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Plummeting Peso Hurting Border Economy

The Mexican peso is well below its exchange rate against the dollar compared to a year ago, and store owners on the border are bracing for a prolonged drought of Mexican shoppers. In some cities that could mean a loss of up to 45 percent of business.

A bridge to Mexico that is near the busy downtown Laredo shopping area is shown on Nov. 5, 2011.

Clothing store owner Les Norton remembers when throngs of Mexican shoppers would make their way up Laredo’s Convent Avenue and stay in Texas for hours before returning to Nuevo Laredo, Mexico.

But Norton, president of the Laredo Merchants’ Association, has seen business at his La Fama clothing store drop off in recent months due, in part, to the depreciation of the Mexican peso.

On Tuesday, about 17 Mexican pesos equalled one U.S. dollar, up from about 13 in September 2014. For people like Norton, who estimates that 70 to 80 percent of his clientele is from Mexico, that means the fall and winter shopping seasons will be unpredictable at best.

“Unfortunately downtown Laredo is experiencing a decline that nobody’s happy with,” Norton said.

If and when the peso might rebound is hard to predict, said Robert A. Coronado, assistant vice president in charge of the El Paso branch of the Federal Reserve Bank of Dallas. But border businesses that rely on their southern neighbors should tighten their belts for at least a few months, he said.

“If you look into the retail trade sector I think a weak peso, or a strong dollar depending on how you want to look at it, definitely does not bode well with retail along the Texas-Mexico border,” Coronado said “I would expect the retail trade activity in cities like Laredo, El Paso, McAllen and others will probably struggle in the next months.”

Just how hard local businesses might be hit varies. Since 1978, about 45 percent of the business for retailers in Laredo has come from Mexican shoppers, Coronado said, citing data from the federal reserve bank. In McAllen it’s about 35 percent and in Brownsville, about 25 percent. That’s compared to about 15 percent in El Paso.

Pinpointing reasons for the peso's fall is difficult, but Coronado said Mexico isn’t shielded from the economic instability afflicting other countries.

“There has been a lot of volatility in the foreign exchange markets across the globe and the peso has not been immune from that volatility,” he said.

Others cite the strengthening U.S. economy as one factor in the peso’s fall. In a July 2015 report, Bloomberg Business noted that “interest rate increases in the U.S. will raise the dollar’s appeal and lead to capital flight from developing nations” including Mexico.

Should the peso’s slide continue, Mexicans will continue to think twice about exchanging their money for dollars and shopping in Texas for everything from milk and other basic provisions to furniture and auto parts. It also means more Texans living just north of the Rio Grande will consider shopping in Mexico, where they can stretch their dollars.

Norton adds that other factors are hurting his business, including the continued insecurity in the border state of Tamaulipas and the increased security at U.S. ports of entry. What used to be a 20-minute commute now takes almost two hours, he said.

“Who wants to stand out on a bridge when it’s 105 degrees outside?” he said. But Norton said he’s been through tough times before and survived.

“There’s nothing I can do about the cause and the effect, I see it every day in my store,” he said. “So one can only be optimistic and hope that tomorrow is going to be a better day.”

Coronado agreed that Mexico has weathered these storms before.

“If you look back at 2008, we saw not only the peso, but pretty much all emerging currencies, depreciate against the dollar in the wake of the financial crisis,” he said.  “And then eventually appreciated again.” 

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