Facebook Twitter

PESO’S FALL EMPHASIZES PACT’S PERILS

SHARE PESO’S FALL EMPHASIZES PACT’S PERILS

Ross Perot is not quite saying "I told you so," but he and other critics of the North American Free Trade Agreement are coming pretty close.

To the discomfiture of the White House, which has counted the passage of NAFTA as one of President Clinton's clearest triumphs, this week's financial turmoil in Mexico has revived the political perils involved in the agreement.Thursday, the peso tumbled nearly 20 percent against the dollar, and the stock market seesawed in frenetic trading after Mexico's government scrapped its policy of defending the peso against the dollar. Even a $6 billion line of credit from the U.S. Federal Reserve to Mexico couldn't stop the currency's freefall.

Meanwhile, U.S. investors watched their holdings in Mexico plunge in value for a third straight day.

Hardest hit have been mutual funds invested heavily in Mexican and other Latin American stocks and bonds, although damage has spread to diversified international stock and bond funds.

Some funds have lost as much as 17 percent of their value, after the Mexican government devalued the peso Tuesday, then allowed it to float freely. The peso now has lost 39 percent of its value against the dollar.

Spokeswomen at Fidelity Investments and Scudder, Stevens & Clark Inc. - among the fund families with significant holdings in Mexico - reported only minimal redemption requests from shareholders.

"We're stressing that this is a time to put into effect dollar-cost averaging," said a Scudder spokeswoman. "We're emphasizing long-term investing." Dollar-cost averaging is a method by which investors make regular contributions to funds, rather than trying to "time" the market.

The peso's steep drop also is making Mexican exports to the United States much more competitive with American goods and can only make the president's job more difficult.

If more goods from Mexico start pouring into the United States, how will the White House persuade the public that free trade enriches the country and does not destroy jobs, particularly manufacturing jobs?

Several administration officials were quick to point out privately Thursday that the peso's plunge might not have much effect on trade.

Economists typically estimate that it takes at least six months for a shift in exchange rates to show up in trade patterns, and then the changes generally are slow to happen. Still, none of that prevented Perot from enjoying the moment.

During his campaign against NAFTA last year, Perot had warned that the Mexican government would devalue the peso by 25 to 30 percent in 1994 and unleash a flood of low-priced goods on the American market.

"I do not want to be vindicated, and I would like to be wrong." Perot said in a telephone interview Thursday.

While most professional economists may disagree with what Perot says, other critics of the agreement, like Ralph Nader, were quick to join him Thursday in denouncing the administration's decision to make available a $6 billion line of credit to Mexico.

"NAFTA was supposed to be about two-way trade, not U.S. taxpayer welfare to prop up the Mexican peso," said Nader.