A continuing economic slump in Mexico coupled with wary foreign investors is stifling direct foreign investment, which is now expected to barely reach half of last year's record $8 billion.

During the early months of this year, Mexican trade and finance officials insisted that the Dec. 20 peso devaluation and subsequent currency collapse and economic crisis would make Mexico more attractive for foreign direct investment.They reasoned that since the dollar, German mark and yen were now worth so much more against the peso, Mexico would be an even better buy. They said $8 billion would be an easy target for 1995.

But new statistics and anecdotal evidence suggest that foreign investors remain wary.

The central bank Banco de Mexico, in a report issued last week on monetary policy for the first half of 1995, confirmed what was suspected. Foreign direct investment totaled nearly $2.6 billion for the first six months of 1995, down considerably from the almost $3.5 billion logged from January to June 1994.

Moreover, while there was a surge in direct investment in the second half of 1994, a similar surge is not expected this year, and Mexico now expects to close the year with about $4 billion to $5 billion in foreign direct investment.

"I think people are reassessing what they thought about Mexico," said Jorge Mariscal, director of the Latin American equity research division for Goldman, Sachs & Co. in New York.

Goldman Sachs has forecast about $5 billion in foreign direct investment this year, and a recent report by J.P. Morgan analysts has Mexico raking in only about $4 billion for the year.

Among the reasons for the decline, Mr. Mariscal said, is that investors know little about Mexico's medium- to long-range exchange rate plans.

The peso continues to float freely against the dollar after years of being programmed within a band, but it is not clear where the Mexican government wants the peso to eventually trade against the dollar.

For example, President Ernesto Zedillo Ponce de Leon said earlier this year that he wanted the peso to trade at 6 to the dollar. It is now hovering around 6.8 and is expected to remain there.

"There has to be a clear signal whether they want to keep a relatively undervalued exchange rate," Mr. Mariscal said. That has implications for investors, he said, because it determines which sectors are more attractive and which are more vulnerable to exchange-rate fluctuations.

"If you don't have that clear, you hold back," he said.

In an interview earlier this month with The Journal of Commerce, President Zedillo said he would be sending to the Mexican Legislature in November tax incentives designed to boost foreign direct investment.

"Certainly without risking our fiscal balance, we will introduce some incentives to encourage private investment. In fact what we want, to be a little bit more precise, is to encourage people to accelerate their investment

plans," the president said. "We will do something to push to the present the proposed investment."

The director of international affairs at Mexico's finance ministry, Alejandro Valenzuela, said that the among the proposals sent to Mexico's Congress in the broad fiscal reform package will be "some fiscal (tax) incentives for increasing the rate of output for small- and medium-sized producers."

Government officials remain generally tight-lipped on the reform package.

The finance ministry's Mr. Valenzuela dismissed the lower foreign direct investment figures, noting that if commitments are factored in the total approaches $8 billion for 1995 and brighter beyond.

"The commitments have been higher than we've expected," he said. President Zedillo on this month's visit to Washington and New York received commitments of direct investment totaling $12 billion over the next five years, he said.

"It depends on how you view things," Mr. Valenzuela said.

But regardless of how matters are viewed, the sharply lower figures for actual foreign direct investment are far less that what was expected under the North American Free Trade Agreement.

The Nafta was sold to Mexicans as a means of luring greater numbers of foreign manufacturers who want to tap Mexico's comparative advantage in labor and sell throughout the world's largest trading bloc.

However, analysts like independent Mexico City economist Jonathan Heath credit the Nafta for the continued attraction of direct investment despite a miserable economy that suffered a 10.5 percent second-quarter contraction.

"It's the second best year ever for foreign direct investment," Mr. Heath said of the potential $5 billion close for 1995. "Given all things considered, the fact that it's going to be as much as it's going to be" is significant, he said.

The Mexican Investment Board, a quasi-government office that works to attract direct investment from across the world said privatization openings coming late this year should boost next year's foreign direct investment.

Among the delays are efforts to open the natural-gas and petrochemical sectors and the state railroad to private and foreign investment.

Concessions for long-distance telecommunications competition also are expected to attract billions of dollars. Right now there are large-scale telecommunications commitments, which are expected to turn into cash received next year.

Mexican Investment Board officials said there is also a trend of longer- term projects continuing to move forward.

"The people who don't have to open tomorrow are going ahead with the projects," said Alejandro Elizondo, a vice president with the board.

For example, he said, U.S. multinational International Paper Co. is going ahead with a $60 million non-woven textile manufacturing plant in the state of Guanajuato. The plant at least initially will concentrate more on exports, Mr. Elizondo said.

Citing another example, the board vice president said French multinational glassmaker Saint Gobain is going ahead with a Mexico plant that has a 14-month construction timetable. Saint Gobain has close ties to Volkswagen, which manufactures its Jetta automobile in Mexico for distribution globally.

"By the time the (Saint Gobain) factory is finished, the market in Mexico will definitely be better," Mr. Elizondo said.