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Stocks and Pesos Up, But Mexicans Down as Economic Crisis Lingers

May 14, 1995

MEXICO CITY (AP) _ Five months after the peso’s plummet pulled Mexico into a financial tailspin, the economy is looking better on paper but Mexican families are still feeling the squeeze.

The government and investors _ to some extent _ are sounding more upbeat about efforts to lick the economic crisis that caused the peso to lose more than half its value against the dollar at one point.

The optimism is underscored by a rise in the value of the peso and steady gains by the stock market. The peso is now trading around six to the dollar, after plunging from 3.46 in December to a low of 7.45.

Economic numbers also are positive. Last year’s $18.5 billion trade deficit has been replaced with a $245 million surplus; and the government has repaid more than half the high-interest, dollar-linked bonds it had used to attract foreign investment.

``Financially speaking, the worst is over,″ an upbeat Finance Minister Guillermo Ortiz told international lenders in April.

But Mexican families don’t share that optimism. After all, they are paying heavily for government measures to shock the economy into stability. Inflation is expected to eat away one-third of their purchasing power this year even after pay raises.

``Things aren’t getting better,″ says Ramiro Guzman, a 47-year-old gardener and father of two. ``They’re getting worse.″

Guzman says price increases are making it harder to afford the meat _ chicken scraps or pork _ his family eats once or twice a week.

University clerk Elizabeth Estrada plans to strike with her university union later this month if the government doesn’t raise wages 50 percent. She says she can’t feed her four children on a salary of $128 a month.

Already some 750,000 Mexicans have been thrown out of work, according to official figures.

``The middle class is being hit from several sides: inflation, tax hikes, layoffs, and higher interest rates,″ said economist Nora Lustig, a Mexico expert at the Brookings Institution.

Interest rates on credit cards have soared to more than 100 percent a year and the sales tax is up five percentage points. The government predicts 42 percent inflation for the year, though most experts say it will be higher.

Officially, the minimum wage rose by 24 percent. But many say their pay rose by less than 10 percent while benefits such as subsidized loans have vanished.

Even business leaders, historically loyal to the government, are starting to rebel.

``The crisis has yet to hit bottom ... and the next 16 to 18 months will be the worst,″ said Victor Manuel Terrones, head of the powerful Chamber of Manufacturers, in a television interview.

Some of Mexico’s biggest and most stable companies _ construction giant Empresas ICA, truck and bus manufacturer Grupo Dina, and tourism conglomerate Grupo Situr _ reported steep losses in the first quarter. Also struggling to hang on are thousands of small and medium-sized businesses.

``The improvement in the stock market, the stabilization of the peso, the declining interest rates are the result of a government policy of image designed to attract foreign investment,″ said John Soldevilla Canales, economic analyst with the Mexican Banco Internacional. ``The real economy is something else.″

Terrones and others warn that if President Ernesto Zedillo doesn’t stem unemployment, unrest could result. Anger is already rising over home, car and farm repossessions.

``The real question is whether people meekly accept the loss of their car, or whether they start protesting,″ said economist Thea Lee of the Economic Policy Institute in Washington.

She estimates that real manufacturing wages are two-thirds of 1980′s levels.

``If real wages continue to stagnate or fall, if job creation continues to be slow or nil, you’re going to have deepening poverty and social unrest and that feeds back into whether Mexico is able to attract foreign investment over the long term.″

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