VZCZCXRO4726
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1797/01 0961505
ZNR UUUUU ZZH
R 061505Z APR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0039
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 02 MEXICO 001797 
 
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: AMLO ADVISOR TALKS "FISCAL DISCIPLINE" WHILE 
MADRAZO AND CALDERON TURN TO POPULISM 
 
Ref: 
 
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SUMMARY 
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¶1. (SBU) While economist Rogelio Ramirez de la O tried to 
soothe concerns about Andres Manuel Lopez Obrador's (PRD) 
intentions for the country's fiscal and monetary policies; 
Felipe Calderon (PAN) and Roberto Madrazo (PRI) adopt 
populist tints in their own speeches.  Ramirez de la O said 
AMLO will maintain fiscal discipline and inflation control; 
Calderon said he will modify the monetary policy by 
eliminating the "corto" to promote competitiveness; and 
Roberto Madrazo outlined proposals to improve the country's 
competitiveness, stressing the importance of structural 
reforms.  End summary. 
 
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AMLO WILL ASSURE FISCAL RESPONSIBILITY 
-------------------------------------- 
 
¶2. (SBU) In press interviews the first week of April, AMLO's 
economic advisor, Rogelio Ramirez de la O, tried to calm 
concerns about the PRD candidate's plans for inflation 
control and fiscal discipline.  He emphasized that fiscal 
prudence and inflation control will be their priority and 
that they would not increase the government's indebtedness 
significantly.  Ramirez de la O's comments came after Lopez 
Obrador stated that the well-respected Bank of Mexico's 
governor, Guillermo Ortiz, should resign.  AMLO has also 
expressed the need to modify the Bank of Mexico's objective 
to include economic and employment growth.  Ramirez de la O 
said that AMLO's rhetoric was just a campaign strategy, and 
he didn't foresee any changes to the way the central bank 
operates.  The next step in AMLO's campaign is to try to 
sooth private sector groups that have expressed deep 
concerns about his proposals.  Ramirez de la O explained 
that AMLO's contribution to competitiveness will be to 
reduce energy prices through cuts of Pemex's bureaucracy 
costs, jobs and benefits - such as travel expenses.  A 
vigorous Pemex restructuring, he said, would allow savings 
for up to USD 2 billion annually and finance the planned 
reduction in domestic energy prices. 
 
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MADRAZO TALKS ABOUT COMPETITIVENESS 
----------------------------------- 
 
¶3. (SBU) At the annual convention of the National 
Telecommunications Chamber held in Veracruz March 30, 
Roberto Madrazo took a page out of AMLO's populist book, 
complaining about the failure of the current "neo-liberal" 
model and spoke of his plans to improve the country's 
competitiveness.  As on previous occasions, Madrazo spoke of 
the country's lag in competitiveness, without providing much 
detail on his proposals.  His project includes achieving a 
"systemic competitiveness," in which each productive chain 
has to become more competitive. He said, for example, that 
he will strengthen the agricultural sector through more 
infrastructure and new distribution channels.  To make the 
manufacturing sector more competitive, Madrazo proposed 
reducing energy prices, improving access to new 
technologies, reducing transportation costs and a making 
labor markets more flexible.  His fiscal "reform" includes a 
more independent Tax Administration Agency, a lower income 
tax to increase the taxpayer base, and a simplification of 
the tax system. Madrazo said he would support a reform to 
the pension systems to guarantee its financial viability. 
He concluded that, "without reforms, there is no 
competitiveness." 
 
¶4. (SBU) Madrazo also spoke on competitiveness in the 
telecommunications sector and technological convergence.  On 
the so-called Convergence Agreement being drafted by the 
Ministry of Communications and Transportation (SCT), which 
would allow cable TV companies to provide direct telephone 
services and Telmex to provide video, Madrazo said he was 
concerned about the sector's rush in having it passed 90 
days before the elections.  Madrazo fears that a bad 
agreement would injure the whole sector if it failed to 
promote a fair competition.  When asked what he would do to 
eliminate monopolies such as Telmex, Madrazo avoided the 
question - answering that he would promote fair competition, 
 
MEXICO 00001797  002 OF 002 
 
 
a public telecommunications policy, and a stronger Federal 
Communications Commission independent from SCT, capable of 
sanctioning and regulating the sector more effectively. 
 
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CALDERON SAYS "CORTO" INJURES COMPETITIVENESS 
--------------------------------------------- 
 
¶5. (SBU) Motivated by a technical tie with AMLO in recent 
PAN internal polls, Felipe Calderon criticized the use of 
the corto by the Bank of Mexico. Calderon alleges that the 
corto, as a monetary policy tool, distorts the exchange rate 
and thus, the country's competitiveness.  Although Calderon 
said he firmly believed in the central bank's independence 
and in a flexible exchange rate, he proposed the creation of 
public policies to promote competitiveness and stimulate 
exports with lower interest rates and a weaker peso. 
Calderon said he would "request" through the Ministry of 
Finance that the Bank of Mexico apply a neutral monetary 
policy and that the corto be used only in exceptional cases. 
(Comment: the Bank of Mexico has been gradually transiting 
to the use of a reference rate as a tool to control 
inflation.  End comment) 
 
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COMMENT 
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¶8. (SBU) Following front-runner AMLO's strategy, Madrazo and 
Calderon have begun adding populist tints to their recent 
speeches:  Madrazo's criticism of "neo-liberalism" is 
something we have heard frequently in AMLO's speeches. 
Likewise, Calderon casting blame on the central bank's 
monetary policy for the lack of competitiveness.  Perhaps 
they have concluded that such rhetoric is useful for their 
political campaigns.  But - as Ramirez de la O pointed out 
when defending AMLO - it doesn't mean they will act as they 
preach when they come to power.  In any event, their tactic 
is not succeeding in soothing investors, who no doubt aren't 
sure how much is rhetoric and how much is real. 
GARZA