News: Analysis & Commentary: THE MEXICAN CRISIS
SEEKING SALVATION THROUGH EXPORTS
Three months ago, when Mexico's future seemed bright, then Finance Minister Jaime Serra Puche shrugged off the country's $18.5 billion trade deficit in a speech to legislators. A major cause of the deficit, he argued, was a surge of capital-equipment imports by Mexican companies modernizing to compete in world markets. Weeks later, the deficit devastated the peso, the country slid into crisis, and Serra Puche was out of a job.
Now, Mexican officials have high hopes that the cheaper peso will trigger a boom in exports--and help jump-start their nation's stalled economy. Last year, Mexico's exports totaled $61 billion (chart), and officials project a 22% leap this year. Combined with a drop in imports, that would slash the national trade deficit to $5 billion this year. Even less upbeat private economists figure import shrinkage will help pare the trade deficit.
DIMMED PROSPECTS. Rosy predictions, to be sure--too rosy, perhaps. Despite Serra Puche's claim, capital equipment in fact accounted for only 17% of the 1994 import splurge. And few Mexican companies have the knowhow, from quality controls to efficient billing, to compete internationally. This year, the government's cash-strapped export-development bank will cut its discounted export loans to $11 billion, down 26.7% from last year. For Mexico's mostly small and underfinanced companies, that dims the prospects for breaking into export markets. "Organizing sales, distribution, brokers, wholesalers--it takes a lot of time and money," says Hector Hernndez Pons, vice-president at Herdez, a food canner.
That's one reason Mexican exports are concentrated in a handful of sectors such as oil, autos, and chemicals. It's also the reason so many export products are produced in maquiladoras, the 2,000-odd plants along Mexico's northern border. Most other Mexican companies are so small they can't benefit from the North American Free Trade Agreement. "Ninety percent of the labor force and 90% of companies are outside NAFTA," says Roberto Batres, director of consultants Arthur D. Little Mexicana.
Another factor limiting Mexico's potential as an export machine: Its companies are heavily dependent on foreign components. That's largely because few homegrown suppliers can match foreign rivals' quality and productivity. As a result, Mexican auto assemblers, to cite one example, buy components from the U.S. and Canada under long-term contracts. A shift in the peso's exchange rate won't change that pattern, says a Ford Motor Co. official.
SCREWUPS. The lack of good local suppliers explains why the bulk of Mexico's imports--nearly half of 1994's $79 billion total--are intermediate goods. "We were importing the stupidest things, like screws," says Manuel Garca Quintano, export director of Organizacin Mabe, an appliance maker that exported $240 million worth of gas stoves last year in a joint venture with General Electric Co. Recently, Mabe invited 140 potential local suppliers to show their wares, and Garca is optimistic that many will now try to meet Mabe's standards.
The maquiladoras, however, are likely to remain heavily dependent on foreign parts. The border plants, which import components, mostly from the U.S., and reexport assembled products, generated exports of about $26 billion last year. The rub: They bought just 2% of their components in Mexico.
Some multinationals are giving local suppliers a boost. IBM de Mexico, which exported $700 million in personal computers and other equipment last year from its Guadalajara plant, helped electronic-parts maker Elamex acquire advanced technology to produce circuit boards. This year, Elamex expects to sell $85 million worth of components to customers such as Black & Decker Corp. and rocket builder Martin Marietta Corp. That's a nice chunk of change. But it will take more than a few enterprising companies to create an export boom. Unfortunately, Mexico can't afford to wait too long.By Elisabeth Malkin in Mexico City