The strength of the peso hits the economy of the northern border of Mexico

The strength of the Mexican peso, which accumulates an appreciation of more than 13% against the American dollar So far this year, the economy of the northern border of Mexicowith impacts on factories and the loss of customers in local businesses.

An example is Ciudad Juárez, bordering the US city of El Paso, Texas, where the maquiladora industry, which is the economic engine, requires more and more dollars to cover its expenses and pay its workers’ salaries in pesos.

On the other hand, Mexican merchants see shoppers fleeing to the US side and El Paso businesses see their collection boxes increasingly full thanks to Mexican consumers crossing the border to save on gasoline, groceries, clothing and shoes.

Thor Salayandía Lara, national vice president of Maquiladora and Border Strips of the National Chamber of the Transformation Industry (Canacintra), explained that the maquilas manage their budgets in dollars, which is why they face an increase in the cost of inputs.

Salayandía Lara affirmed that the “overweight” It has been strengthened by factors such as the arrival of foreign capital attracted by the high interest rates in Mexico, which the Bank of Mexico maintains at a record of 11.25%and the investment due to the phenomenon of relocation of chains or nearshoring.

In July 2022, the dollar reached a maximum price of 20.94 pesos, according to data from the Bank of Mexico, but this past week the parity dropped to 16.74 pesos per dollar, which means a drop of close to twenty% in the last year.

“One of the negative things is that the operating cost of the maquiladora industry is more expensive. Now they need more dollars to be able to pay their payroll commitments each week or to be able to pay their commitments each month. If before they paid the salary with 1,000 dollars now they have to pay it with 1,300 dollars”warned the business leader of Ciudad Juárez.

Mexican consumers go to the US

In addition, consumers take the opportunity to cross the border and buy everything from food to clothes and shoes.

“It benefits the consumer and imports, people make their money go further in the United States and the inflation issue also slows down a bit, and we can rescue that”Salayandía Lara explained.

Isaac Cardozo is a doctor who has an office on Avenida de Las Américas, which leads to the Córdova-Américas International Bridge that connects Ciudad Juárez with El Paso, where he is taking advantage of the “overweight”.

“One of the things we are taking advantage of is going to get gas, because it is much cheaper than here. My car with the 500 pesos that I put here is half a tank and if I put it there it’s enough for more. We also buy detergents, we go to eat, we buy groceries”Cardozo said.

César Fuentes, researcher at the Colegio de la Frontera Norte (Colef) and author of the study “Cross-border retail trade between Ciudad Juárez, Chihuahua and El Paso, Texas” He explained that just as the flow of consumers to the north increases when the dollar becomes cheaper, the consumption of Americans in Mexico decreases.

“We have the opposite effect of consumers crossing from El Paso to Juárez to consume”detailed the academic.

“The American who crosses into Juárez consumes medicines, medical services, restaurants and some products in stores. These activities have become more expensive and products that they used to consume in supermarkets are now more expensive for them and this inhibits the crossing to Mexico because they no longer have enough for so much.”delved.

The end of superweight?

Specialists believe that it is a temporary situation and that the dollar will regain its strength. Salayandía Lara expects the dollar to rise to at least 18 pesos per US bill in the next six months and relief for the maquiladora industry, which gives the 48% of formal employment throughout the border region.

By 2024, it foresees a return to 20 pesos per unit. The Colef researcher does not believe that it is something permanent either, since it has to do with external factors such as the nearshoring and any other global phenomenon can return strength to the dollar.

Source: EFE