Peso’s Steady Slide Continues to Batter San Ysidro Business

SAN YSIDRO —  On a recent afternoon, business was desultory at the M & M Hardware store. Occasional customers, all from Mexico, wandered in to browse or to purchase an odd paintbrush, length of cable or light fixture. A visitor wondered aloud whether it wasn’t just the midweek afternoon lag.

“No, it’s like this most of the time,” said co-owner Eduardo Gonzalez, himself a Tijuana resident, who was dressed in a powder-blue guayabera shirt and shorts as he fashioned keys on a machine behind the counter and spoke matter-of-factly of his plight. “Business is always slow.”

These are not the best of times in American towns along the almost 2,000-mile-long U.S.-Mexico border where Spanish-language signs, prominently posted peso exchange rates and Mexican license plates attest to an economic dependency on a Third World nation gripped in crisis. Since 1982, the precipitous decline of the peso has cut deeply into the buying power of Mexican customers, drastically reducing the clientele that once made San Ysidro and other border communities booming trading centers.

Earlier this month, the peso suddenly lost almost 30% of its value in a week, generating considerable concern here and temporarily decreasing business by a fourth or more. The volatile peso quickly staged a mini-recovery and shakily stabilized in the neighborhood of 600 pesos to the dollar--a more than 20-fold increase compared to a 26-peso rate of early 1982. A 1,000 peso note, which bought a decent bundle of groceries back then, doesn’t even buy two packs of cigarettes these days. Soon, it probably won’t even buy a pack.

Though Mexican citizens are still attracted by the quality and availability of goods in the United States, the constant devaluations mean fewer and fewer can afford the luxury of shopping here. “When the middle class starts feeling the squeeze, they may as well shut down the border,” said one merchant here.

In the aftermath of the peso’s most recent plunge, the mood along the border is one of low-key resignation--in stark contrast to the near-panic that followed the major peso devaluations of 1976 and 1982.

“People tend to get used to it; it becomes a routine,” said Hector Medina, an assistant manager at Longs drug store in San Ysidro.

Unlike the most recent plunge, the 1976 and 1982 devaluations interrupted comparatively stable periods for the Mexican currency. The 1982 slides, in fact, augured a downward spiral that hasn’t abated. Since then, hundreds of border firms have gone out of business, creating a band of economic stagnation and Depression-level unemployment that stretches from the Pacific Ocean to the Gulf of Mexico.

Nonetheless, the once-pervasive shock among border merchants seems to have been replaced by a kind of depressed acquiescence. By now, hardly anyone expects the peso to come back. Observers predict that the 1,000 peso to the dollar mark is just down the road, maybe after the completion of the World Cup in Mexico. The boom years are a distant memory.

“It’s a matter of surviving here now,” said Jack Yufe, a cigar-puffing store-owner who has sold clothing and electronic goods to Mexican customers in San Ysidro for 15 years, experiencing both the good and lean times. “The question is, ‘How does one survive?.’ ”

One key to survival, according to economic planners in U.S. border cities, is to diversify border economies away from their almost total dependence on an increasingly unstable Mexican clientele. Borderwide, chamber of commerce officials boast of planned industrial developments and tourist facilities, but the reality is that it’s easier said than done.

“For some of these areas, there aren’t many alternatives,” noted Thomas F. Lee, an economic consultant in El Paso who has studied the border economy.

Some border towns suffer worse than others. In 1982, the economies of communities such as Laredo, Tex., Calexico and San Ysidro were almost totally dependent on Mexican business. Other border areas, such as Yuma, Ariz., and El Paso suffered less because their economies were more diversified.

In San Ysidro, business leaders say the dependence on Mexican trade has lessened somewhat in recent years, due largely to a heavy influx of new permanent residents to one of San Diego’s most affordable areas. The new arrivals have in part filled the void left by Mexican shoppers, but the newcomers are only a palliative--many merchants still do up to 90% of their business with Mexican customers.

“It’s kind of a scary situation; we really don’t know what’s going to happen in the next six months,” said Alberto R. Garcia, a San Ysidro businessman who heads a trade group representing firms on both sides of the border. “The whole situation is pretty critical right now.”

Though all border communities share certain traits, all face somewhat different circumstances. Unlike fairly isolated border cities such as Calexico and Laredo, San Ysidro is actually a neighborhood in a much larger and more vibrant city--San Diego. Besides making purchases in San Ysidro, many Mexicans also spend their money in nearby Chula Vista and other areas of San Diego. Each year, Mexican shoppers contribute untold tens of millions of dollars to the economy of San Diego County, only a part of it in San Ysidro, according to business estimates.

“We are in essence one market area,” noted Al Reese, an official with the San Diego Convention and Visitors Bureau.

So when Mexico suffers, so do border areas like San Diego, though precise losses in sales are hard to track. A Chamber of Commerce survey of 13 major shopping centers in San Diego County found that sales to Mexican citizens declined from $100 million in 1981 to $51 million in 1983.

In San Ysidro itself, the effects of the devalued peso are readily apparent, although, again, there are no precise figures. Merchants interviewed say sales are down anywhere from 25% to 75% since 1981, considered the last banner year by many business owners. Since the shock of the devaluations and the initial exodus of Mexican consumers, staffs have been cut, inventories have been slashed, overhead has been reduced. Dozens of concerns have been forced out of business, merchants say. Moreover, businessmen have been forced to adjust their schedules to the irregular beat of the peso. When the currency began to nose dive earlier this month, many employees were sent home early as merchants waited for the peso to stabilize and for their Mexican customers to return.

“They say the strong survive,” noted Yufe, who is an attentive student of business trends in San Ysidro. “The weak fruit from the tree has already fallen; however, now even the strong fruit is being shaken.”

San Ysidro is a fast-growing, working-class area whose population is estimated at about 16,000. Unemployment stands at about 25%, said Paul Clark, president of the chamber. About 80% of the population is Latino.

Despite the area’s economic problems, San Ysidro does not have the depressed look of a city such as Laredo, where vacant storefronts attest to the loss of business. In San Ysidro, in fact, there appear to be few vacant businesses, with the notable exception of Plaza Mayor, a large shopping center opened in the early 1980s to cater to Mexican clientele. That mall remains about 40% vacant.

Part of the slack has been taken over by San Ysidro’s bustling financial industry, which took off in the 1970’s. The area has become a major financial center, with couriers routinely crossing the border with cash-filled suitcases. The tiny community has eight banks or savings and loans and more than 60 money-exchange houses, according to the chamber.

U.S. officials have alleged that some of the hundreds of millions of dollars that enter the United States each year through San Ysidro represents illicit drug profits from the lucrative Mexican drug trade. However, business leaders and bankers say that much of the money is simply capital flight funds belonging to Mexicans seeking to protect their savings by investing them in U.S. banks.

Whatever their source, the financial industry has provided some jobs, although business leaders point out that money outlets don’t necessarily translate into local investments. The wealthy investors who use San Ysidro for their transactions typically live and shop elsewhere; the community’s businesses rely on a more blue-collar clientele.

“I don’t consider them as part of the stable economy in San Ysidro,” Clark said about the many exchange houses. “They came in a few years ago, but we don’t know how long they’re going to stay.”

San Ysidro could probably survive without the plethora of exchange houses, but not without Mexican commerce. In nearby Tijuana, developers have opened up modern American-style shopping areas in an effort to compete with U.S. businesses, while civic leaders there urge citizens to keep their money south of the border.

“Spend in Tijuana what you earn in Tijuana,” say billboards and posters.

Many Mexicans are taking the advice--more, it seems, because of financial necessity than national pride. But many, like, Juan Trujillo of Rosarito, are still traveling to San Ysidro to purchase the American-made items they have come to depend on.

“We prefer the goods we buy in the United States,” explained Trujillo, a 32-year-old Mexican father of two who spoke recently in the Safeway parking lot as he loaded groceries into his truck. “It’s true, though, that if it keeps getting more and more expensive, many people won’t be able to afford to shop here any more.”