VZCZCXYZ0014
RR RUEHWEB

DE RUEHME #3904/01 1951631
ZNR UUUUU ZZH
R 141631Z JUL 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 2153
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS MEXICO 003904 
 
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 MX PGOV PINR PREL
SUBJECT: MEXICAN STOCK MARKET ECONOMIST MUSES ON INTERNAL 
MEXICAN DIVISIONS 
 
 
Sensitive but Unclassified, entire text. 
 
¶1. (SBU) Introduction and Summary.  After a week of political 
uncertainty and speculation over the market,s reaction to 
Mexican political events, Econoff met with the deputy 
director of the Mexican Stock Exchange, Alejandro Reynoso. He 
confirmed previous common views that market volatility was 
not only associated with political jitters, but also with 
external factors such as global liquidity and increasing 
interest rates in the U.S and other developed countries. 
Reynoso noted that, despite lingering political uncertainty, 
investors remain confident that Mexican institutions will 
resolve electoral disputes in favor of National Action Party 
(PAN) candidate Felipe Calderon.  Reynoso is not concerned 
about capital flight in the near-term from domestic investors 
or others.  Still, he believes the presidential elections 
highlighted not only social and economic divisions in Mexico, 
but also an important North/South divide.  End Summary. 
 
----------------- 
A Divided Mexico 
----------------- 
 
¶2. (SBU) According to Reynoso, this year,s presidential 
election portrayed the reality of a country separated between 
the south, including Mexico City, which supported the Party 
of the Democratic Revolution (PRD) candidate Andres Manuel 
Lopez Obrador, and the north, which supported PAN candidate 
Felipe Calderon.  Additionally, the new elected mayor of 
Mexico City is Marcelo Ebrard, of the PRD, potentially 
complicating things for Calderon, if he is confirmed by the 
electoral tribunal (TEPJF), as he will be governing in a city 
that is ruled by the opposition. 
 
¶3. (SBU) Reynoso said Calderon is likely to face political 
obstacles derived mainly from the close results of the 
elections.  The country is experiencing political uncertainty 
and discontent from Lopez Obrador,s supporters.  Calderon,s 
ability to overcome these impediments will determine whether 
or not his adversaries and those that did not vote for him 
will accept his leadership role for the next six years. 
 
------------------------- 
Mexico,s North/South Gap 
------------------------- 
 
¶4. (SBU) Reynoso believes that the South, with about 90 
percent of the country,s energy resources, has a basic 
&competitive advantage8 over the North.  Most of the major 
oil fields are located in southern Mexico, and the two main 
ports of the country, Veracruz on the Gulf of Mexico and 
Manzanillo on the Pacific, are also in the South.  That said, 
southern states and municipalities are largely controlled by 
the PRD. 
 
¶5. (SBU) While northern Mexico lacks natural resources, it is 
the most industrialized region.  At the same time, Reynoso 
noted that the great majority of larger northern businesses 
are foreign-owned.  Moreover, due to the lack of needed 
economic reforms in Mexico, these industries (with the 
exception of the automobile industry) are losing 
competitiveness globally and would not be able to function 
without the energy generated in the South.  (Comment: This 
last point needs more analysis, but we report it here as 
stated.  End Comment). 
 
¶6. (SBU) Reynoso,s overall conclusion is that future foreign 
direct investment to Mexico will most likely continue to 
focus on the North, and that the southern states will lag 
behind in technology, employment, and living conditions. 
Still, the South will have large energy resources and will be 
mainly dominated by PRD state and local governments whose 
commitment to broad economic reform remains uncertain. 
According to Reynoso, it is also unclear if foreign investors 
would be willing to risk major investments (energy, etc) in 
areas controlled by PRD governors.  As a consequence, Reynoso 
believes the economic gap between the North and the South 
will widen over time. 
 
------------------------------------- 
The Future of Mexico,s Needed Reforms 
------------------------------------- 
 
 
¶7. (SBU) In sum, Reynoso believes that Calderon (if confirmed 
by the TEPJF) will face a divided country.  Despite 
Calderon,s efforts to call for political alliances, he 
expects that the PRD will be reluctant to join any political 
alliance with the PAN.  Reynoso expects it will be difficult 
for Calderon to negotiate the passage of any of Mexico,s 
needed reforms with a divided Congress. 
 
------- 
Comment 
------- 
¶8. (SBU) For the moment, Reynoso represents the pessimistic 
extreme.   He fails to note that if the PAN is able to secure 
the support of minor parties and a portion of the PRI 
legislative faction, then, PAN will in fact have a governing 
majority.  We report his views to give a fuller flavor of the 
types of observations that can be heard in the economic and 
political debate here in Mexico.  End Comment. 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
GARZA