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PP RUEHCD RUEHGD RUEHHM RUEHHO RUEHJO RUEHMC RUEHNG RUEHNL RUEHPOD
RUEHRD RUEHRS RUEHTM
DE RUEHME #0944/01 0941336
ZNR UUUUU ZZH
P 031336Z APR 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 1150
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RHMFIUU/CDR USNORTHCOM
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHEHNSC/NSC WASHINGTON DC
RUEHXI/LABOR COLLECTIVE
RUEHSN/AMEMBASSY SAN SALVADOR 2539
RUEHGT/AMEMBASSY GUATEMALA 3650
RUEHZP/AMEMBASSY PANAMA 2268
RUEHBE/AMEMBASSY BELIZE 0005
RUEHTG/AMEMBASSY TEGUCIGALPA 1726

UNCLAS SECTION 01 OF 12 MEXICO 000944 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
TREASURY FOR IA (ANNA JEWEL, LUYEN TRAN) 
NSC FOR RICHARD MILES, DAN FISK 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (ANDREA RAFFO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
DOT WASHDC FOR DAVID DECARME 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: President Calderon's Economic Development 
Strategy for Mexico 
 
------- 
Summary 
------- 
 
¶1. (U) The pillar of President CalderonQs economic 
development strategy for Mexico is to preserve macro- 
economic stability in order to prevent a return to economic 
crises that periodically devastated Mexico during the 
1980Qs and 1990Qs. While the economic stability Mexico has 
enjoyed since 2001 has put Mexico on a path of average 
long-term real GDP growth of around 3 to 4 percent, the 
OECD, World Bank and other analysts believe MexicoQs 
economy must achieve sustained annual GDP growth of at 
least 6 to 8 percent in order to reduce widespread poverty. 
Calderon has declared that fighting poverty is the top 
economic goal of his Administration. He has repeatedly 
stressed his dedication to creating well paying jobs in 
Mexico as a solution to poverty, and Mexican immigration to 
the United States. His means to create jobs include further 
opening Mexico to trade and investment, record spending to 
develop infrastructure, increased spending on social 
programs, eliminating unnecessary government regulation, 
and seeking reforms to MexicoQs moribund internal economy. 
While Calderon has achieved more economic reforms in 18 
months than his predecessor President Fox did in six years, 
his lack of a congressional majority, and the lack of wide 
consensus within Mexico on basic economic policy, have so 
far prevented him from undertaking the serious structural 
reforms needed to achieve higher growth rates.  Faced with 
strong special interests that have long blocked such 
reforms, Calderon has chosen a pragmatic approach of 
pushing a steady series of politically achievable reforms. 
These reforms have addressed the most immediate challenges 
to macroeconomic stability, while chipping away at some of 
the barriers preventing MexicoQs economy from creating 
sufficient decently paying jobs. Given U.S. strategic 
interests in economic development in Mexico, the U.S. 
Mission has a range of programs to support Mexican 
development efforts. End Summary. 
 
------------------------ 
Macro-economic Stability QThe Pillar for Economic 
Development 
------------------------ 
 
¶2. (U) The pillar of President CalderonQs economic 
development strategy is to preserve the macro-economic 
stability Mexico has enjoyed since 2002. This is 
understandable because periodic economic and banking crises 
in the 1980Qs and 1990Qs wiped out the savings and cost the 
jobs of many Mexicans, and pushed members of the working 
class into poverty. The World Bank, IMF, OECD and other 
financial institutions widely praise the sound economic 
policies that have kept MexicoQs economy stable since 2002. 
Calderon has continued those policies.  As the Chief of 
CalderonQs Economic Cabinet, Felipe Duarte, told a public 
academic/business forum in February 2008, the Calderon 
Administration has strengthened public finances via fiscal 
and pension reform, its commitment to maintain fiscal 
discipline, and efforts to improve the countryQs debt 
profile. The government continues to operate with only a 
small budget deficit. Under President Calderon, inflation 
remains at a reasonable 4% annual rate, and wage increases 
and interest rates are carefully managed to keep 
inflationary pressures in check. 
 
MEXICO 00000944  002 OF 012 
 
 
 
¶3. (U) President FoxQs and CalderonQs efforts to preserve 
macro-economic stability have been key to promoting 
development in Mexico.  Rising foreign investment shows 
that that investors and financial institutions have faith 
that Mexico will continue to pursue policies to keep 
inflation and budget deficits in check. A concrete display 
of international confidence in MexicoQs economy occurred in 
late 2006 when Mexico became the first country in Latin 
America to launch a 30-year bond denominated in the local 
currency (pesos). The bond was oversubscribed by six times. 
CalderonQs and FoxQs policies have attracted record levels 
of foreign investment and allowed the development of a 
mortgage industry including 30-year peso-denominated fixed 
rate mortgages. Thanks to macro-economic stability and 
specific efforts under the Fox and Calderon Administrations 
to improve housing and credit to the private sector, more 
and more Mexicans are enjoying the first-ever opportunity 
to own their own homes. Between 2001 and 2006, accumulated 
investment from mortgages was USD 78 billion, equivalent to 
over 4.3 million mortgages financed by various lending 
institutions. In 2007 alone, lenders expect to grant about 
1.1 million mortgages. 
 
------------------------- 
National Development Plan 
------------------------- 
 
¶4. (U) Prior to assuming office, Calderon held a series of 
meetings throughout Mexico to present his vision for 
MexicoQs future, the Q2030 Vision,Q under which by that 
year Mexico would become one of the five largest economies 
in the world with a per capita GDP of USD 30,000. Calderon 
said his purpose in presenting this 2030 Vision was to 
demonstrate that reducing widespread poverty and improving 
the Mexican education system would take reform over a 
generation. 
 
¶5. (U) To demonstrate how he would advance toward that 
vision during his term, in May 2007 Calderon unveiled a 
National Development Plan for 2007-2012 for social and 
economic development. The main pillars of CalderonQs plan 
are:  rule of law and public security (e.g. fighting drug 
trafficking, reducing corruption, justice reform, police 
reform, electoral and other political reforms); equal 
opportunities for all; economic growth and competitiveness; 
environmental sustainability; and effective democracy and 
responsible foreign policy.  Under this plan, the 
government aims to achieve real GDP growth of 5% and to 
reduce food-based poverty by 30% by 2012.  (Comment:  Food- 
based poverty is based on an estimate of the income 
required to purchase a food basket satisfying minimum 
nutritional requirements. The overall poverty figure 
considers estimated income required to satisfy minimum 
requirements for nutrition, education, health services, 
housing, clothing and transport. End Comment) 
 
¶6. (U) To implement his development strategy, the Calderon 
Administration has boosted funding for development-related 
initiatives. Spending on the government-defined category of 
Qsocial developmentQ is set to increase by 8.8% in real 
terms in the 2008 federal budget, while spending on 
Qeconomic developmentQ is set to increase 13.6%.  The 
Secretariat of Social Development received one of the 
 
SIPDIS 
largest budget hikes this fiscal year (37.8%). 
 
MEXICO 00000944  003 OF 012 
 
 
 
---------------------------------- 
Poverty Reduction the Top Priority 
---------------------------------- 
 
¶7. (U) Even prior to assuming office, Calderon made sure 
his economic team consistently conveyed the message that 
CalderonQs top economic priority was reducing poverty.  The 
July 2006 Presidential elections threw a spotlight on 
persistent poverty and rising inequality in Mexico -- 
particularly between economic progress in northern Mexico 
and stagnation in southern Mexico. Shortly after taking 
office in December 2006, Calderon publicly said fighting 
poverty was the top economic priority, noting that Qif 
something demands urgent action and all the power of the 
Mexican state, it is taking care of millions of families 
who still live in poverty.Q Poverty rates have declined, 
but according to Mexican government statistics as of 2006, 
42.6% of the population still lives in poverty, while 13.8% 
of the population lives in Qfood-based poverty.Q Calderon 
has been clear that maintaining macroeconomic stability is 
a basic requirement of fighting poverty, but repeatedly 
stresses the need to do more, especially by creating 
decently paying jobs in Mexico. 
 
¶8. (U) Finance Secretary Carstens is a key voice publicly 
explaining CalderonQs development strategy. Carstens has 
often said publicly that stability and economic growth are 
necessary conditions for poverty reduction, but policies 
are also needed to help the poor improve their living 
standards. Carstens echoes CalderonQs stress on having a 
market economy generate jobs, publicly emphasizing that 
governments cannot increase growth and reduce poverty by 
themselves, because such progress comes from development of 
the Qsociety,Q including Qthe person with the most modest 
job.Q Carstens and Calderon have said the Administration 
will put emphasis on programs that develop human capital in 
order to make Mexico more competitive and to meet 
CalderonQs stated goal of increasing per capita income to 
USD 30,000 by 2030. (Note:  MexicoQs per capita GDP was USD 
8,300 in 2007, although Mexico has the highest income 
inequality in the OECD.) Carstens also joins Calderon in 
publicly highlighting the need to make social programs more 
efficient and productive so they create sustainable jobs 
that allow participants to QgraduateQ from the programs to 
a better life. 
 
------------------------------------ 
Creating Jobs by Further Opening to Trade and Investment 
------------------------------------ 
 
¶9.  (U) Calderon has continued the policy of Mexican 
leaders since the early 1990Qs of creating jobs in Mexico 
through further opening Mexico to trade and foreign 
investment. Thanks in large part to opportunities created 
by the North American Free Trade Agreement (NAFTA), foreign 
direct investment in 2007 reached a record level of USD 
23.2 billion. (Comment: The second highest amount ever 
recorded, surpassed only in 2001 when Citibank acquired 
Mexican Bank Banamex for USD 12.5 billion, skewing FDI 
figures for that year.  End Comment) In March 2008, 
Secretary of the Economy Eduardo Sojo reminded the Mexican 
 
SIPDIS 
public that prior to NAFTA, MexicoQs yearly inflow of 
foreign direct investment was only USD 3.7 billion. 
 
 
MEXICO 00000944  004 OF 012 
 
 
¶10. (U) Mexico currently has 13 bilateral and multilateral 
regional free trade agreements covering 43 countries. 
President CalderonQs new initiative has been to make these 
free trade agreements more efficient by reducing 
inconsistencies among them that increase business costs and 
opportunities for corruption. Recognizing that the U.S. 
domestic debate on free trade makes it difficult for the 
United States to consider further harmonizing free trade 
agreements, Calderon has had his government take unilateral 
measures, including lowering tariff rates, harmonizing 
trading rules, and eliminating procedural barriers to 
trade. The Calderon Administration is also actively 
pressing its other trading partners to harmonize tariff 
rates, rules of origin, and other trading rules in their 
respective free trade agreements with Mexico. 
 
¶11. (U) On June 13, 2007, Calderon created ProMexico, a 
federal entity charged with promoting Mexican exports 
around the world and attracting foreign direct investment 
to Mexico. Through ProMexico, federal and state government 
efforts as well as related private-sector activities work 
to harmonize programs, strategies, and resources for common 
objectives, while supporting the globalization of MexicoQs 
economy. While not solely geared toward small- and medium- 
sized enterprises, ProMexico works in concert with the 
Secretariat of EconomyQs Subsecretariat for small- and 
 
SIPDIS 
medium-Sized Businesses. As ProMexico develops it will also 
seek to incorporate export promotion assistance programs 
from other government departments, including farmers 
assistance programs currently managed by the Secretariat of 
Agriculture and Fisheries. 
 
------------------------- 
Creating Jobs By Improving Competitiveness 
------------------------- 
 
¶12. (U) President Calderon has publicly stressed that 
creating jobs in Mexico requires urgent action to improve 
the competitiveness of MexicoQs economy, especially given 
increased exports from China and India. In February 2008, 
the Secretariat of Economy announced a series of measures 
to increase competitiveness. The measures include 
elimination or reduction of more than 6,000 outdated 
tariffs and import duties on goods that are no longer made 
in Mexico and that raise input costs for other Mexican 
industries, simplification of import procedures, 
strengthening of the automobile and information technology 
sectors, fostering software development, and simplification 
of import procedures for the maquila and manufacturing 
industries.  Congress authorized USD 128 million to 
implement this program. 
 
¶13. (U) Recognizing that there were many cumbersome customs 
procedures that prevented micro- and small- and medium- 
sized enterprises from participating in foreign trade, on 
March 31, 2008, the Secretariat of the Economy issued a 
decree eliminating the most burdensome customs procedures 
as of April 14. The decree also announced that the 
Secretariat of Economy and Secretariat of Finance will take 
 
SIPDIS 
further actions to simplify customs and foreign trade 
procedures, including reviewing and eliminating control 
measures that increase process time and costs; and 
reviewing, reducing or eliminating non-tariff restrictions; 
and simplifying administrative procedures. 
 
 
MEXICO 00000944  005 OF 012 
 
 
¶14. (U) Other measures taken by the Calderon Administration 
to improve competitiveness include a series of measures to 
reduce the cost of doing business by reducing the time to 
open a new business, lowering industrial electricity rates 
during peak hours, strengthening development banks, and 
fostering more competition in Liquefied Petroleum (LP) gas 
distribution. To promote further progress, in 2007 the 
Calderon Administration launched a major effort through the 
OECD, using an OECD model developed by Australia to reduce 
over-regulation of the economy. Calderon directed his 
ministries to QdredgeQ through all government regulations 
in order to eliminate those that are no longer necessary or 
that unduly hinder business. Recognizing that much of the 
over-regulation of business occurs at the state and 
municipal level, in 2008 Calderon convinced MexicoQs state 
governors to participate in the program, gaining their 
commitment to review over 1,000 regulations using a version 
of the OECD model. 
 
¶15. (U) CalderonQs job-creation strategy includes 
increasing credit to the private sector, particularly 
small- and medium-sized enterprises.  His Administration 
has implemented financial sector reforms to facilitate 
lending to the private sector and increase competition in 
the banking sector.  These measures include creating a 
Qniche bankQ license, encouraging microfinance institutions 
to become regulated and offer savings accounts in order to 
increase competition and facilitate access to safe savings 
services for low income people. Because a lack of 
competition keeps banking fees high and lending low, the 
Calderon Administration has also used anti-monopoly 
investigations to spur greater competition in the banking 
sector. 
 
--------------------------------------- 
Further Economic Reform Needed to Create Jobs 
--------------------------------------- 
 
¶16. (U) Much remains to be done, however, to arrest 
MexicoQs slipping global competitiveness and allow Mexico 
to achieve growth rates high enough to reduce widespread 
poverty. Although the IMF, World Bank, OECD, members of the 
Calderon Administration and much of the business community 
agree consistently on the structural reforms needed, the 
Mexican polity lacks sufficient consensus to achieve deeper 
structural reforms. Special business, union and other 
interests wanting to preserve economic privileges built up 
under 70 years of one-party rule, and a strong left-leaning 
opposition, still favor aspects of a more strongly state- 
managed economy such as private and government monopolies 
and oligopolies, and guaranteed benefits for workers in 
privileged industries. 
 
¶17. (U) Special interests have blocked needed reforms 
throughout MexicoQs history. In a country where 60% of the 
people do not graduate high school, people throughout the 
country recognize the urgent need to reform the educational 
system.  Calderon has spoken publicly about the need for a 
fundamental transformation of MexicoQs education system. 
Yet the politically powerful teachersQ union continues to 
block reform. In a country with rapidly declining oil 
production, the employeesQ union of state oil monopoly 
PEMEX and related special interests, including populist 
leftist politicians, are vehemently condemning CalderonQs 
public calls for even modest energy reform.  Companies say 
 
MEXICO 00000944  006 OF 012 
 
 
a major barrier to expansion is the extremely high cost of 
electricity, which is provided by two highly inefficient 
government regional monopolies. Monopolies and oligopolies 
continue to dominate key sectors of the economy, keeping 
rates artificially high for telecommunications, cement, 
retail goods, medicines and other key items. While Calderon 
and Congress have implemented some measures to increase the 
effectiveness of the governmentQs competition watchdog 
agency COFECO, more significant progress has been blocked 
in the Congress. Companies and the World Bank have 
identified MexicoQs labor code as a major barrier to hiring 
and firing employees. Calderon has called for labor reform, 
but powerful unions and stiff political opposition will 
make it very difficult to achieve. 
 
----------------------------- 
CalderonQs Pragmatic, Step-by-Step Strategy for Reform 
------------------------------- 
 
¶18.  (U) Learning from the failure of President Fox to pass 
the bold economic reforms he proposed, Calderon has taken a 
pragmatic, incremental approach. Prior to proposing reforms 
to Congress, he has directed key members of his Cabinet to 
negotiate intensely with special interests and the 
political opposition to ensure that reforms presented to 
Congress are politically feasible. CalderonQs strategy is 
to maintain his momentum by aiming for legislative battles 
he can win, building additional political capital for the 
tougher challenges ahead. This incremental strategy forces 
Calderon to compromise and wait on the deeper reforms 
needed to generate substantially higher growth rates. 
 
¶19. (U) Given the fundamental need to avoid a return to 
economic crises of the past, the first economic reforms 
President Calderon put before Congress were to defuse 
potential threats to economic stability. After only a few 
months in office, Calderon got Congress to pass historic 
reform of the government pension system.  This initiative, 
combined with President FoxQs reform of private pensions, 
has eliminated most of the threat that retirement systems 
in Mexico would become insolvent. There is still about 20% 
of MexicoQs pension system that needs reform in order to 
remain solvent over the long term, but these are the 
pensions of the oil company workers, social security 
institute employees and other powerful Mexican special 
interests. 
 
¶20.  (U) The strategy of proposing politically feasible 
reforms also allowed President Calderon to make progress in 
addressing MexicoQs urgent need to increase tax revenues 
now that production from MexicoQs main oil field 
(Cantarell) is declining as the field becomes exhausted. 
CalderonQs initial proposal would have generated about half 
of the tax revenue international and Mexican experts 
believe is needed.  CalderonQs narrow political support in 
Congress has limited his ability to go after the tax 
privileges and exemptions built up during 70 years of one- 
party rule. This left Calderon the less attractive option 
of increasing taxes on the relatively small part of the 
potential tax base that already pays taxes. Required 
compromises with the business sector and opposition members 
of Congress further watered down the reform, generating an 
estimated 2.1% of GDP by 2012, which Mexican economic 
officials say is about a third of the additional tax 
revenue needed. 
 
MEXICO 00000944  007 OF 012 
 
 
 
¶21. (U) So far, CalderonQs step-by-step pragmatic approach 
has made more progress in a year and a half than his 
predecessor made in six years, but it remains to be seen if 
he can tackle enough of MexicoQs special interests to 
create a vibrant, competitive, open internal economy that 
can create a sufficient number of jobs and properly 
educated labor force to alleviate widespread poverty. 
 
----------------------------------- 
The National Infrastructure Program 
----------------------------------- 
 
¶22. (U) In addition to reforms to make the economy more 
competitive, Calderon unveiled in July 2007 a record- 
setting program to develop MexicoQs long-neglected 
infrastructure. His National Infrastructure Plan seeks to 
reinvigorate MexicoQs infrastructure network, develop and 
connect the backward and/or isolated parts of Mexico 
(particularly in the poorer south) and boost the countryQs 
international competitiveness. The program envisages 
unprecedented increases in public and private investment in 
infrastructure (excluding hydrocarbons). The governmentQs 
goal for each year it is in office is to have public and 
private investment in infrastructure equal 4% of GDP; lead 
to the creation of 720,000 jobs; and add 0.6 percentage 
points to the countryQs economic growth. Specifically, the 
Plan seeks to modernize highway, airport, port, energy, and 
water infrastructure. It also aims to increase access to 
electric power, drinking water, and drainage services. 
Ultimately, the Calderon administration hopes the program 
will catapult Mexico into the world's top 20th percentile 
for infrastructure competitiveness by 2030. 
 
¶23. (U) The Infrastructure Plan will be financed primarily 
by private money through public-private partnerships, 
particularly for investments in roads, airports and ports. 
Government funding will come from the 2007 tax reform and 
the National Infrastructure Fund (FONADIN). In addition, 
the government is currently in the process of tendering 
bids for several highways projects to obtain the needed 
resources for other Infrastructure Plan projects. The 
FONADIN will begin operating with USD 3.7 billion, but the 
government expects to be able to increase this figure to 
USD 25 billion within five years. 
 
--------------------- 
Anti-Poverty Programs 
--------------------- 
 
¶24. (U) Shortly after assuming office, Calderon gave his 
economic ministries specific objectives to develop the 
impoverished rural areas of Mexico, such as improving 
postal and telecommunications services. He has also 
expanded successful anti-poverty programs started under 
previous Administrations, launched new programs and sought 
to make existing programs more effective. Currently, the 
Secretariat of Social Development coordinates more than 16 
 
SIPDIS 
social programs with other government agencies. Among the 
most successful programs is QOportunidades.Q  A program 
that existed before Calderon took office, it has become 
MexicoQs flagship social assistance program, which aims to 
help poor families invest in human capital. Oportunidades 
is designed to combat poverty by providing cash payments to 
families in exchange for regular school attendance and 
 
MEXICO 00000944  008 OF 012 
 
 
health clinic visits. Oportunidades includes: grants for 
purchasing school materials; scholarships for high school 
and university students; basic health care services for the 
entire family; and monetary transfers for improved food 
consumption as well as nutritional supplements for young 
children and pregnant women. Oportunidades is credited with 
decreasing poverty and improving health and educational 
attainment where it has been deployed. In response to 
CalderonQs request to expand the program, the Congress 
earmarked USD 3.5 billion for Oportunidades in the 2008 
federal budget. 
 
------------------------------ 
Support for Marginalized Areas 
------------------------------ 
 
¶25. (U) During a tour of one of MexicoQs poorest states in 
2007, Calderon announced the implementation of the 
Q100x100Q Program to improve the social and economic 
development of the countryQs poorest municipalities. The 
government has invested USD 525 million to date improving 
the infrastructure, education, housing, health, 
environmental conditions, and productivity (mainly in 
agriculture and handicrafts) of 125 municipalities. 
 
¶26. (U) On March 13, 2008, Calderon launched a program 
aimed at creating jobs, attracting investment, and reducing 
inequality in the poorest areas of the country -- where 17 
million Mexicans live. The program is a combination of 
efforts to link the governmentQs actions to alleviate 
poverty with its overall economic policy. Calderon has said 
the program will help investors in marginalized areas cut 
costs by 22%. The program includes government support for 
employers to reduce the cost of numerous payroll taxes 
including social security, health, and housing fees, and 
allows companies in marginalized areas to deduct the cost 
of the income tax and the Single Rate Corporate Tax (IETU). 
Under the program, Mexican government development banks 
will grant loans for the construction of plants, 
warehouses, and factories in marginalized areas, while the 
Labor Secretariat will grant scholarships for training 
programs. 
 
----------------- 
First Job Program 
----------------- 
 
¶27. (U) In March 2007, Calderon launched the QFirst Job 
ProgramQ (PPE) to help create jobs by granting a one-year 
subsidy on the social security fees employers have to pay 
to the Mexican Social Security Institute (IMSS) for newly 
hired employees. In 2007, Congress approved USD 275 million 
to cover subsidies to be granted during the first year of 
the programQs operation. Of this amount, only 16% was 
spent.  For 2008, IMSS requested a budget of USD 138 
million for the program, but resources were not allocated 
since it was determined that more than 80% of the previous 
yearQs resources had yet to be used. PPE did not have the 
impact the government had hoped for during its first year. 
Most of MexicoQs established labor unions view the program, 
as originally implemented, as a well-intentioned failure. 
In January 2008, officials made changes to the program to 
encourage participation, but it is too early to tell if 
these changes will make the program effective. 
 
 
MEXICO 00000944  009 OF 012 
 
 
------------------------- 
Health Insurance Programs 
------------------------- 
 
¶28. (U) The governmentQs health insurance programs are 
primarily designed to help those who cannot afford private 
healthcare. MexicoQs public healthcare system is divided 
into three types of coverage:  1) Coverage for workers in 
the formal private sector, and their families, which is 
managed by the Mexican Social Security Institute (IMSS); 2) 
coverage for workers in the public sector, and their 
families, which is managed by the Institute of Security and 
Social Services for Government Workers (ISSSTE); and 3) 
Popular Health Insurance, for workers outside the formal 
economy, and workers who do not receive regular salaries, 
and their families. Congress approved USD 2.4 billion in 
2007 for the Popular Health Insurance program. (Comment: 
While the Popular Health Insurance Program does help meet 
the needs of the poorest Mexicans, it may unintentionally 
hurt the goal of moving people into decently paying formal 
sector jobs. The Governor of the Bank of Mexico has said 
publicly that the Popular Health Insurance program 
encourages people and micro-businesses not to join the 
formal economy, which also means they do not pay taxes or 
contribute to IMSS. Therefore, he has argued, the Popular 
Health Insurance Program drains both the federal budget and 
the health care system.  End Comment) 
 
¶29. (U) In his inauguration speech, Calderon announced a 
new program called QHealth Insurance for a New Generation 
-- a program that will cover medical expenses for children 
born on or after December 1, 2006. Last year this program 
covered 830,000 Mexicans.  The governmentQs goal is to 
cover 100% of the population by 2010. 
 
------------------------------------------- 
Agricultural and Rural Development Programs 
------------------------------------------- 
 
¶30. (U) Although Calderon proposed only a 0.2% increase in 
the agricultural budget for 2008, he renewed several 
existing agricultural support programs and created a few 
new ones, including a forestry initiative that aims to 
revitalize MexicoQs ailing forestry sector. The cornerstone 
of these programs is the Concurrent Special Program (PEC), 
an umbrella funding mechanism for all GOM activities aimed 
at increasing agricultural production, stimulating rural 
economies, and improving rural livelihoods.  While Calderon 
proposed only a 3.8% increase in funding, Congress 
increased funding by 15%, to USD 18.7 billion in 2008, more 
than double the funding first allocated to the PEC in 
2000.(Comment:  Congress increased overall spending on 
agriculture by 11% in 2008. End Comment) The most important 
program under the PEC is PROCAMPO (Direct Support to the 
Countryside Program). PROCAMPO is a system of direct 
payments to producers based on historic levels of area 
planted; it benefits 2.8 million farmers. 
 
¶31.  (U) In December 2007, Calderon attempted to improve 
support for impoverished farmers by changing the rules of 
operation for agricultural programs and reducing the number 
of such programs from 55 to 8, in order to get more of the 
money to actual needy farmers, rather than the middlemen 
and more prosperous farmers who had traditionally absorbed 
much of the governmentQs financial support for the 
 
MEXICO 00000944  010 OF 012 
 
 
countryside.  (Comment:  This reform has generated 
considerable controversy as local government officials, 
organizations officially representing farmers, and the 
richest farmers have loudly protested being cut off from 
the agricultural subsidy train.  End Comment) 
 
¶32. (U) In addition to the PEC, in early 2007 the Calderon 
Administration announced the QGOM Actions to Promote the 
Corn, Dry Beans, Sugar Cane and Milk Competitiveness for 
the 2007-2012 Period.Q This initiative is not a funded 
program, but rather an effort to underscore the work that 
is currently being done, or in the planning stages, within 
the government to smooth the transition for the 
agricultural products that had their tariff and quota 
regimes lifted in January 2008 when the final phased 
provisions of the NAFTA took effect. 
 
----------------------- 
Economic Support Package 
------------------------ 
 
¶32. (U) Because over 80% of MexicoQs exports go to the 
United States, MexicoQs year-to-year economic performance 
has been closely linked to U.S. economic cycles. Seeking to 
minimize the effects of the current U.S. economic slowdown, 
on March 3, 2008 President Calderon announced a series of 
measures to stimulate the economy. The package includes 
reductions in provisional income tax payments between March 
and June 2008; reductions in corporate payments to IMSS 
this year; the lowering of electricity tariffs; a USD 935 
million increase in Pemex expenditures to upgrade and 
expand its pipeline network; USD 60 million of additional 
funds for the National Employment System; and 
simplification of administrative requirements for exporters 
and importers. The government says the measures will cost 
USD 5.6 billion. 
 
--------------------- 
Some Progress to Date 
--------------------- 
 
¶34. (U) Calderon has registered some impressive economic 
accomplishments since assuming office -- inflation is at a 
reasonable 4%, and foreign direct investment for 2007 was a 
record high USD 23.2 billion. Although he fell short of his 
stated goal of creating 1 million jobs a year, in 2007, 
800,000 jobs were created in the formal sector of the 
economy, the second-highest number of jobs ever created in 
one year. CalderonQs strategy of carefully negotiating with 
the opposition and special interests, and tabling only 
politically feasible proposals, secured quick Congressional 
approval of the 2007 and 2008 federal budgets, and won 
passage of the unpopular but necessary government workers 
pension reform.  His success in getting Congress to pass a 
tax reform to boost government revenues by 2.1% of GDP by 
2012 has alleviated the immediate budget crunch caused by 
declining oil production, and freed up revenues for 
increased spending on social programs and infrastructure. 
 
¶35. (U) Most of CalderonQs economic and social development 
programs are still too new to determine whether they will 
improve competitiveness or lift a significant number of 
people out of poverty. The Oportunidades program is a 
proven success.  The First Job program has been re-worked 
after failing to achieve expected results in its first 
 
MEXICO 00000944  011 OF 012 
 
 
year. The National Infrastructure Program is also just now 
getting underway, but if implemented on schedule has the 
potential to boost economic growth and create jobs. 
 
------------------------------------ 
U.S. Support for Mexican Development 
------------------------------------ 
 
¶36. (U) Our common border makes an increasingly prosperous 
Mexico especially important to the United States for 
several reasons including: it would reduce the incentive 
for poor Mexicans to immigrate illegally to the U.S. in 
search of good jobs; it would provide more formal sector 
jobs that would reduce the relative attractions of narco- 
trafficking and other forms of illegal commerce that have 
direct negative impacts on U.S. security and economic 
interests; it would expand opportunities for U.S. exporters 
of goods and services in what is already our second largest 
export market (Comment:  U.S.-Mexico two-way trade in goods 
and services was over USD one billion per day in both 2006 
and 2007); and it would strengthen the hand of those in 
Latin America who favor democratic politics and open 
economies rather than authoritarianism and populist 
economic policies. These considerations, and the fact that 
Mexico is the United StatesQ third-leading source of 
foreign oil, give the United States fundamental strategic 
interests in sustainable, broad-based economic development 
in Mexico. 
 
¶37. (U) For this reason, the United States Government is 
actively supporting Mexicans across a wide spectrum of the 
above-mentioned development efforts. While our 
interventions on their own are probably not decisive, they 
are making real differences on the margins of indigenous 
Mexican efforts and demonstrating in a very concrete 
fashion our commitment to our neighborQs success. The 
following examples are illustrative, but far from 
exhaustive, of the many ways the U.S. Government is 
promoting economic development in Mexico. USAID has 
programs in Mexico aimed at expanding access to credit 
among marginal populations, especially in areas of greatest 
illegal out-migration to the United States. USAID has 
programs to help increase overall economic competitiveness, 
including by reforming the antiquated judicial system and 
strengthening the federal competition watchdog agency. USDA 
is working on several projects to smooth the transition for 
Mexican corn and bean farmers to free trade.  USDA is also 
engaged in a number of sanitary and phyto-sanitary programs 
that will help Mexico gain access to new markets, while 
also protecting U.S. agriculture by making the animal and 
plan health profiles of our two countries more similar. The 
Department of Commerce Commercial Service is actively 
supporting MexicoQs infrastructure expansion plans by 
supporting feasibility studies and assisting U.S. firms to 
participate in major infrastructure projects. The State 
Department is funding a capacity building program to 
improve MexicoQs protection of intellectual property 
rights. Treasury helps train its Mexican counterparts on 
best practices in improving tax collection, and combating 
money laundering. And, both the U.S. and Mexican 
governments are working together with the Canadian 
government to facilitate the flow of trade and investment 
among the three NAFTA partners and improve North AmericaQs 
overall global competitiveness via the various working 
groups of the Security and Prosperity Partnership of North 
 
MEXICO 00000944  012 OF 012 
 
 
America (SPP). 
 
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Comment 
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¶38. (U) While many of the social development programs 
discussed above are substantive (e.g., Oportunidades and 
increased infrastructure spending), some are less efficient 
and/or more political in nature. Calderon undoubtedly 
realizes that he needs to be seen as doing something to 
boost employment and help Mexico weather a potential U.S. 
recession. While effective social programs play an 
important role in protecting societyQs most vulnerable, 
ultimately, MexicoQs ability to achieve the growth rates 
needed to create decently paying jobs and reduce poverty 
hinge on CalderonQs ability to tackle the economyQs 
structural shortcomings. The list of outstanding reforms is 
long, and includes:  implementing energy reform to reduce 
the governmentQs dependence on oil-related revenues and 
stem a fall in oil production; addressing the detrimental 
impact monopolies and oligopolies have on competitiveness, 
entrepreneurship, and foreign investment; curbing labor 
rigidities and the rampant infringement of intellectual 
property rights, both of which negatively affect the 
business environment and job creation; and implementing 
educational reform to prepare people to take advantage of 
opportunities from NAFTA, globalization, and technological 
advances. Despite his successes so far, and ongoing U.S. 
support of his efforts, Calderon will be hard-pressed to 
forge consensus in any of these areas given the strong 
interests they threaten to undermine, and midterm 
Congressional elections scheduled for July 2009. End 
Comment. 
 
GARZA