Bordering on Chaos

(2 of 2)

The situation is even grimmer for merchants on the American side, where Mexican customers can no longer afford to shop with their devalued pesos. The stores of south El Paso, just across from Juárez, are almost deserted. "All our business came from Mexico," says Frank Roches, owner of Palace Jewelry. "They have no money now." Business is off 65% at the S.E.I. Fed Mart department store in the California border town of Calexico, and Owner Sergio Farias has laid off 180 of his 230 employees.

Compounding the crisis are the currency controls instituted by López Portillo, who unjustly blames much of his country's economic plight on sacadólares, wealthy Mexicans who have been sending their money out of the country to safer havens. The scattershot regulations restrict the amount of currency that anyone can take out of Mexico. Tourists, except those visiting just the border areas, must declare all the cash they bring in. Foreign-owned industries may have trouble sending profits home; most Mexican businesses are hard pressed to obtain foreign currency for paying off outside debts; and banks are not releasing dollars for checks or credits owed to foreign merchants. Only Mexico's central bank has the authority to hold or trade foreign currencies. Despite having established an official exchange rate, it is keeping all U.S. dollars to pay off its national debt.

Blocking currency movements with regulations tends to be as fruitless as trying to control water with a rake. Trade has been severely stymied. "There is no practical way to handle transactions with Mexico," says Mark Miles of the El Paso Chamber of Commerce. "If we got a check from a Mexican, there is nothing we could do with it. And what do we do with pesos?" Says Doug Fuller, a Southern California Ford dealer: "It's kind of a catch-22. They can't get dollars and we can't take pesos."

The Small Business Administration is trying to help American merchants ride out the crisis by establishing a $200 million assistance program that includes Government-backed loans at 14.5% interest. Many sinking border businessmen see this as scant support. "We don't want SBA aid," says Calexico furniture-store Manager Roberto Platero. "We can take care of our own if we could find some way to exchange the pesos." But a meeting of several U.S. and Mexican Governors in San Diego a week ago produced no solutions.

Part of the plight comes from simple confusion. Once it becomes clear exactly how the food-export ban and currency controls will be enforced, business will settle down, although perhaps not thrive again. The underlying problem of the jittery Mexican peso, however, will probably remain unresolved until after Dec. 1 at least, when Miguel de la Madrid Hurtado takes over as Mexico's new President. That is a short time in the life of nations, but an eternity for beleaguered shopkeepers on both sides of the Border. —By Walter Isaacson. Reported by Sam Allis/El Paso and Cheryl Crooks/Calexico

With reporting by Sam Allis, Cheryl Crooks

1. McCain's Foreign Policy Frustration
2. Banksy: An Artist Unmasked
3. LeBron's Gold Guarantee
4. Berlin Awaits the 'Next JFK'
5. Hasbro's Legal War On Scrabulous
6. When Jellyfish Attack
7. Israel's Debate Over an Iran Strike
8. A New Cold War in the Caribbean?
9. Goodbye to France's 35-Hour Week
10. Woman Kills Self Before Foreclosure