VZCZCXRO7268
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0820/01 0452114
ZNR UUUUU ZZH
R 142114Z FEB 06
FM AMEMBASSY MEXICO
TO RUEHOT/AMEMBASSY OTTAWA 2168
RUEHC/SECSTATE WASHDC 8947
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 02 MEXICO 000820 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD, AND EB/EPPD 
STATE PASS USAID FOR LAC:MARK CARRATO 
TREASURY FOR IA MEXICO DESK: JASPER HOEK 
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV MX
SUBJECT: BANK OF MEXICO OFFICIAL WORRIES ABOUT AMLO 
 
 
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SUMMARY 
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¶1. (SBU) Bank of Mexico (BOM) deputy governor Jose Sidaoui 
told Econoffs February 9 he is worried that leading 
presidential contender Andres Manuel Lopez Obrador (AMLO), 
should he win, would rule like Venezuela's Hugo Chavez. 
Sidaoui also commented more generally about Mexicans' 
ingrained dependence on government as the source of jobs and 
economic benefits.  Clarifying BOM Governor Guillermo Ortiz's 
recent comments about using Mexico's foreign reserves to pay 
down foreign debt, Sidaoui explained that the GOM would have 
to run budget surpluses with which to buy the foreign 
currency from the BOM.  Commenting on new Fed Chairman 
Bernanke, Sidaoui said his challenge would be to help drain 
excess liquidity from the global financial system without 
sending the U.S. into a recession.  End summary. 
 
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AMLO AS CHAVEZ 
-------------- 
 
¶2. (SBU) BOM deputy governor Jose Sidaoui, one of five BOM 
board members (including BOM governor Guillermo Ortiz), met 
with Econoffs February 9 to share his perspectives on 
Mexico's economic future.  He was particularly worried that 
"the worst case" political scenario appeared to be close to 
reality with the sustained lead of leftist presidential 
candidate Andres Manuel Lopez Obrador in the polls.  Sidaoui 
was not specific in his concern, but clearly believed that 
AMLO poses not only a threat to economic growth, but also to 
macroeconomic stability, repeatedly invoking the comparison 
to Venezuela's Hugo Chavez.  Responding to an emerging 
consensus that AMLO could not affect Mexico's macroeconomic 
stability the way that Chavez has done in Venezuela, Sidaoui 
merely responded: "Why not?"  He also repeatedly referenced a 
major public corruption scandal in Mexico City during AMLO's 
tenure as mayor, noting that AMLO's closest advisor, who was 
caught on videotape stuffing illicit cash in his pockets, 
remains free.  Sidaoui's general concern is that AMLO and his 
followers "don't believe in markets; they believe in 
government control of the economy." 
 
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GOVERNMENT AS THE DISTRIBUTOR OF ECONOMIC BENEFITS 
--------------------------------------------- ----- 
 
¶3. (SBU) Sidaoui also expressed dismay that Mexicans, in 
general, seem more comfortable with the idea of government as 
the source and distributor of economic benefits, rather than 
the market.  He blamed 70 years of Institutional 
Revolutionary Party (PRI) rule -- government marked by its 
skillful use of largesse, favors, and jobs to remain in power 
-- for the attitude.  He suggested AMLO is merely exploiting 
this dependence on government by offering to use government 
powers to redirect public resources away from industrial and 
business interests to the poor.  He did not see this as 
progress but a mere continuation of the old systems that have 
failed to deliver needed economic growth. 
 
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USING FOREIGN RESERVES TO PAY FOREIGN DEBT 
------------------------------------------ 
 
¶4. (SBU) BOM governor Guillermo Ortiz recently commented 
publicly that Mexico's large and growing foreign reserves 
(about USD 70 billion) could be used to pay down Mexico's 
relatively small foreign debt (also about USD 70 billion). 
Ortiz's suggestion was supported by Finance Secretary Gil 
Diaz.  Sidaoui explained, that, of course, the government 
would have to buy dollars from the central bank (by, for 
example, running budget surpluses) to then use to pay down 
the foreign debt.  He accepted that such a detail would be 
lost on nearly anyone hearing of the plan, particularly 
someone like AMLO who sees Mexico's foreign reserves as an 
unutilized piggy bank to fund infrastructure and social 
programs. 
 
--------------------------------------------- - 
BERNANKE'S CHALLENGE -- DRAIN EXCESS LIQUIDITY 
--------------------------------------------- - 
 
¶5. (SBU) Sidaoui had little to say about new Fed Chairman 
 
MEXICO 00000820  002 OF 002 
 
 
Bernanke.  He expects that the excellent relations between 
the two central banks will continue.  He said that Bernanke's 
main challenge will be to help drain the global financial 
system of excess liquidity while avoiding pushing the U.S. 
into recession.  Sidaoui said this excess liquidity has 
resulted in historically low interest rates and 
"unjustifiable" investments by money managers who are seeking 
yield without adequate regard for risk. 
 
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COMMENT 
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¶6. (SBU) Sidaoui is clearly a free-market thinker who has 
little use for those seeking government solutions to economic 
problems.  His concerns over a possible future AMLO 
presidency are not unique, but are not in line with 
mainstream expectations that the Mexican economy would 
survive an AMLO presidency relatively unscathed, even if 
unimproved.  His comments on Mexicans' dependence on 
government as the source of economic benefits are on the mark 
and represent one of the main stumbling blocks to growth. 
The attitude Sidaoui describes cannot be changed through 
"structural" reforms, and echoes the concern of many here who 
expect Mexico's competitiveness to lag until this attitude 
evolves into a more market-oriented one.  End comment. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
KELLY