VZCZCXRO5883
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3840/01 1922307
ZNR UUUUU ZZH
R 112307Z JUL 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 2099
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 003840 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
FOR WHA/MEX, WHA/EPC,EB/IED 
TREASURY FOR IA MEXICO DESK:JASPER HOEK 
COMMERCE FOR ITA/MAC/NAFTA:ANDREW RUDMAN 
ENERGY FOR KDEUTSCH AND SLADISWAN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG PGOV PINR PREL MX
SUBJECT: HACIENDA'S (MEXICAN TREASURY) NEW BUDGET AND 
FISCAL RESPONSIBILITY LAW 
 
 
Sensitive but Unclassified, entire text. 
 
¶1.  (SBU) Introduction and Summary:  The Fox administration 
continues to take protective measures to shield the Mexican 
economy from profligate spending.  Hacienda's (Treasury) 
Budget and Fiscal Responsibility Law, which entered into 
force this April is an example of a cautionary move to 
ensure that a balanced budget is proposed each year. 
Econoff met with the director of the Hacienda Office of 
Relations with Investors who confirmed speculation that the 
passage of the law was a preventive action to counter 
overspending by the next administration.  End summary. 
 
----------------------------- 
Guarantees the Proposal of a Balanced Budget 
----------------------------- 
 
¶2.  (SBU) The main objective of this new law is to reduce 
the uncertainty created by the budget process each fiscal 
year and to provide enough time to both the Mexican Chamber 
of Deputies and the Senate to make a decision consistent 
with national priorities.  The limits established under the 
new law intend to ensure that a balanced budget is proposed 
and maintained every year, preventing deficit spending by 
the new administration. 
 
¶3.  (SBU) Under the new law, only in exceptional cases 
could the administration propose a budget deficit; however, 
a clear justification, a through action plan and a deadline 
as to when such deficit would be cleared would have to 
accompany the proposal.  Yet, even after the submission of 
all these assurances, nothing guarantees that either house 
would approve a deficit spending proposal.  Furthermore, 
Congress would likely reject any spending proposal creating 
a deficit greater than 3 percent of GDP. 
 
------------------------------ 
Schedule and Deadlines for the Executive and Legislative 
Branches 
------------------------------ 
 
¶4.  (SBU) The new law promotes the proposal of a balanced 
budget through an organized scheme in order to reduce time 
spent on arguments and negotiations between the Legislative 
and Executive branches.  The President will submit the 
macroeconomic scenarios for the principal economic 
variables such as inflation rate, interest rates, economic 
growth, and the price of the Mexican oil basket, by April 
1, as well as the proposed budget on September 8.  After 
the proposed budget is sent to the Lower house, the 
Deputies will have until October 20 to approve the budget's 
earning section and sent it to the Senators who will have 
until October 31 to approve it.  Congress must approve the 
budget's expenditure section by November 15, just as it is 
now; however, the Executive branch has a maximum of 20 days 
to sign the budget after Congressional approval. 
 
¶5.  (SBU) This year the law will extend the time limit to 
allow the President elect and his administration to 
participate in the budgetary process.  The new 
administration will have until December 15 to submit its 
proposed budget, and both houses will have until December 
31 to approve it.  However, eighty percent of the next 
fiscal year's proposed budget expenditures for 
infrastructure and assistance projects have already been 
programmed.  Hence, the new administration will only have a 
20 percent budgetary margin. 
 
------------------------------ 
Determining the Price of Mexican Crude Oil 
------------------------------ 
 
¶6.  (SBU)  In order to establish the price of oil, the new 
law creates a mechanism that guarantees that estimates will 
be based on technical criteria rather than political 
considerations.  The estimates will be based on the average 
price of Mexican crude oil for the last ten years and the 
forecasted market price for the next four years.  This 
mechanism will preclude spending time on negotiations, as 
Congress will have to approve the set price by Hacienda for 
Mexican crude oil. 
 
¶7.  (SBU) Additionally, the law promotes the establishment 
 
MEXICO 00003840  002 OF 002 
 
 
of transparent rules for the distribution of excess oil 
revenues.  Three new stabilization funds will be created: 
the stabilization of earnings for federal entities fund, 
the stabilization for infrastructure investment in PEMEX 
fund, and the continuation of the stabilization of 
oil-earnings fund.  All of these funds will allow federal 
entities, PEMEX and the federal government to set aside 
resources as a safeguard for those years when oil-revenues 
are less than expected. 
 
------- 
Comment 
------- 
 
¶8.  (SBU) The approval of this legislation is a favorable 
sign that lends greater credibility to the GOM budgetary 
process.  Furthermore, establishing a mechanism that sets 
the price of Mexican crude oil based on historical market 
trends and forecasting is an important change, especially 
given the fact that the elected president will not have an 
absolute majority in Congress, thereby prolonging 
negotiations on key issues.  Setting the crude oil budget 
price on non-political basis is an important advance.  End 
comment. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
GARZA