A Border Town Feels The Peso's Pinch

The rapid beat of Tejano, the Tex-Mex version of country music, shakes the air tonight. The car-radio-borne rhythm lends an illusion of haste to the line of traffic snaking slowly into the U.S. over the Rio Grande's Gateway to Americas bridge. My family and I, in Laredo, Tex., for the weekend to soak up the sights and sounds, are in one of the cars. Mexican customs is funneling cars from the neighboring Jurez-Lincoln crossing, creating this minibackup.

On a typical weekend, such backups thread across both bridges from Mexico's Nuevo Laredo as shoppers head to the U.S. But these are not normal times along the U.S.-Mexican border, so the line of cars only stretches three- quarters of the way across the bridge. The 43% decline in the peso is dampening economies on both sides of the border. And nowhere is the pinch felt more than in Laredo, a onetime frontier outpost turned modern city of 162,000. In January, crossings from Nuevo Laredo fell 31% from a year ago. That loss of day-trippers into the downtown area caused nearly 20 businesses to shut and many others to cut hours. "It's a big crisis," says Luis Lidsky, president of the city's Downtown Development Corp.

The biggest worry here: Despite the North American Free Trade Agreement, the currency crisis has prompted Mexico to enforce a $50 limit on goods brought from the U.S. That has cities and towns all along the border seeing revenues from sales to Mexican customers dry up. Laredo already counts itself $468,000 poorer from declining crossing fees and retail sales taxes during December and January. It is stalling action on 20 municipal job openings until the economy turns. "Border areas are affected first and hardest," says James T. Peach, a professor of economics at New Mexico State University, who studies the effects of devaluations.

HOSPITAL DISCOUNTS. This time is no different. At the gleaming Mall Del Norte, an upscale shopping center just five miles from the border, business is slow. True, bright yellow license plates from Mexico's Tamaulipas state still dot the parking lot. But inside, security guard Rolando Chavez notes a difference: "You don't see as many shopping bags--they're not buying as much," he observes.

At least they are still coming to Laredo. Unlike in the past, when devaluations were seismic events only along the border, this one is being felt well inland. Mexico's early-1990s boom extended its economic influence into such metro areas as Houston, Los Angeles, San Antonio, and San Diego. There, Mexico's emerging middle class joined their wealthier compatriots in seeking professional services and vacations in the U.S. That change, says Ben Anderson, Mexico desk partner at Deloitte & Touche, means the major cities of the Southwest "are more tied to Mexico's economy than we'd like to think."

At Houston's Galleria shopping mall, long a mecca for visiting Mexicans, many skipped traditional stopovers for New Year's sales. The Westin Galleria Hotel saw post-Christmas international bookings fall 30% overnight. "The reemergence of the Mexican economy had given a lot of buying power to the middle class," says Jose NPound ez, executive director of international affairs at Houston's Methodist Hospital. "[Now] a segment will not be able to come to the U.S." The hospitals saw referrals drop off as long ago as last summer, as Mexican patients began to sense a devaluation was coming. To forestall new cancellations, Methodist and St. Luke's Hospital are offering international clients cash discounts or payment grace periods of up to a year.

"PEAK EFFECT." It's not just the cities that are hurting. Border-state economies are all feeling Mexico's pinch. Economists say the biggest impact will be felt in Texas, where exports to Mexico last year climbed to 40% of total exports from 33% in 1991. Texas livestock exports alone fell nearly 56% in January. "I had three different Mexican buyers scheduled to come last week," says Darryl McDonald, the Texas Agriculture Dept.'s director of livestock marketing. "They all called and canceled."

California, which sent $5.6 billion in goods to its southern neighbor in just the first nine months last year, exports 9.5% of its total output of goods to Mexico. Arizona counts on Mexico for more than a quarter, and New Mexico one-fifth, of total exports. Economists at DRI/McGraw-Hill estimate the peso's fall will clip 12% to 17% off estimated employment growth for California and Texas, the two most populous border states, through 1997. DRI's Sara L. Johnson says the "peak effect" on jobs in the region will occur in 1997, lagging the export decline.

Most of the Southwest states' job markets had benefited from exports to Mexico. Even Southern California, where a defense industry downturn sent unemployment spiraling, saw hope from Mexico. San Diego Chamber of Commerce President Gil Partida says border crossers accounted for 10% of retail sales in San Diego county. What's more, the rising trade with Mexico during the early 1990s occurred at a critical juncture for the economy. The retail and transportation sectors "were nice job generators during a recession," says Partida.

Of course, not everything is bad for the border-state economies. U.S. residents are already flocking to low-cost winter vacations in Mexico and could soon see falling food prices. Continental Airlines Inc. and Southwest Airlines Co. are cutting prices on flights to Mexican resort cities. And retail beef prices should soon fall, reflecting Mexican ranchers selling off herds to raise dollars. In January, Mexican exports of livestock to Texas rose 90% from a year ago. California produce growers also say their labor costs should fall as more migrants head north for the summer harvest.

SIGNS OF ADJUSTMENT. What's new to Houston or Los Angeles is old sombrero to border areas, which have ridden out major devaluations before. Having been through peso declines in 1986-87 and 1982, Laredo's municipal government set aside economic reserves for such disruptions. "If this is the extent of the impact, we can manage," says Laredo City Manager Peter H. Vargas. Any further devaluation, though, and the city would defer road improvements.

Because of such contingency planning, says New Mexico State's Peach, border cities such as Laredo that tumble the hardest usually recover the fastest. There are already signs the border economies are adjusting. On the Mexican side, "prices in Nuevo Laredo and Ciudad Jurez [shops] are quoted mostly now in dollars," he says.

Laredoans in both countries have a long tradition of adapting quickly to disruptions. And both have become industrialized by serving one another's needs. Laredo's warehouses and transportation hubs rely on Nuevo Laredo's maquiladora plants.

The buildup means neither quite lives up to its frontier past anymore--certainly not enough for Hollywood's sake. The sequel to Larry McMurtry's Lonesome Dove, Streets of Laredo, is now being filmed 400 miles up the Rio Grande near Lajitas, a remote outpost in the Big Bend county. Laredo has become more Tejano than western.

    Before it's here, it's on the Bloomberg Terminal.