INDUSTRY CHEERS CLINTON ON NEW PLAN FOR MEXICO
Byline: Jim Ostroff and Joyce Barrett
WASHINGTON — President Clinton’s move Tuesday to bypass Congress and use his executive authority to set up a program to help stabilize Mexico’s currency crisis drew immediate and generally solid approval from U.S. interests in textiles, apparel and retailing.
How effective the loan guarantee program will eventually be in restoring normalcy to Mexico’s chaotic economy remains to be seen, but executives agree that action had to be taken quickly.
Clinton’s announcement came after Tuesday morning meetings at the White House, during which congressional leaders of both parties told him there weren’t enough votes in either the House or Senate for fast passage of the $40 billion loan guarantee that has been bouncing around Capitol Hill for more than two weeks.
Clinton’s three-part $47.5 billion Mexico loan guarantee plan will see the U.S. extend $20 billion by tapping the government’s Exchange Equalization Fund, which the President can do by executive order without congressional approval. In addition, the International Monetary Fund agreed to increase its loan guarantees to Mexico by $10 billion to $17.5 billion, while the Bank for International Settlement will put up another $10 billion.
The crisis in Mexico, Clinton said, “is getting worse by the day…and it poses great risks to our workers, to our economy, and we must act now.” Billions of dollars’ worth of exports there are endangered, he said.
Industry representatives agreed.
“This was the right thing to do, as the situation in Mexico needs to be resolved earlier rather than later, and we’d hope that some other nations with major investments in Mexico, such as Great Britain, would help in this effort,” said Larry Martin, the American Apparel Manufacturers Association president.
Martin noted that as a result of the peso devaluation U.S. apparel exports to Mexico have substantially “dried up, after we had been doing well.”
“It is very important, for U.S. apparel companies and the U.S. economy equally, that the Mexican economy be stabilized so it can get back on a growth curve,” he said.
Before Dec. 20 when the Mexican economy began unraveling with the devaluation of the peso, U.S. exports to Mexico were growing rapidly. For the first nine months of 1994, U.S. apparel exports to Mexico were $805.7 million, up 39 percent from $580.9 million in the year-ago period. By comparison, U.S. imports of Mexican apparel for the first nine months of 1994 were $1.1 billion, up 38 percent from $826 million.
Applauding the President’s actions, Linda Wachner, Warnaco Group’s chairman and president, concurred that it was vital to stabilize Mexico’s economic situation.
“The method of doing this was not critical; the bottom line was the outcome,” she said. “We must all move ahead and develop the vast potential of [the North American Free Trade Agreement] to bring greater prosperity on both sides of the border.”
Tracy Mullin, president of the National Retail Federation, praised Clinton’s initiative as “good news for the U.S. economy and a positive one for retailers as its effects ripple though the economy.”
She said it “averts a potentially disastrous situation. Period. It avoids the potential collapse of the Mexican economy — something the U.S. does not want to see happen there or in any other nations in the world.
“If we have a strong Mexican economy, it will help strengthen the U.S. economy and in both ways have a positive effect on retailers who are already in the Mexican market, or looking to Mexico as a new area for expansion,” Mullin said.
“We’re supportive of actions that will help stabilize the Mexican economy, because American importers and retailers have made a commitment to do business in Mexico,” said Julia K. Hughes, vice president, Associated Merchandising Corp., and chairman of the U.S. Association of Importers of Textiles and Apparel.
Clinton’s action was similarly hailed by J.C. Penney, which is expanding into Mexico this spring with two stores.
“It’s important to the United States as well as to Mexico,” a Penney’s spokesman said. Despite predictions of worsening Mexican conditions because of the currency crisis, the spokesman said, a slowdown in Mexico’s economy would not deter the chain’s expansion plans there.
“We open stores in the U.S. during recessions in anticipation of the good times,” the spokesman said. “Our stores are open to serve our consumer groups at any time. We don’t look at the crisis, nor an impending recession, as a permanent setback.”
Dillard de México president G. William Haviland said he also favored Clinton’s plans for various reasons. A key reason is that it will give Mexican retailers “some stabilization in their pricing, projecting and forecasting.” Dillard’s plans to open a store in Monterrey, Mexico, this fall.
Since the peso’s drop began, Haviland said, retail prices have fluctuated greatly on items exported to Mexico because of the varying value of the exchange rate. Also, Mexican retailers are having trouble getting letters of credit to import merchandise into the country because of the reduced value of the peso, he said.
A spokesman for Wal-Mart Stores said it’s too early to tell whether the new aid package will have any effect on the discount chain’s decision to put on hold plans to open 25 units in Mexico this year with its joint venture partner, Cifra SA de CV, Mexico’s discount king.
“At this point the news is so fresh for us. We’re still taking the situation one day at a time,” the spokesman said.
However, he added, “We are very committed to our long-term business plan in Mexico, and we will proceed with that when we are ready.”
The Clinton initiatives should provide confidence to “Mexican apparel manufacturers who now have some hope that the peso will stabilize,” averred Betty Webb, senior vice president with Bobbin Blenheim, Columbia, S.C. Nevertheless, Webb noted the six-week economic panic in Mexico has had minimal effect on advance registration for Expotela, the Bobbin-sponsored show for textile suppliers to Mexico’s apparel industry. Webb said 114 firms have registered for the Feb. 14-16 show in Mexico City, down from 120 who attended last year’s exhibit.
Another more downbeat view on the immediate impact of the loan guarantee came from Clinton Stack, president, International Development Systems, a Washington textile-apparel trade consulting firm, and an economist, who said the loan guarantee program will do little to help buoy U.S. exports to Mexico.
“This money may trickle down to consumers, but it will give them little additional purchasing power, and Mexico has major dysfunctions in its economy that must be addressed,” he said.
Andrew Postal, president, Judy Bond Inc., New York, said the real test of the aid program’s efficacy will be its impact, positive or negative, on investor confidence.
“A lot will depend on how people perceive the situation and whether the international financial community will want to provide more liquidity to Mexico,” he said. Postal noted that Judy Bond manufactures in Mexico through a contractor.
“In time, the [aid program] might reduce our costs there,” he said. “But the conditions discourage me from contemplating any capital investment there.”
The President’s decision also was praised by congressional Republicans, who appeared relieved that Congress would not have to take a stand on such a divisive issue.
“This is a course properly taken,” Senate Majority Leader Robert Dole (R., Kan.) said. Sen. Robert Bennett (R.,Utah), a chief negotiator for the Senate on the package ultimately scrapped, said he did not expect any attempt to be mounted in the Senate to scuttle Clinton’s plan and added, “This is a better deal.”