "We can take care of our own if we could find some way to exchange the pesos." But a meeting of several U.S. and Mexican Governors in San Diego a week ago produced no solutions.

Part of the plight comes from simple confusion. Once it becomes clear exactly how the food-export ban and currency controls will be enforced, business will settle down, although perhaps not thrive again. The underlying problem of the jittery Mexican peso, however, will probably remain unresolved until after Dec. 1 at least, when Miguel de la Madrid Hurtado takes over as Mexico's new President. That is a short time in the life of nations, but an eternity for beleaguered shopkeepers on both sides of the Border. --By Walter Isaacson. Reported by Sam Allis/El Paso and Cheryl Crooks/Calexico

With reporting by Sam Allis, Cheryl Crooks

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