The Mexico City Stock Exchange

MEXICO CITY (CNN) -- The Mexican peso, trading at its lowest levels since the 1994 devaluation, failed to gain ground on Monday, leaving analysts and consumers nervous.

To make matters worse, predictions of even higher inflation followed as the peso closed at 9.67 to the U.S. dollar, unchanged from Friday's historic low close, sending another shudder through the Mexican stock exchange.

Many international investors have taken their cue from the plummeting peso to get out of the emerging markets, a decision that culminated Friday in a sharp outflow of funds.

Economists say the surprising weakness of the peso is also throwing already ambitious Mexican inflation targets even further out of reach. A weaker peso means imports become more expensive and local prices climb.

"What happens is that Mexico, as many other countries, is integrated into the world capital markets," says Victor Herrera of Standard and Poors. "And what we are looking at is the influence of other emerging markets' developments affecting Mexico's."

Venezuelan oil refinery

Some analysts say that emerging markets are suffering from the disastrous drop in value of the Russian ruble. Nervous investors, fearful that the drop in currency could be contagious, are pulling out of all emerging markets.

Devaluation in Venezuela?

Fears of a currency devaluation in Venezuela, for example, were not put to rest by government assurances that the bolivar would remain strong. The stock market there has lost 22 percent of its value in the last five days.

Like Mexico, Venezuela has had to reduce government spending because of the drop in oil prices around the world. Eighty percent of Venezuela's exports are petroleum-related.

Mexico, also a major oil exporter, already has been forced to cut $4.0 billion in spending from its 1998 budget because international crude prices have sunk to 10-year lows.

In Argentina, meanwhile, officials are trying to distance themselves from other emerging markets after international investors pulled out of the Buenos Aires stock market last week, causing a 16 percent drop.

A devaluation in the Brazilian currency would hurt Argentine exports

The Argentine government insists that the Argentine peso will not be devalued, but Argentine exporters are keeping their eye on the Brazilian currency. A devaluation in Brazil would hurt Argentine exports, since Brazil is the biggest consumer of Argentine products.

Some investors buying now

There is a popular Latin American saying suggesting that turbulent waters can bring bounty to fishermen who are brave enough to sail them.

Some Latin Americans are actually investing more in their markets now, gambling that the current troubles will end and that emerging markets will regain their images as risky, but potentially bountiful places to invest.

Correspondent Harris Whitbeck and Reuters contributed to this report.