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In Maquiladora Industry, Peso Devaluation Cuts Two Ways

February 1, 1995

MATAMOROS, Mexico (AP) _ Each day, Lucia Palomares walks across railroad tracks to work at a General Motors Corp. plant near her plywood-walled house, just as she did before Mexico’s latest economic crisis.

But now she walks home from the car-radio assembly line with far less purchasing power, as the value of the peso goes down and prices go up.

Meanwhile, U.S.-owned maquiladoras _ assembly plants that use Mexican labor to make products mostly for export back into the United States _ are seeing a dramatic drop in their payroll costs, thanks to a stronger dollar that buys more than 40 percent more pesos.

``The only ones who benefit are the maquiladoras because they sell (in dollars) over there, and they pay in pesos here,″ Mrs. Palomares said.

To bail out Mexico’s faltering economy, President Clinton pledged $20 billion Tuesday in direct U.S. loans and loan guarantees. He also said two international lending organizations will increase their credits to $27.8 billion.

Workers in Matamoros, an industry-ringed border city of about 400,000 residents, have the strongest unions and generally receive the top wages in the maquiladora industry.

Still, Mrs. Palomares, who has spent four years at GM’s Deltronicos de Matamoros, earned only 284 pesos per week, or about $83, before the devaluation began Dec. 20.

Her salary has since climbed to 312 pesos per week, but now that equals only about $54.

Her husband, Ruben, slipped and injured his back while working in a grocery store. He now receives the equivalent of $78 a month in worker compensation.

They used to buy groceries across the Rio Grande in Brownsville, Texas. Now the U.S. prices aren’t worth the trip, while prices at many Matamoros stores have jumped by about 33 percent or more for such staples as beans, cooking oil and milk.

The Palomareses can’t afford to buy much meat for their five children, ages 2 through 13. Refried beans, rice, fruit and vegetables will be their main courses, at least for now.

``We’re going to have to dedicate our money to food, and sacrifice clothes and shoes and such things,″ said Palomares, gazing at his 2- and 3-year-old daughters playing next to a swing set he made from scrap wood.

During his 1993 debate with Vice President Al Gore over the North American Free Trade Agreement, Ross Perot flashed a picture of a poor neighborhood much like this one, which is still waiting for sewers and pavement.

Perot argued that cheap Mexican labor and NAFTA will combine to create a ``giant sucking sound″ of U.S. jobs going south. Some 2,100 maquiladoras already employ about 480,000 workers.

``I really don’t think you’ll hear a giant sucking sound,″ said Don Nibbe, publisher of Twin Plant News, a maquiladora trade magazine. ``However, with the peso devaluation and the way our phone has been ringing in recent weeks, I know that there is a lot of interest among U.S. companies in taking another look at Mexico.″

Nibbe said the devaluation significantly lowers payroll costs, which make up roughly 80 percent of a typical maquiladora’s operating budget. But the decline in real wages also lowers worker morale.

``Already there’s pressure to bring wages up,″ Nibbe said, ``and some maquilas have already done so, especially for the key management people who they can’t afford to let go.″

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