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FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 4828
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RUEHC/DEPT OF LABOR WASHDC
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UNCLAS SECTION 01 OF 04 MEXICO 000108 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIOANL AFFAIRS KDEUTSCH AND SLADISLAW 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ELAB EFIN PGOV PREL MX
SUBJECT: MEXICO ECONOMIC NOTES, DECEMBER 7 - DECEMBER 13 -- 
CORRECTED COPY 
 
REF: A. MEXICO 6823 
 
     ¶B. MEXICO 5854 
 
Summary 
------- 
 
¶1. (U) The first budget from the Calderon Administration, for 
fiscal year 2007 (ref A) was met by loud protests over 
proposed funding levels for education and infrastructure, as 
well as an increase in the tax for soft drinks.  A detailed 
cable regarding contentious parts of the budget will follow. 
The Mexican legislature seems likely to pass legislation 
complying with the recent WTO decision on long-grain rice, 
but may refuse the government's proposed tax on soft drinks 
which would also bring Mexico into compliance with the WTO 
decision on Mexico's unfair beverage sweetener tax. 
Broadcast duopolists TV Azteca and Televisa have been using 
the airwaves for attacks on their rival's Mexican company 
Casa Saba and its U.S. partner GE/NBC.  According to press 
reports, China-based Giant Motors is opening a light truck 
production plant in Hidalgo. Calderon announces anti-poverty 
program geared at poorest 100 towns.  Inflation falls while 
financial markets continue to rally.  Finally, biographic 
information is provided on new Under Secretaries in the 
Secretariats of Energy and Transportation and Communication. 
 
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End Summary. 
 
Cuts to Public Spending on Infrastructure 
----------------------------------------- 
 
¶2. (U) According to leading analysts, the proposed 43 percent 
cut in funding for the Secretariat of Transportation and 
Communication (SCT) is part of the administration's strategy 
to replace government investment with private investment. 
Calderon's federal spending bill, presented to Congress for 
approval last week, would give the agency responsible for 
overseeing transit infrastructure 27.6 billion pesos (2.45 
billion USD) in 2007 - a significant reduction from FY 2006. 
While the Mexican Constitution limits private participation 
and investment in public infrastructure, the federal 
government has experimented in recent years with contracts in 
which companies are hired to complete infrastructure projects 
(schools, prisons, highways, etc.) which the government then 
pays to use.  Recently, the new Secretary of Transportation 
and Communication, Luis Tellez, stated that the government is 
looking for methods that allow private sector participation 
in the construction of highways, bridges and roads in order 
to reduce the level of federal resources directly involved. 
 
Concerns Rising Over Education Cuts 
----------------------------------- 
 
¶3. (U) The administration's proposed level of education 
funding has set off a firestorm of protest.  Lawmakers from 
the two major opposition parties, PRD and PRI, formed a 
working group to restore the slashed education funds before 
the Chamber of Deputies approves a final budget sometime this 
month.  The Chamber's Policy Coordination Board, controlled 
by the PRI, will present a resolution calling for the 
protection of the universities from any budget cuts. 
Reactions to Calderon's proposed education cuts were so 
heated over the weekend that even Education Secretary 
Josefina Vazquez Mota promised to urge the Finance 
Secretariat to reconsider the decrease, which amounts to a 
 
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1.2 percent cut, or about 415 million USD. Some lawmakers 
grumbled that the cuts aimed at the universities may have 
been politically motivated. UNAM, which recently broke into 
the top 100 list of worldwide universities, has traditionally 
nurtured leftist thinkers opposed to the conservative 
policies of Calderon's National Action Party (PAN). 
 
¶4. (U) Comment:  While spending on education in the Calderon 
government's 2007 budget proposal fell by 1.2 percent in real 
 
MEXICO 00000108  002 OF 004 
 
 
terms when compared to an estimate of what was actually spent 
on education in 2006, it increased by 4.2 percent when 
compared to the approved 2006 budget.   Some educational 
experts in Mexico criticized the government for diverting 
funding to the universities at the expense of Mexico's poor, 
most of who never have a chance to get to universities, or 
even a decent education, because of the lack of reform and 
funding for primary and secondary education (see ref b and 
septel). End Comment. 
 
Soft-Drink Makers Enraged By Proposed Beverage Tax 
--------------------------------------------- ----- 
 
¶5. (U) Mexican soft-drink makers vociferously urged Congress 
to reject a proposed tax increase, saying it would hurt not 
only the companies that produce the beverages, but also 
low-income families who spend nearly as much on soda as on 
basic products like beans and tortillas. The National 
Association of Soft Drink and Carbonated Water Producers took 
out a full-page ad in Mexican newspapers in which they also 
claimed that the proposed 5 percent excise tax - which would 
come on top of a current value-added 15 percent tax - would 
result in a drop in demand, loss of jobs, and a reduction in 
the demand for sugar. The new administration included the tax 
in its 2007 budget proposal. The proposal is linked to the 
dropping of the 20 percent tax on beverages made with 
non-sugar sweeteners in order to comply with a WTO decision 
against such discrimination. 
 
¶6. (U) On another WTO issue, PRI Senator Cant#, President of 
the Senate's Trade and Industry Commission reported that the 
Chamber of Deputies has passed the bill (already approved by 
the Senate in November) changing the antidumping provisions 
of Mexico's Foreign Trade Law.  The new provisions grant 
accused exporters more time to present their cases to the 
government and also no longer require that the highest 
retaliatory rate be applied.  The change was made to comply 
with the lost WTO ruling on long-grain rice. 
 
PAN Lawmakers State Willingness To Reallocate Resources 
--------------------------------------------- ---------- 
 
¶7. (U) The Chairman of the Finance Committee of the Senate, 
Gustavo Madero (PAN), asserted that PAN legislators are 
willing to make moderate corrections to Calderon's budget 
proposal.  He claimed confidence that agreement will be 
reached and the 2007 budget will be approved by all political 
parties.  (Mexican law requires the budget to be approved by 
December 31, 2006.) Common points of convergence between the 
parties will prevail over "small discrepancies."  Jorge 
Estefan (PRI), Chairman of the Finance Committee of the 
Chamber of Deputies, however, warned that the 5 percent tax 
on beverages would have to be discussed more with the 
beverage industry to determine to what extend the impact of 
this tax can be absorbed.  He worried that approving a tax 
that was unaffordable would ultimately result in higher 
prices. 
 
Duopolist attacks GE 
-------------------- 
 
¶8. (U) Broadcast duopolist TV Azteca, which along with 
Televisa has in recent weeks frequently denounced Casa Saba 
on the airwaves for what they term monopolistic practices in 
the pharmaceutical industry, stepped up its attacks on Casa 
Saba to include GE, Saba's American partner in the TV market 
through Grupo Extra. In early news broadcasts, TV Azteca and 
Televisa concentrated on the high cost of medicines in 
Mexico, pinning the responsibility on Grupo Saba and accusing 
it of "sentencing to death" Mexicans who are ill. On December 
7, however, TV Azteca further upped the stakes, focusing its 
attacks on members of the Saba family and drawing the line 
between Grupo Saba and GE, which it accused of monopolistic 
 
MEXICO 00000108  003 OF 004 
 
 
practices and fraud.  Azteca's new programs referred to GE's 
"dirty history" of the 1980s and 1990s and accused Casa Saba 
of "extending its tentacles" in Mexico with the help of GE, 
"profiting from the health and well being of Mexicans."  GE's 
general director in Mexico defended the company in the next 
days on radio and in newspapers.  So far, Televisa has not 
joined in TV Azteca's attacks on GE.  Comment: The attacks 
are likely inspired by Grupo Saba's request for a license to 
open frequencies for a new television channel, probably in 
conjunction with GE/NBC's Telemundo, which would threaten the 
Televisa/TV Azteca dominance of Mexican television content. 
End Comment. 
 
Chinese company will assemble trucks in Hidalgo 
--------------------------------------------- -- 
 
¶9. (U) According to press reports, the Chinese company Giant 
Motors will open a plant in Hidalgo to produce light trucks 
with an initial investment of MP 180 million (16.7 million 
USD).  First year manufacturing numbers are expected to reach 
2,800, 15 percent of which will be exported.  The company 
reportedly plans to create 700 jobs with a total investment 
reaching 500 million pesos (46.3 million USD).  The company 
is reported to be making alliances with national suppliers to 
reduce the number of imported spare parts.   The units will 
be distributed in Mexico through a joint-venture with Grupo 
Bler in Monterrey, Guadalajara, Ciudad Obregon and Chihuahua. 
 
Calderon announces program for the poor 
--------------------------------------- 
 
¶10. (U) On December 6, Calderon announced a program to help 
the country's 100 poorest communities.   Guerrero Gov. 
Zeferino Torreblanca, a member of the PRD, attended 
Calderon's ceremony in Tlacoachistlahuaca, which the press 
noted was a sign that partisan solidarity with Lopez Obrador 
may be trumped by the need to cooperate with aid-bearing 
federal officials.  In Tlacoachistlahuaca, Calderon urged 
Mexicans to bury their differences over the election and 
focus on the nation's problems.  He said his anti-poverty 
program will draw money from several federal agencies and 
will be duplicated in 100 deeply poor towns where people 
suffer malnutrition and disease and lack roads and clean 
water. 
 
Inflation falls in November on fruit prices 
------------------------------------------- 
 
¶11. (U) Annual inflation slowed in November on falling prices 
for tomatoes, avocados and oranges, ending a three-month 
spike which brought the inflation rate above the central 
bank's target range of 3 percent plus or minus 1 percentage 
point. The inflation rate fell to 4.1 percent in the 12 
months ending in November from 4.3 percent in October. 
Slowing inflation heightens speculation the central bank may 
begin lowering its benchmark lending rate from 7% in the 
first quarter of next year, however, according to a recent 
Bloomberg survey of 15 economists, policy makers will leave 
the benchmark rate unchanged during their next meeting. Core 
consumer prices rose 0.29% in November after rising 0.27% in 
October. The increase in core prices was above the 0.26% 
median forecast in the Bloomberg survey. 
 
Financial markets continue to rally 
----------------------------------- 
 
¶12. (U) The peso keeps recovering and yesterday closed at 
$10.84 pesos per dollar due to less uncertainty among 
investors regarding Mexican paper, more remittances, 
Christmas bonus and the low demand for dollars from holdings. 
 Yields in the secondary market also declined and the 10-year 
peso-denominated bond closed at 7.48 percent.  The stock 
market hit its 54th record during the year closing at 25,615. 
 
MEXICO 00000108  004 OF 004 
 
 
 
Secretariat of Energy Appointments 
 
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---------------------------------- 
 
¶13. (U) Secretary of Energy, Georgina Kessel, appointed Ruben 
Flores Garcia as Under Secretary of Electricity, Jordy 
Herrera as Under Secretary of Energy Planning, and Mario 
Gabriel Budebo as Under Secretary of Hydrocarbons.  Flores 
Garcia was previously Director of Distribution and 
Electricity Storage.  He has a degree in electromechanical 
engineering from the Instituto Technologico de Monterrey and 
a MBA from the Autonomous University of Guadalajara.  He was 
also commissioner of the Energy Regulatory Commission (CRE) 
and director of the electrical system at the Mexican 
electricity monopoly (CFE).  Herrera was previously Director 
General of the Energy Secretariat's Investment Promotion 
Unit.  He has a Bachelors degree in economics from 
Universidad Iberoamericana and also has professional 
certificates in economics, politics and marketing.  He was 
the Secretary of Energy's executive assistant in 2003. 
Budebo was formerly Chair of the National Retirement Saving 
Commission (CONSAR).  He has a Bachelors in economics from 
Instituto Technologico Autonomo de Mexico (ITAM) and has a 
Masters and Phd from the University of California.  Budebo 
was also coordinator of advisors for Secretary of Finance 
Francisco Gil Diaz, and coordinator of revenue and fiscal 
policy.  In 1998, Budebo received an Economics Award from 
Banamex. 
 
Appointments in Secretariat of Transportation and 
Communication (SCT) 
------------------- 
 
¶14. (U) Secretary of Transportation and Communication Luis 
TQllez Kuenzler has named his under secretaries. Manuel 
Rodriguez Arregui, Under Secretary of Transportation, has 
experience in public and private sector infrastructure 
projects.  He was Director General of Studies in the 
Secretariat of Agriculture where he designed programs to 
 
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support agricultural producers and alleviate poverty.  He 
studied economics at Massachusetts Institute of Technology 
(MIT) and has a Master in Public Administration from Harvard. 
 Oscar de Buen Richkarday, Under Secretary for 
Infrastructure, has been working in SCT for 25 years.  He has 
a degree in civil engineering from Universidad National 
Autonoma de Mexico (UNAM) and has a Master of Science with 
specialization in transportation from MIT. In SCT, he has 
served as Chief of the Highway Unit and Director General of 
Highway Development. He was responsible for the design of the 
new concession scheme launched by the Fox administration. 
Rafael del Villar Alrich, Under Secretary for Communications, 
had been working for the Bank of Mexico since 1996.  He holds 
a Bachelors degree in economics from ITAM and earned a 
Masters and a PhD from the University of Pennsylvania.  He 
has also worked for the Organization for Economic Cooperation 
and Development (OECD).  He previously worked for SCT as 
Director General of Telecommunications and International 
Policy from 1995-1996. 
 
 
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