VZCZCXRO3496
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0279/01 0192315
ZNR UUUUU ZZH
R 192315Z JAN 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 5002
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFIUU/CDR USNORTHCOM
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 MEXICO 000279 
 
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 INTERNATIONAL AFFAIRS KDEUTSCH AND SLADISLAW 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK, CINDY PENDELTON 
 
E.O. 12958: N/A 
TAGS: ECON EAGR ECPS ELAB EPET ETRD PGOV MX
SUBJECT: MEXICO ECONOMIC NOTES, JANUARY 11 - 17 2007 
 
REF: MEXICO 152 
 
 Summary 
------- 
 
¶1. (U) In response to sharp increases in tortilla prices, the 
Calderon government has agreed to temporary price restraints 
with a number of producers and distributors. Finance 
Secretary Carstens has said he believes that the drop in oil 
 
SIPDIS 
prices is temporary and will not result in budget cutbacks 
during 2007, but oil price declines would harm the Mexican 
economy if fiscal reform is not enacted for 2008 and 2009. 
The independent Federal Telecommunications Commission 
(Cofetel) faces a threat from the Secretariat of 
Communications and Transportation.  Ten years after the 
opening of the telecommunications sector, Telmex still 
maintains its monopoly.  Calderon voiced his support for open 
markets and assured that he would comply with Cofetel's 
ruling on the possibility of a third channel. End Summary. 
 
Agreement Reached on Tortilla Pricing 
------------------------------------- 
 
¶2. (U) Over the past few weeks, there have been sharp 
increases in prices for corn tortillas - a staple of the 
Mexican diet.  Tortilla prices had spiked to as much as 10 
pesos per kilo (USD 0.91) in some parts of Mexico.  After 
initially saying it would not resort to price controls, the 
Calderon Administration has reached an agreement with some 
corn and tortilla producers and distributors to limit prices. 
 The "Agreement for the Stabilization of Tortilla Prices" 
will be in affect until April 30.  The association 
representing small neighborhood tortilla producers committed 
to limit prices to 8.5 pesos per kilo, while Wal-Mart and the 
association covering all supermarkets in Mexico (The National 
Association of Retail Industry, ANTAD) agreed to sell 
tortillas for 6.5 pesos per kilo. The Chamber of Corn 
producers agreed to sell corn meal/flour to tortilla makers 
at 5 pesos per kilo. Diconsa, a government agency that sells 
staples to the poor, will sell corn for 3.5 pesos a kilo. 
Experts blame speculation and hoarding, rather than an actual 
shortage of corn, for rising tortilla prices.  The government 
agreed to allow additional corn imports, in order to force 
hoarders to put their stocks on the market. (See Septel) 
 
GOM Not Disturbed by Oil Price Drop 
----------------------------------- 
 
¶3. (SBU) In discussions with USG officials and in public 
statements, Finance Secretary Agustin Carstens has said the 
decline in oil prices will not force cuts to the government 
budget in 2007, but will in 2008 and 2009 unless fiscal 
reform is enacted to increase tax collection and move away 
from a budget so dependent on petroleum revenues.  Carstens 
and Under Secretary of Finance Alejandro Werner explained 
privately that use of the Oil Stabilization Fund and other 
hedging mechanisms would avoid the need for cuts in the 2007 
budget. Carstens publicly claims he believes the decline in 
oil prices to be temporary, and has not admitted to any price 
below which the Mexican government would have to cut the 2007 
budget. Both government and private analysts admit that there 
is a delicate public relations game being layed because the 
threat of declining oil revenues is needed to force the 
Congress and special interests in Mexico to approve fiscal 
reform, such as measures to broaden the tax base and reform 
operations in the state oil company, PEMEX. Yet, the budget 
situation is not yet dire, and there is no need to upset 
international markets. 
 
¶4. (U) Pemex figures show the average price of Mexico's 
export blends at 40.44 USD per barrel on January 18, below 
the 42.80 USD price assumed by officials in drawing up the 
country's budget for 2007.   A private analyst from HSBC Bank 
estimates that the Mexican crude export mix would have to 
 
MEXICO 00000279  002 OF 003 
 
 
fall below USD 37.30 a barrel before the government would be 
required to cut spending for 2007. 
 
President Announces Jobs Initiative 
------------------------------------ 
 
¶5.  (U) On January 15, President Calderon signed a decree 
establishing the "National First Job Program" to give cash 
incentives to companies hiring first-time job holders.  The 
government will also pay social security costs for first- 
time job holders for one year.  Calderon said the program is 
aimed at helping young people and millions of women who have 
never worked.  In announcing the program, Calderon noted that 
about one million young Mexicans enter the work force every 
year but the economy struggles to provide enough jobs for 
them, forcing many into the huge informal economy where they 
neither pay taxes, nor receive pension or health benefits. 
Calderon also noted that the government estimates around 
400,000 Mexicans leave their homeland every year to seek 
work.  Speaking later that day before a convention of Mexican 
industrialists, (the Canacintra), Calderon urged potential 
employers to participate in the program. 
 
Telecom Regulator vs. the Secretariat for Communications 
--------------------------------------------- ----------- 
 
¶6. (U) Past reforms to the Federal Telecommunications Law and 
the Federal Radio and Television law have left wounds that 
threaten to weaken the telecom regulator Cofetel.  These 
reforms declared that the naming of commissioners at Cofetel 
(Federal Telecommunication Commission) is exclusively an 
executive branch prerogative. By law, the executive branch 
appoints Cofetel commissioners, but Congress has to ratify 
them.  The current Undersecretary of Communications, Rafael 
del Villar, and Gonzalo Martinez Pous, Chief of the Legal 
Department for the Secretariat of Communications and 
Transportation (SCT), filed injunctions against the 
appointments of Cofetel commissioners, Eduardo Ruiz Vega and 
Gerardo Gonzalez Abarca.  Experts worry that this SCT 
intervention could turn Cofetel into a hostage of private 
interests.  Del Villar himself had been named as a Cofetel 
commissioner during the Fox Administration, but the Congress 
rejected his and other nominations. 
 
Monopolies in the telecom sector 
-------------------------------- 
 
¶7. (U) Former Mexican officials from the telecommunications 
sector have publicly acknowledged that authorities have 
failed to open the sector to more competition. They say that 
although there are currently 27 long distance carriers, 
Telmex still holds a 90 percent market share.  Jorge Arreola, 
a former Cofetel commissioner, acknowledged that Cofetel and 
SCT were unresponsive to investors and unable to ensure 
compliance with the principles of competition inherent in the 
law.  He said that many of these foreign investors, who 
invested more than 2 billion USD combined, left Mexico after 
failing to see returns on their investments.  The remaining 
companies, such as Alestra, Avantel, and Marcatel decided to 
focus on niches.  Arreola said that regulations continue to 
be confusing and lack transparency.  Albert Hilbert, another 
ex-commissioner, said that the priorities now should be to 
extend the coverage area for basic telecommunications, and 
eliminate monopolistic practices such as tariff schemes and 
the refusal of interconnections to competitors.  Telmex 
representatives counter that, while the number of operators 
has remained low, there has been a market opening that has 
brought increases in total traffic volume and improved market 
conditions overall.  More competition is clearly needed.  The 
fact that Mexico faces some of the highest charges for 
telecommunications services among OECD countries is a major 
drag on competitiveness, and forces all consumers and 
businesses to pay monopolistic fees to the telecom giant 
Telmex. 
 
MEXICO 00000279  003 OF 003 
 
 
 
¶8. (U) In his first press conference since taking office, 
President Calderon voiced his opposition to monopolies.  He 
said he was convinced that competition benefits consumers and 
makes economies more efficient.  When asked about the 
possibility of his administration authorizing a third 
broadcasting company in Mexico, Calderon demurred, explaining 
that Cofetel was the only authority responsible for 
auctioning frequencies.  He said that he would comply with 
what Cofetel decides, in accordance with the law. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA