Mexico Plans To Slim Down Bloated Peso
But public concerns about devalued savings may hamper transition. LOPPING OFF THE ZEROS
MEXICO CITY — YEARS of inflation and devaluation have wreaked havoc on Mexico's peso, and today almost everyone is a "millionaire." From company presidents to office boys, most salaries are six or seven figures.
Prices are no different.
A McDonald's Big Mac costs 10,000 pesos; a Coca-Cola purchased in a store costs 500 pesos. Each United States dollar fetches a little more than 3,000 pesos - and that rate changes daily.
President Carlos Salinas de Gortari's government has decided the peso is too fat. Beginning Jan. 1, the central bank will cut three zeros from the peso.
A 50,000 peso note will become 50 pesos. People earning 1 million pesos a month will soon be bringing home 1,000 pesos a month. A US dollar will trade for 3 pesos.
Nobel prize-winning economist Milton Freidman has called the change "simple arithmetic."
Mexican political analyst Roberto Salinas Leon describes it as "monetary plastic surgery" for an overworked peso.
"Monetary transactions have become increasingly more difficult," he says, noting the government's recent introduction of a 100,000 peso bill to keep up with the structure of salaries and prices.
As Mexico attempts to become more of an international economic player, the image of its bloated currency has to change.
Businessmen agree with the government's upcoming plans.
"I think this is going to help tourism because people won't have to juggle all these zeros," says Nick Noyes, owner of a well-known Mexico City restaurant called Delmonicos.
Another US businessman working in Mexico says his company will be able to use many of the popular US-marketed computer programs for accounting. With so many items costing millions - or even billions - of pesos, computer operations have become cumbersome.
MANY Mexicans, however, are more cautious about the change.
"We get a tremendous number of calls every day asking us, what is this going to mean to savings?" says Sergio Sarmiento, a political analyst and the co-host of a popular daily radio show. "They really don't know what is going on, and they are really concerned."
Mr. Sarmiento assures people calling his program that not much is going to change - except for the loss of three zeros. But people are not quick to accept accounting explanations, and they are suspicious that the transition will not be smooth, he says.
Mr. Salinas Leon says the average person may sense he is losing because initially 1,000 "new" pesos will seem less than 1 million "old" pesos.
Observers anticipate that many Mexicans will seek security in a traditional ally - the US dollar. When the government instituted monetary changes in the past, lines at banks and money exchangers grew instantly.
One economic fear for consumers is inflation. Through strict wage and price controls, Mexico's inflation now hovers around 10 percent - down from its triple-digit mark in the 1980s.
Inflation may increase if the transition is not handled correctly, says an economist from the Anahuac University in Mexico City. Since old and new bills will circulate side by side for about two years, there may be too much money in circulation.
Some people worry that when the new peso arrives, so will new prices. For example, a product retailing for 17,500 "old" pesos should carry a price tag of 17.5 "new" pesos. An unscrupulous businessman, however, might "round up" the price to 20 pesos.
The government has put display advertising in popular newspapers to explain the elimination of the three zeros and put public fears to rest before the change.
Senate Finance Committee chairman Jesus Rodriguez, who held hearings on the peso change, says people are exaggerating potential problems. "This will have no impact on inflation," he says. "It will not raise or lower it."
To avoid rounding up prices, and the subsequent impact on inflation, the government will require all prices to be listed with the "old" and "new" peso values for four months from November.