Falling remittances one factor in possible peso devaluation

BROWNSVILLE — Less money being sent to Mexico could mean a cheaper peso, economic experts said.

Mexican migrants sent home 36 percent less money in October than a year earlier, marking the largest drop since records began being kept in 1996, the Associated Press reported last week.

The volume of foreign currency entering Mexico is one of several factors that affects its exchange rate, Rafael Otero, interim dean of the school of business and associate professor of economics and international business at the University of Texas at Brownsville/South Texas College, said.

“The more money that flows into Mexico, the more the peso strengthens,” he said. “If it’s going down that would be one pressure toward devaluation.”

This does not mean peso devaluation is imminent, since a variety of factors are involved. In fact, it is unlikely in the short term, Otero said, noting that the Central Bank of Mexico is selling off $50 million a day to try and maintain the current exchange rate.

Devaluation of the peso hurts both sides of the border. Brownsville’s economy suffered as a result of peso devaluations in the 1980s and 1990s, which stemmed the flow of Mexican nationals spending money north of the border.

“It had a huge impact on the border economy,” Otero said. “Fortunately for Mexico, the Central Bank has about $75 billion to $80 billion ready to sell to counter pressures to devaluation.”

If current conditions persist long enough, however, it could hurt that country’s economy. Mexico’s main three sources of foreign money are oil exports, remittances and tourism, in that order, and all three are in decline. Migrant workers in the U.S. are having such a hard time finding work that relatives in Mexico are having to send money north.

And then there’s oil.

“Oil prices are not what they were two years ago,” Otero said. “Oil production is going down. Since the government has been taking most of the money from Pemex, the company hasn’t had much money to invest in looking for new sources of oil.”

As a result, Mexico, stuck drilling old fields that are running out of oil, is the world’s only major exporter with falling reserves. Every other exporter is increasing reserves, he says.

“The medium-term, long-term outlook is not very good for the Mexican economy,” Otero says.

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The Associated Press contributed to this report.

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Steve Clark is a reporter for The Brownsville Herald.