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P 231844Z MAR 07
FM AMEMBASSY MEXICO
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UNCLAS SECTION 01 OF 03 MEXICO 001452 
 
SIPDIS 
 
SENSITIVE 
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/GERI WORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
NSC FOR DAN FISK, CINDY PENDLETON 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN ELAB MX PGOV PREL
SUBJECT: CORRECTED COPY - MEXICO ECONOMIC NOTES, MARCH 
16-23, 2007 
 
REF: MEXICO 1389 
 
Corrected copy.  See reference to USD 50 billion in para 3. 
 
------- 
Summary 
------- 
 
¶1. (SBU) The Mexican Chamber of Deputies (lower house) on 
March 22 approved new draft legislation to reform the agency 
responsible for providing pension and health care services 
for government employees.  The centerpiece of the reform is 
the replacement the current "defined-benefits" system with a 
defined-contribution scheme (individual retirement accounts) 
-- similar to the system created in 1997 for private sector 
employees.  President Calderon on March 18 gave a frank 
speech about the challenges facing Mexico in the petroleum 
sector, and said that the country has less than ten years of 
reserves remaining at current production rates.  A DOT-GOM 
monitoring group on the cross border trucking pilot program 
is making progress on working out lingering issues regarding 
Mexican companies, participation in the program and creating 
guidelines for how U.S. companies will apply to take part in 
the second phase of the pilot.  The President and the 
Governor of Baja California inaugurated a NADBank-financed 
wastewater treatment plant in Mexicali.  As a part of the 
government's strategy to strength its debt structure, Mexico 
on March 15 sold warrants that allow investors to swap 
foreign bonds worth USD 2.66 billion for fixed-rate 
peso-denominated bonds in September, October, and November. 
The IPC stock index rose 3% to 29,220 on March 21 on news 
from the U.S. Federal Reserve about interest rates.  End 
Summary. 
 
--------------------------------------------- -- 
Government Advances Long-Awaited Pension Reform 
--------------------------------------------- -- 
 
¶2. (U) The Mexican Chamber of Deputies (lower house) on March 
22 approved new draft legislation to reform the agency 
responsible for providing pension and health care services 
for government employees.  Amid protests both inside and 
outside the building, the 500-member Chamber voted 313-146 
with two abstentions in favor of the bill.  Local press 
reports say the Senate could approve the reform proposal as 
early as March 27.  The reform would gradually raise the 
retirement age and replace the current "defined-benefits," 
pay-as-you-go pension system with a defined-contribution 
scheme (individual retirement accounts) -- similar to the 
system created in 1997 for private sector employees.  To make 
the proposal more palatable to Mexico's powerful unions, the 
bill doubles the size of the minimum guaranteed pension and 
increases government contributions to some the agency's 
funds.  Although the proposal seems assured of more than 
enough votes for passage, the Democratic Revolution Party 
(PRD) and some unions are opposing it -- arguing that it will 
lead to the privatization of social security for state 
workers.  This reform would relieve significant pressure on 
government finances and would be the first major economic 
reform passed under the Calderon administration.  See reftel 
for more information on this reform. 
 
--------------------------------------------- ------ 
Calderon's Discusses Challenges to Petroleum Sector 
--------------------------------------------- ------ 
 
¶3. (U) On Pemex Day, March 18, the 69th anniversary of the 
expropriation of foreign oil company assets, President 
Calderon spoke frankly about the challenges facing Mexico in 
the petroleum sector.  He announced that Mexico has less than 
ten years of reserves remaining at current production rates, 
 
MEXICO 00001452  002 OF 003 
 
 
that in past years Pemex has operated below the industry 
standard of replacing 100 percent or more reserves, and that 
Pemex has more than USD 50 billion in pension liabilities 
alone.  Calderon noted that oil income will be essential for 
funding future government spending on poverty and 
infrastructure, and he concluded that if Mexico "did not act 
soon to reverse the situation, the country would face severe 
problems."  While pundits and industry participants have 
described Mexico's oil woes at length, this is the first time 
a Mexican President has outlined the situation in such stark 
terms.  Post will report on the speech and reaction to it 
septel. 
 
--------------------------------------------- --- 
USG Officials Discuss the Trucking Pilot Program 
--------------------------------------------- --- 
 
¶4. (SBU) On March 21, Econoff met with Secretariat of 
Communication and Transportation (SCT) and Economia officials 
to conduct a video conference with the Department of 
Transportation on the cross border trucking pilot program. 
The group is making progress on working out lingering issues 
regarding the Mexican companies participating in the program 
and creating guidelines for how U.S. companies will apply to 
participate in the second phase of the pilot.  The SCT noted 
that there is significant pressure from Mexican carriers and 
the business community to address chronic border crossing 
issues, such as long wait times, parallel to implementing the 
pilot program. 
 
---------------------------------------- 
NADBank Opening a Sewage Treatment Plant 
---------------------------------------- 
 
¶5. (U) President Calderon and Governor of Baja California 
Eugenio Elorduy have inaugurated the Las Arenitas Wastewater 
Treatment Plant in Mexicali.  The project is part of a 
wastewater improvements project certified by the Border 
Environment Cooperation Commission (BECC) in September 2003 
and financed with grants from the North American Development 
Bank (NADBank).  The project is estimated to cost just over 
USD 30 million, and was partially financed with a USD 12.85 
million construction grant from the Border Environmental 
Infrastructure Fund (BEIF), which is funded by EPA and 
administered by NADBank.  The plan will provide service to 
almost 175,000 people in Mexicali and eliminate discharges of 
untreated wastewater into the New River, which flows into the 
U.S. 
 
--------------------------------------------- ---- 
Mexico Continues To Whittle Down its Foreign Debt 
--------------------------------------------- ---- 
 
¶6. (U) As a part of the government's strategy to strength its 
debt structure, Mexico on March 15 sold warrants that allow 
investors to swap foreign bonds worth USD 2.66 billion for 
fixed-rate peso-denominated bonds in September, October, and 
November.  The auction attracted demand to exchange more than 
USD 3.5 billion with respect to the dollar-denominated 
warrants and approximately 530 euros for the euro-denominated 
bonds.  The Secretariat of Finance's Director of Public 
Credit, Gerardo Rodriguez, said publicly that the government 
planned to wait until all the warrants come due late this 
year before deciding whether to sell more. 
 
------------------------------------------- 
Stocks Climb on Positive News From the U.S. 
------------------------------------------- 
 
¶7. (U) Mexican stocks rose the most in five months as the 
U.S. Fed Open Market Committee signaled that it will consider 
 
MEXICO 00001452  003 OF 003 
 
 
cutting rates by the June policy meeting, easing concern that 
higher borrowing costs will hurt demand in Mexico's largest 
export market.  The IPC stock index rose 3% to 29,220 on 
March 21, surpassing for the first time closing level of 
February 26, the day before a 9-percent decline in Chinese 
share prices sparked a global selloff. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA