A Toast to Trouble.(Mexican economy)(Brief Article)

Jorge Estrada remembers how quickly Mexico fell apart during its last recession. In late 1994, after the debt-choked government devalued the peso, Mexicans began losing their businesses, homes and cars. Desperation set in. To make up for lost sales, Estrada, a grocer, started sending his delivery trucks on longer and more dangerous routes. Then gangs started hijacking the trucks, so Estrada first went to the police, who demanded bribes. Eventually he found it easier to pay protection money to the gangs, but by 1995 he was out of the grocery business, and the "peso crisis" was in full swing.

That was Mexican Economics 101 in action. The country has a long history of boom turning to bust and dissolving into chaos as incompetent governors make a bad situation worse. So when the economy started to falter again a year ago, Mexicans expected disaster, only to be pleasantly surprised. Growth stalled, layoffs hit hard, but the descent into crime and currency crisis never came. This time, growing trade and financial ties to the United States, competently managed by a new president and central-bank chief, helped Mexico weather a global recession that once would have spelled disaster. From Wall Street to Mexico City, financial experts are quietly celebrating. Mexican economist Jonathan Heath says, "Our recession is now a First World recession, as opposed to a typical Third World recession where the country falls apart." As a result, Mexico is no longer victim to the financial pathos still afflicting other parts of Latin America, says Heath. "Right now we look at the crisis in Argentina and we say, 'Poor guys'."

To be clear, this view is not widely shared by the Mexican in the street, by unemployed autoworkers or by farmers squeezed by rising costs and falling crop prices. After the economy contracted last year and President Vicente Fox failed to deliver on campaign promises to provide 1.3 million new jobs, his popularity rating dropped below 50 percent. Yet something is positively different.

Downturns had hit Mexico roughly every six years for the past three decades, following a devastatingly familiar pattern. Investors lost confidence and fled; the government rapidly spent its hard currency to finance a ballooning trade deficit but finally had to devalue the peso, spurring inflation and economic collapse. This time the peso is strong, inflation is at a record low and foreign investment continues to flow at a record high. In January Standard & Poor's promoted Mexico's credit rating to "investment grade." This recession just feels different, less ...