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Viewing cable 07MEXICO2202, MEXICO ECONOMIC NOTES, APRIL 27 - MAY 4

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Reference ID Created Released Classification Origin
07MEXICO2202 2007-05-04 16:11 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Mexico
VZCZCXRO6007
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2202/01 1241611
ZNR UUUUU ZZH
P 041611Z MAY 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 6727
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFIUU/CDR USSOUTHCOM MIAMI FL PRIORITY
RHMFIUU/CDR USNORTHCOM PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
UNCLAS SECTION 01 OF 03 MEXICO 002202 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN MX PGOV PREL
SUBJECT: MEXICO ECONOMIC NOTES, APRIL 27 - MAY 4 
 
 
Summary 
------- 
 
1.  (SBU) The Mexican senate approved a bill combating 
terrorist financing that will now go to the President for 
signature.  The Bank of Mexico (BOM) raised interest rates by 
a quarter percent to head off inflation, and the Finance 
Secretariat and BOM revised this year's growth forecast 
 
SIPDIS 
downwards.  Mexican economic leaders met to call for change 
in the wake of yet another study showing dropping Mexican 
competitiveness.  GOM officials pledged to better protect 
copyrights, trademarks, and patents after reappearing on the 
"USTR Special 301 IPR Watch List."  Both Standards and Poors 
and Fitch Ratings assigned their highest ratings to the State 
of Hidalgo newest financing vehicle after the state received 
USAID technical assistance in the field.   Finance Secretary 
Carstens, in a meeting with congressional representatives, 
confirmed that Congress would have a fiscal reform package to 
consider before September.  End summary. 
 
Terrorist Financing Bill Passes Congress 
---------------------------------------- 
 
2.  (SBU) Mexico's Senate passed a bill on April 26 that 
would punish people who finance terrorist groups with up to 
40 years in prison (See Mexico 963).  The measure passed over 
the PRD's opposition to what they called vague wording 
defining terrorism that could be used against legitimate 
political activity.  The bill would establish terrorism 
financing and international terrorism as serious criminal 
offenses, as called for in UN Resolution 1373, and also would 
make it easier for police to investigate bank records in 
cases of suspected terrorism.  The Chamber of Deputies (lower 
house) approved the bill on February 20, 2007.  To become 
law, the bill must be signed by the President and published 
in the official gazette. 
 
BOM Raises Interest Rates 
------------------------- 
 
3.  (U) The Bank of Mexico (BOM) caught many economists off 
guard on April 27 when it decided to raise its benchmark 
interest rate from 7.0% to 7.25% to head off the threat of 
inflation.  All 16 economists surveyed by Bloomberg had 
expected the BOM to hold rates steady after consumer prices 
fell in the first half of April, bringing headline inflation 
down to 3.96%, below the BOM's 4% upper limit.  Most analysts 
believe that this is not the beginning of a tightening cycle, 
but rather a move intended to keep hikes in food prices from 
spreading to other areas of the economy and, as some note, a 
move to help restore the BOM's credibility.  The Finance 
Secretariat this week revised its growth forecast for 2007 
 
SIPDIS 
from 3.6% to 3.3%, and the central bank lowered its forecast 
to 3.0-3.5%.   Unemployment rose from 3.5 to 4.0 percent in 
the first four months of the Calderon presidency according to 
the Mexican National Statistics Institute.  Observers noted 
that both the formal and the informal sector, which can act 
as a "safety valve," are weakening. 
 
Economic Leaders Call for Action on Competitiveness 
--------------------------------------------- ------ 
 
4.  (U) Secretary of Economy, Eduardo Sojo; Senate 
Competitiveness Chair Eloy Cantu Segovia; Chamber of Deputies 
Competitiveness Chair, Mariano Gonzalez Zarur; and Roberto 
Newell of the Mexican Competitiveness Institute (IMCO) spoke 
together on the need to immediately address Mexico's grave 
competitiveness problems.  By IMCO's own analysis, Mexico 
dropped from 30th to 33rd place among the world's 45 largest 
economies in terms of its competitiveness.   The conference's 
message was that the decision time is now and that Chile, 
Ireland, and South Korea were able to turn their economies 
 
MEXICO 00002202  002 OF 003 
 
 
around with sensible and sustainable policies.  Mexico can do 
it too.  All participants received a large tome describing 
Mexico's shortcomings with respect to other nations that have 
done better in many global/sectoral rankings during 2006. 
OECD Secretary General Jose Angel Gurria spoke to the 
audience by video link from Paris and echoed others' comments 
that Mexico faces "very serious" competitiveness problems. 
The OECD plans its economic review of Mexico to help set the 
stage for needed economic policy actions.  Review 
recommendations include (1) promoting free competition in the 
economy (code words for taking on monopolies and 
oligopolies); (2) ensuring a high-quality and effective 
regulatory structure; and (3) promoting more effective 
government (good governance/rule of law/combating corruption). 
 
Mexico Will Do Better on IPR 
---------------------------- 
 
5.  (SBU) GOM officials responded positively to news that 
Mexico will stay on USTR's Special 301 IPR Watch List, 
expressing their commitment to take measures both 
domestically and in coordination with the U.S. to better 
protect copyrights, trademarks, and patents.  In recent weeks 
there have been encouraging signs of progress.  President 
Calderon reiterated in an April 26 speech his government's 
determination to combat piracy.  The Mexican Senate passed a 
bill that would give law enforcement officials ex officio 
authority to go after pirates and counterfeiters.  The 
Chamber of Deputies is expected to pass the bill into law in 
September.  Mexico's Office of the Prosecutor General of the 
Republic (PGR - equivalent of U.S. Department of Justice) has 
finished staffing its IPR team and is set to launch an 
interactive IPR website.  Mexico also asked to join as a 
third party the consultations the U.S. requested with China 
regarding its failure to honor its WTO commitments with 
regard to IPR protection.  The upcoming visit of Commerce 
Under Secretary Lavin and the meeting of the SPP working 
group on IPR scheduled for next month provide opportunities 
to recognize these advances and push for further progress. 
For more details, see septel. 
 
State Public Finance Success 
---------------------------- 
 
6.  (SBU) USAID's program to help Mexico's states and 
municipalities tap innovative sources of financing had a 
major success when both Standards and Poors and Fitch Ratings 
assigned their highest ratings (AAA.Mx) to the Hidalgo 
financing vehicle that is comparable to a state revolving 
fund. The State of Hidalgo received technical assistance 
through USAID's Global Development Alliance partner, Evensen 
Dodge International.  This is the first state revolving fund 
to receive the highest domestic rating in Mexico, AAA.Mx.  It 
will permit the State of Hidalgo to access capital market 
financing at preferential rates, which will benefit Hidalgo 
itself, and allow 84 underlying municipalities and parastatal 
entities to access private financing through this revolving 
fund. The fund will issue 2,387,000,000 Mexican pesos (USD 
221 million) to refinance and restructure outstanding debt. 
The deal is in final negotiations and is expected to close on 
May 8. 
 
Fiscal Reform Coming This Summer 
-------------------------------- 
 
7.  (U) Finance Secretary Augustin Carstens in a meeting with 
congressional representatives, confirmed that congress would 
have a fiscal reform package to consider before September 
when the session reopens, but no decision has been taken as 
to whether the package would include controversial provisions 
extending value added tax to food and medicine.  PRD and PRI 
members have signaled that any proposal including such a tax 
 
MEXICO 00002202  003 OF 003 
 
 
would fail.  President Calderon outlined the "four pillars" 
of the reform proposal as (1) improve transparency and 
accountability in government spending and gear more 
expenditures towards socioeconomic development; (2) diversify 
sources of government income to reduce vulnerability of the 
federal budget to changes in the oil price; (3) re-establish 
"on a firm basis" the financial relationship between the 
federal government and the states; and (4) improve tax 
collection efficiency, with the goal of increasing 
collections by 3 percent of GDP during the Calderon sexenio. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA