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PP RUEHCD RUEHGD RUEHHM RUEHHO RUEHJO RUEHMC RUEHNG RUEHNL RUEHPOD
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DE RUEHME #0949/01 0941648
ZNR UUUUU ZZH
P 031648Z APR 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 1165
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHXI/LABOR COLLECTIVE
RUEHBE/AMEMBASSY BELIZE 0017
RUEHGT/AMEMBASSY GUATEMALA 3662
RUEHMU/AMEMBASSY MANAGUA 1008
RUEHZP/AMEMBASSY PANAMA 2280
RUEHSJ/AMEMBASSY SAN JOSE 1801
RUEHSN/AMEMBASSY SAN SALVADOR 2551
RUEHTG/AMEMBASSY TEGUCIGALPA 1738
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUEHC/DEPT OF LABOR WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 12 MEXICO 000949 
 
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 EINT ETRD PINR MX
SUBJECT: PRESIDENT CALDERON'S ECONOMIC DEVELOPMENT STRATEGY 
FOR MEXICO 
 
Corrected copy.  Formatting corrected. 
 
------- 
Summary 
------- 
 
¶1. (U) The pillar of President Calderon's 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 1980's and 
1990's. 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 Mexico's 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 
Mexico's 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 macro-economic stability, 
while chipping away at some of the barriers preventing 
Mexico's 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 Stability, The Pillar for Economic Development 
--------------------------------------------- ------- 
 
¶2. (U) The pillar of President Calderon's 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 1980's and 1990's 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 Mexico's economy stable since 2002. 
Calderon has continued those policies.  As the Chief of 
Calderon's 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 country's debt 
profile. The government continues to operate with only a 
small budget deficit. Under President Calderon, inflation 
 
MEXICO 00000949  002 OF 012 
 
 
remains at a reasonable 4% annual rate, and wage increases 
and interest rates are carefully managed to keep inflationary 
pressures in check. 
 
¶3. (U) President Fox's and Calderon's 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 Mexico's 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. Calderon's and Fox's 
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 Mexico's 
future, the "2030 Vision," 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 Calderon's 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 
"social development" is set to increase by 8.8% in real terms 
in the 2008 federal budget, while spending on "economic 
 
MEXICO 00000949  003 OF 012 
 
 
development" is set to increase 13.6%.  The Secretariat of 
Social Development received one of the largest budget hikes 
this fiscal year (37.8%). 
 
---------------------------------- 
Poverty Reduction the Top Priority 
---------------------------------- 
 
¶7. (U) Even prior to assuming office, Calderon made sure his 
economic team consistently conveyed the message that 
Calderon's 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 "if 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." 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 "food-based poverty." Calderon has been 
clear that maintaining macro-economic 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 Calderon's 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 Calderon's 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 "society," 
including "the person with the most modest job." 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 Calderon's stated goal of 
increasing per capita income to USD 30,000 by 2030. (Note: 
Mexico's 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 
"graduate" from the programs to a better life. 
 
--------------------------------------------- -------- 
Creating Jobs by Opening More to Trade and Investment 
--------------------------------------------- -------- 
 
¶9. (U) Calderon has continued the policy of Mexican leaders 
since the early 1990's 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 
 
MEXICO 00000949  004 OF 012 
 
 
year.  End Comment) In March 2008, Secretary of the Economy 
Eduardo Sojo reminded the Mexican public that prior to NAFTA, 
Mexico's yearly inflow of foreign direct investment was only 
USD 3.7 billion. 
 
¶10. (U) Mexico currently has 13 bilateral and multilateral 
regional free trade agreements covering 43 countries. 
President Calderon's 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 Mexico's economy. While 
not solely geared toward small- and medium-sized enterprises, 
ProMexico works in concert with the Secretariat of Economy's 
Subsecretariat for small- and 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 Mexico's economy, especially given 
increased exports from China and India. In February 2008, the 
Secretariat of Economy announced a series of measures to 
 
SIPDIS 
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 further actions 
 
MEXICO 00000949  005 OF 012 
 
 
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. 
 
¶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 "dredge" 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 Mexico's 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) Calderon's 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 "niche bank" 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 Mexico's 
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 Mexico's 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 
 
MEXICO 00000949  006 OF 012 
 
 
system.  Calderon has spoken publicly about the need for a 
fundamental transformation of Mexico's education system.  Yet 
the politically powerful teachers' union continues to block 
reform. In a country with rapidly declining oil production, 
the employees' union of state oil monopoly PEMEX and related 
special interests, including populist leftist politicians, 
are vehemently condemning Calderon's public calls for even 
modest energy reform.  Companies say 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 
government's competition watchdog agency COFECO, more 
significant progress has been blocked in the Congress. 
Companies and the World Bank have identified Mexico's 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. 
 
--------------------------------------------- --------- 
Calderon's 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. Calderon's 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 Fox's reform of private pensions, has 
eliminated most of the threat that retirement systems in 
Mexico would become insolvent. There is still about 20% of 
Mexico's 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 Mexico's urgent need to increase tax revenues now 
that production from Mexico's main oil field (Cantarell) is 
declining as the field becomes exhausted. Calderon's initial 
proposal would have generated about half of the tax revenue 
international and Mexican experts believe is needed. 
Calderon's narrow political support in Congress has limited 
 
MEXICO 00000949  007 OF 012 
 
 
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. 
 
¶21. (U) So far, Calderon's 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 Mexico's 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 Mexico's long-neglected infrastructure. 
His National Infrastructure Plan seeks to reinvigorate 
Mexico's infrastructure network, develop and connect the 
backward and/or isolated parts of Mexico (particularly in the 
poorer south) and boost the country's international 
competitiveness. The program envisages unprecedented 
increases in public and private investment in infrastructure 
(excluding hydrocarbons). The government's 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 country's 
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 
 
MEXICO 00000949  008 OF 012 
 
 
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 social 
programs with other government agencies. Among the most 
successful programs is "Oportunidades."  A program that 
existed before Calderon took office, it has become Mexico's 
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 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 Calderon's 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 Mexico's poorest states in 
2007, Calderon announced the implementation of the "100x100" 
Program to improve the social and economic development of the 
country's 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 government's 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 "First Job 
Program" (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 
 
MEXICO 00000949  009 OF 012 
 
 
cover subsidies to be granted during the first year of the 
program's 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 year's 
resources had yet to be used. PPE did not have the impact the 
government had hoped for during its first year.  Most of 
Mexico's 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. 
 
------------------------- 
Health Insurance Programs 
------------------------- 
 
¶28. (U) The government's health insurance programs are 
primarily designed to help those who cannot afford private 
healthcare. Mexico's 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 "Health 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 government's 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 
Mexico's 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%, 
 
MEXICO 00000949  010 OF 012 
 
 
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 government's financial support for the 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 "GOM Actions to Promote the 
Corn, Dry Beans, Sugar Cane and Milk Competitiveness for the 
2007-2012 Period." 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 Mexico's exports go to the United 
States, Mexico's 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. Calderon's strategy of carefully negotiating with 
 
MEXICO 00000949  011 OF 012 
 
 
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 Calderon's 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 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 
States' 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 neighbor's 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 
 
MEXICO 00000949  012 OF 012 
 
 
phytosanitary 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 Mexico's 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 
Mexico's 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 America's overall global competitiveness via 
the various working groups of the Security and Prosperity 
Partnership of North 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 society's most vulnerable, ultimately, 
Mexico's ability to achieve the growth rates needed to create 
decently paying jobs and reduce poverty hinge on Calderon's 
ability to tackle the economy's structural shortcomings. The 
list of outstanding reforms is long, and includes: 
implementing energy reform to reduce the government's 
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. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA