VZCZCXRO3827
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1476/01 0762211
ZNR UUUUU ZZH
R 172211Z MAR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 9718
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 03 MEXICO 001476 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
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 PINR MX
 
SUBJECT: LOPEZ OBRADOR'S "ADVISORY COUNCIL" 
 
REF: 
 
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SUMMARY 
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¶1. (SBU) PRD co-founder Porfirio Munoz Ledo leads an 
"Advisory Council" created to feed economic proposals to the 
AMLO campaign.  The council includes some prominent PRD 
economists whose views tend toward more government 
intervention in the economy.  The extent of the council's 
influence on AMLO, however, is not clear.  End summary. 
 
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AMLO'S "ADVISORY COUNCIL" 
------------------------- 
 
¶2. (SBU) On January 24, 2006 a group of politicians and 
economists led by Porfirio Munoz Ledo, co-founder of Party 
of the Democratic Revolution (PRD) and former Ambassador of 
Mexico to the European Union, created an Advisory Council to 
help PRD presidential candidate Andres Manuel Lopez Obrador 
(AMLO) evaluate and adopt economic proposals offered by 
outside groups.  On February 28, the council held a forum at 
which a group of left-leaning economists discussed the role 
of the State in the economy, markets, investment, 
employment, infrastructure, regional development, industrial 
policy, and fiscal issues.  Rogelio Ramirez de la O, AMLO's 
official economic advisor, told us the group is not part of 
the campaign and speaks on behalf of itself, not AMLO. 
Ramirez said that of the participants at the February 28 
meeting, only Ramirez himself is part of the campaign. 
 
¶3. (SBU) AMLO's Advisory Council includes economists 
Ifigenia Martinez and Arturo Huerta.  Martinez, a former PRD 
deputy and senator, is a professor at the National 
Autonomous University of Mexico (UNAM), a PRD founder, and a 
member of the PRD's governing board.  According to her bio, 
she has a Masters degree from Harvard, but she does not have 
a doctoral degree.  Arturo Huerta is also an economics 
professor at UNAM, where he received his doctorate in 
economics.  Huerta also has strong PRD ties. 
 
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MORE STATE INTERVENTION IN THE ECONOMY 
-------------------------------------- 
 
¶4. (SBU) The February 28 forum provided insight into the 
economic thinking of many the members of this group. 
Ramirez de la O said Mexico should allow the balanced 
participation of private investment in infrastructure and 
energy, wherever the constitution allows it.  The more 
radical Huerta believes the GOM should boost domestic demand 
by increasing public expenditures, and that the Bank of 
Mexico's goal should be modified to include an economic 
growth target in addition to inflation control.  According 
to Huerta, private banks should increase their lending to 
the government to make Mexico less dependent on 
"international financing." 
 
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LABOR REFORM 
------------ 
 
¶5. (SBU) While advocating labor reform to make the labor 
market more flexible, the council would like to see workers' 
benefits protected.  However, the advisors agree that union 
leaders' privileges and power need to be reigned in. 
 
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PUBLIC INVESTMENTS 
------------------ 
 
¶6. (SBU) The council has grand plans for public investments. 
The advisors advocate increasing infrastructure investments 
in energy, water, transportation, residential construction, 
and a vague category best described as rehabilitation of 
idle manufacturing facilities.  Oil sector investments would 
focus on producing more petroleum-based value-added 
products.  The advisors propose using surplus oil revenues 
to finance such production facilities.  The council believes 
public investments in infrastructure need not be subject to 
financial return criteria.  The advisors expect investments 
in construction will boost employment, especially if the 
 
MEXICO 00001476  002 OF 003 
 
 
government relies on domestic inputs.  Public funds would 
not be the sole source for all these infrastructure 
investments, but details of the mechanisms for private 
participation are lacking. 
 
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REGIONAL DEVELOPMENT 
-------------------- 
 
¶7. (SBU) To promote development in the states and rural 
areas, the council proposes increasing state and municpal 
budgets, developing policies for specific sectors, 
redefining the state-federal fiscal relationship, and 
granting concessions for the creation of regional 
development banks.  The advisors envision developing 
"multimodal" communication and transportation infrastructure 
to connect small- and medium-sized businesses to auto and 
electronics manufacturing clusters.  The economic 
development, finance, agricultural, and labor secretaries of 
each state would participate in a newly created Regional 
Development Council.  Arguing that because most of the 
southern parts of Mexico are still under-developed, the 
council believes the government should renegotiate certain 
NAFTA provisions to prevent the opening of trade in corn and 
beans by 2008.  The group wants the agricultural sector 
protected with guaranteed prices for basic grains.  The 
advisors would also like to shift Mexico's export economy 
away from reliance on maquilas.  They envision greater 
participation by producers of higher  value-added products, 
and competitive replacement of imports by domestically 
manufactured goods. 
 
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INDUSTRIAL POLICY 
----------------- 
 
¶8. (SBU) The council seeks more joint efforts between 
government and the private sector.  It wants the government 
to promote greater integratation of small- and medium-sized 
business into the production chain by facilitating linkages 
between them and larger companies.  The advisors also seek 
better better financing conditions and a more competitive 
foreign exchange rate.  According to some of these advisors, 
tight monetary policy has strengthened the peso and hurt 
manufacturing.  To compete with Asia, they say, Mexico needs 
to invest more in technology since it will no longer be able 
to compete on labor costs. 
 
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TAXES AND FINANCING 
------------------- 
 
¶9. (SBU) All the increased spending proposed by the group, 
up to 8 percent GDP, would require raising both revenues and 
deficits.  Although AMLO has made pronouncements against VAT 
on food and medicine, some of his economists propose 
increasing VAT collection by reducing the tax to 12% and 
restricting the zero tax to a basket of 20 products.  Some 
also favor increasing the income tax.  Despite tax 
increases, some still see the need for fiscal deficits to 
rise by up to three percent of GDP.  One proposal says the 
government "should take control of the central bank" lower 
the cost of government debt through lower interest rates. 
The proposal also seeks to weaken the peso to boost exports 
and hinder imports. 
 
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COMMENT 
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¶8. (SBU) Muoz Ledo seems to have summoned some of the most 
leftist academics from the PRD and the old PRI for his 
Advisory Council.  Some of their proposals are prescriptions 
for ruin, but we don't expect AMLO to support any of the 
most radical ideas.  The extent to which AMLO will listen to 
the Advisory Council's proposals is still unclear.  AMLO's 
speeches contain some of the same populist rhetoric 
contained in some council members' proposals, but the 
credible Ramirez de la O continues to publicly and privately 
maintain that AMLO will be a responsible economic steward. 
AMLO wouldn't be the first presidential candidate to use 
populist campaign promises to gain office.  Indeed, his lead 
may be due to this strategy.  If AMLO intends to be more 
responsible than he sounds, however, he should be more 
 
MEXICO 00001476  003 OF 003 
 
 
careful with his rhetoric and try to impose some discipline 
on the rhetoric of his fellow PRD members.  As several 
analysts have pointed out, the markets tend to discipline 
politicians once they are in office.  AMLO should make it 
easier on himself to accept that discipline.  End Comment. 
GARZA