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P 210552Z NOV 08
FM AMCONSUL MONTERREY
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INFO RUEHME/AMEMBASSY MEXICO PRIORITY 4285
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA PRIORITY 0124
RUEHTG/AMEMBASSY TEGUCIGALPA PRIORITY 0013
RUEHMC/AMCONSUL MONTERREY 8781

UNCLAS SECTION 01 OF 06 MONTERREY 000506 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON ENRG ETRD EINV SNAR MX
SUBJECT: MEXICAN BUSINESS SUMMIT TOUTS LIMITED ENERGY REFORM; 
ANTICIPATES THAT MEXICO CAN MUDDLE THROUGH U.S. FINANCIAL CRISIS 
 
REF: A) MEXICO 3210; B) MEXICO 3345 
 
MONTERREY 00000506  001.2 OF 006 
 
 
¶1.       Summary.  Approximately 200 business leaders and 
government officials attended the sixth annual Mexican Business 
Summit in Monterrey, and they discussed energy reform, the 
impact of the U.S. financial crisis on Mexico, whether Mexican 
can increase its economic development, President Calderon' 
political reforms, security issues, and the bilateral 
relationship.  Colombian President Alvaro Uribe described 
Colombia's efforts against drug cartels and measures taken to 
maintain stability in the face of the global financial crisis. 
 Mexican Energy Minister Georgina Kessel promoted the recent 
energy reform, claiming that the reforms would permit the state 
oil company Pemex to maintain oil production, increase the use 
of renewable energy, and allow for private sector participation. 
 On the margins, several private companies said that they are 
interested in working with Pemex.  GOM Undersecretary of the 
Economy Felipe Duarte Olivera claimed that Mexico would avoid an 
economic downturn and he praised Calderon's economic reforms, 
while others saw the U.S. financial crisis as far more 
threatening to Mexico and dismissed the reforms as cosmetic. 
Honduran President Jose Manuel Zelaya Rosales argued that the 
financial crisis could be overcome through greater economic 
integration.  Mexico was also urged to increase its focus on 
trade with China.  End Summary. 
 
 
 
Colombia President Uribe Preaches Success in Drug Battle; 
Economic Stability 
 
 
 
¶2.      Colombian President Alvaro Uribe emphasized the measures 
taken by his government to maintain stability during the global 
financial crisis.  Uribe, speaking to a packed audience for over 
an hour and a half, maintained that only private investment 
coupled with social reforms could alleviate poverty.  He 
described tax incentives used to attract foreign investment in 
Colombia, particularly in the energy field.  According to Uribe, 
Colombia has sufficient dollar reserves, banks have not been 
exposed to high risk mortgages, and speculation in derivatives 
has not been a problem.  Further, he was proud that his 
government had dismantled many subsidies over the past several 
years. 
 
 
 
¶3.      Despite his general confidence in the Colombian economy, 
Uribe noted several areas of concern.  He fears a drop in 
foreign investment and a loss of tax revenue resulting from 
global demand reduction.  Many energy projects dependent on 
foreign capital could be postponed in his view.  Uribe also 
condemned fraudulent pyramid financial schemes which could 
damage the financial sector and he vowed to prosecute those 
involved with such illegal financial schemes. 
 
 
 
¶4.      Uribe fielded numerous questions related to his 
government's success in combating organized crime and 
narcotrafficking.   He argued that economic stability required 
public trust and that such trust emerged from a secure physical 
environment.  Uribe attributed Colombia's success against 
organized crime to public involvement in security programs; 
awards for persons identifying criminals; protection programs 
for crime victims; a robust extradition program; reform of the 
intelligence community; national control of police forces; a 
doubling of the justice budget; a significant coca eradication 
program, and zero tolerance for corruption in government. 
Responding to a question about the targeting of labor leaders, 
Uribe stated that murders in his country had been reduced from 
35,000 per year to about 16,000 and that many areas, including 
Bogota, had become much safer.  He added that success against 
crime required social advances, including improved education, 
health, labor, and tax programs. 
 
 
 
¶5.      Uribe stressed the importance of a free market 
capitalist system, coupled with strict regulations against wild 
speculation.  He expressed confidence that the G-20 would 
address the need for reforms and promoted continued reliance on 
free trade agreements, including the pending agreement with the 
United States.  Uribe expects to have some 45 trade agreements 
in force by 2010. 
 
 
MONTERREY 00000506  002.2 OF 006 
 
 
 
 
Can the Mexico's Energy Reform Maintain Oil Production? 
 
 
 
¶6.      Minister of Energy Georgina Kessel pitched Mexico's 
energy reform law as just the right medicine to modernize Pemex, 
maintain oil production, permit contracts with private industry 
(but not share profits), build a refinery and encourage 
renewable energy (see details in reftel A).  Kessel claimed that 
the reform will encourage Pemex to continue production of 3 
million barrels of oil per day `in the near term', add 1% GDP 
growth, create 300,000 jobs per year, and maintain revenue for 
the federal government, provide 26% of Mexico's electricity 
through renewable energy by 2012, and provide funding for the 
federal, state and local governments. 
 
 
 
¶7.      There was considerable skepticism whether the energy 
reform package could meet its goals.  In a subsequent panel 
discussion on energy, Eugenio Laris Alanis, Director of Financed 
Investment projects for the Federal Commission of Electricity 
(CFE) described the reform as a political consensus that 
delivered minimum economic impact.  Laris noted that oil 
production was declining, so in the near future Mexico could no 
longer export oil.  Note.  Kessel had claimed that Pemex could 
compensate for declines in existing fields by boosting deep 
water production, which seems optimistic since Mexico has 
drilled few deep water wells and these fields take years to come 
on line.  End Note.  Laris further asked how Mexico would cover 
the hole in government spending, since the GOM relies on oil 
revenue for up to 35% of its revenues.   Political analyst 
Sergio Sarmiento questioned Kessel's job creation and GDP growth 
targets, stating that Pemex would have to create double its own 
payroll every year to meet this goal.  The renewable energy goal 
also appears to be a reach.  Herbert Mills, Managing Director 
for Duke Energy's business development, privately estimated that 
Mexico currently produces 16% of its electricity through 
hydropower, adding that Mexico plans to add several more 
megawatts through wind energy.  Mills thought that perhaps 
Mexico could get to 20% renewable energy, but it will be 
difficult to expand wind power further because the demand for 
wind turbines and equipment is so high that equipment is ordered 
years in advance. 
 
 
 
¶8.      Although many economists and commentators have blasted 
the energy reform law since it prohibits profit sharing 
contracts with private industry, in side conversations, some 
private companies noted their interest in production contracts 
with Pemex.  In public, officials such as Exxon Mobil's Neal 
Goins blandly said that it is too early to tell if the energy 
reform is bold enough to attract deep water investment. 
However, several officials from British Petroleum told Econ 
MinCounselor that they saw a number of opportunities for 
contracts under the new law.  A Monterrey energy lawyer also 
said that his firm is studying the law for possible investment 
opportunities and he was optimistic that they could be found. 
 
 
 
Honduran President Zelaya Urges Further Economic Integration 
 
 
 
¶9.      Honduran President Jose Manuel Zelaya Rosales delivered 
an upbeat message grounded in his conviction that the present 
financial crisis will be confronted and overcome.  Zelaya blamed 
the continuing crisis on a lack of public trust that must be 
restored through strengthened international regulations and the 
establishment of firm dates for resolving outstanding banking 
and financial issues. 
 
 
 
¶10.  Zelaya called for development of a financial architecture 
that would unite Mesoamerica in a manner similar to the European 
Union.  He envisions the integration of the 190 million people 
in the region, joined through common communications, 
transportation and customs systems.  Zelaya suggested that such 
integration would give the region more independence in matters 
of energy, food, and the economy.  He informed the audience of 
the tax free zone in the Bay Islands of Honduras, the advantages 
 
MONTERREY 00000506  003.2 OF 006 
 
 
of the Port of Cortes, and of Honduran tax incentives for 
foreign investment in bio fuel production and the tourism 
industry. 
 
 
 
¶11.  Zelaya praised both President Calderon and President Uribe 
for their fight against narcotrafficking.  He referred to both 
the drug consumption problem in the United States and the coca 
production problem in South America.  He termed the Merida 
Initiative a good first step, but acknowledged that a policeman 
could be bribed with more narco money in one day than the 
government could provide in a year's salary.  Despite the 
challenges, Zelaya said that narcotrafficking must be fought 
from Colombia to the US. 
 
 
 
¶12.  Zelaya's remarks were largely devote of criticisms or blame 
for the financial crisis or the drug situation.  Instead, he 
emphasized the value of free trade agreements, the importance of 
regulating the free market system, and continued regional 
economic integration.  He further expressed confidence in the 
next US administration and urged broader diplomatic relations 
between the US and Latin America. 
 
 
 
Mexican Economic Ministry Describes Positive Economic Growth 
 
 
 
¶13.  Standing in for Economy Minister Ruiz Mateo, Undersecretary 
Felipe Duarte Olivera painted a mostly positive picture of the 
Mexican economy.   Despite the financial crisis, Olivera cited 
some growth in the economy, the creation of about 375 thousand 
jobs this year, continued foreign investment and Mexico's 
infrastructure program as signs that the country will weather 
the financial storm.  While acknowledging slowdowns in all of 
the above areas, Olivera maintained that Mexico was gradually 
moving away from the traditional effects of cyclical downturns 
in the U.S. 
 
 
 
¶14.  Olivera also listed advances in structural reforms 
accomplished during the Calderon administration.  He identified 
pension reform and recent energy reform measures giving oil 
monopoly Pemex greater flexibility in contracting private firms 
as two primary examples of economic advances.  He maintained 
that the government would make Small and Medium sized 
Enterprises the driver of Mexico's economy.  Further, he 
described the massive road, port, and bridge construction 
programs as evidence of the government's determination to spend 
more money to expand the economy.  He looked to more regional 
integration as a step toward greater economic prosperity. 
 
 
 
¶15.  Comment.  Somewhat surprisingly, Olivera made almost no 
mention of current dangers to the Mexican economy: falling oil 
production; reduced remittances; weakened demand for Mexican 
exports; expected losses in the tourism industry; postponements 
of some infrastructure development programs; and declining 
foreign investment. End Comment. 
 
 
 
Differing Views of the Seriousness of the U.S. Financial Crisis 
 
 
 
¶16.  While several foreign commentators argued that the U.S. 
financial crisis will fundamentally change world consumption 
patterns, forcing Mexico to move beyond primarily exporting to 
the U.S., Mexican government officials and businessmen simply 
saw a deep, but typical, recession, and expected U.S. 
consumption habits to resume after a pause.  In a panel 
discussion of the consequences of the U.S. financial crisis, 
Justine Thody of the Economist Intelligence Unit said that while 
the typical recession affected investment, this one is much more 
severe since it is linked to a drop in household spending, and 
another panelist noted that consumption accounts for 70% of the 
U.S. GDP.  Thody compared the U.S. crisis to the lost decade for 
Japan, and thought that global demand would be restructured. 
Eric Siegel, President of Export Development of Canada, agreed 
 
MONTERREY 00000506  004.2 OF 006 
 
 
that this would be a very deep and broad recession, and the 
recapitalization process would be difficult since banks were 
hesitant to lend any money, affecting liquidity.  Clyde 
Prestowitz, President of the Economic Strategy Institute (of the 
U.S.) argued that U.S. consumption had reached its limits, and 
forecast a global re-adjustment because America must stop living 
beyond its means. 
 
 
 
¶17.  Most Mexican panelists thought that the U.S. was just 
suffering a downturn, and like Under Secretary Olivera, they 
expected things to soon return to normal.  Nuevo Leon Governor 
Jose Natividad Gonzalez Paras stated that President Calderon had 
reacted well to the crisis, and that Mexico's national 
infrastructure program would have a good countercyclical effect. 
 Governor Gonzalez also thought that the crisis would bring 
areas of opportunity, and he promoted his long term strategy of 
building clusters of information technology, biotechnology, and 
health services to Nuevo Leon, in addition to automotive and 
household appliances.   Governor Gonzalez also touted a well 
publicized plan by Nuevo Leon to combat the crisis, arguing that 
states could alleviate the problem, although much of his plan 
consists of making suggestions for actions by the federal 
government.   In other panels several other Mexican business 
leaders took a similar line, suggesting that the Mexican 
government should react with their usual remedies of decreasing 
regulation and increasing financial incentives for investment 
(see also reftel B).  None of them suggested that Mexico needed 
to re-examine its dependence on U.S. consumer spending.  (Mexico 
currently exports 78% of its goods to the United States, many of 
them bulky consumer items). 
 
 
 
Mexico is Not Poised to Become a BRIC country 
 
 
 
¶18.  According to several panelists, Mexico is not making the 
fundamental changes required to become a high growth BRIC 
(Brazil, Russia, India and China) country.   The discussion was 
kicked off with a Goldman Sachs study predicting that Mexico 
would become the fifth largest economy in the world by 2050 and 
that Mexico and Korea were becoming BRIC countries in terms of 
economic growth.  Guillermo Prieto Trevino, President of the 
Mexican stock market, dissented stating that the BRIC countries 
are making fundamental reforms to improve competitiveness and 
labor productivity, but Mexico is not.  Indeed, Mexican income 
levels are actually declining relative to the United States. 
Axel van Trotsenburg, World Bank Director for Mexico and 
Colombia, pointed out that before Mexico's income was 33% of the 
U.S., but now it has declined to 25%, while Korea and Chile are 
showing marked improvement.  Moreover, the Mexican educational 
system has fallen behind, as Mexican students have the lowest 
marks in the OECD countries, while Korea had an outstanding 
educational system.   In addition, Mexico only devotes 1% of its 
GDP to research and development, while China spends 3% on R&D. 
Mexico also ranks poorly in studies of international 
competitiveness and regulatory burden on businesses.  The 
Mexican people still have a low rate of financial 
intermediation, 30% of banking assets to GDP compared to Brazil 
at 80%.  Pedro Garcia, Managing Partner of Accenture, made the 
interesting point that in Brazil President Lula convinced the 
Brazilian people that to become a world player Brazil had to 
make enormous changes, and they have done so. 
 
 
 
Greater Trade With China as a Solution? 
 
 
 
¶19.  The conference opened with a discussion of the economic 
relationship between Mexico and Asia, with an emphasis on China. 
 Hong Kong businessman Chen Yuming encouraged a much stronger 
Mexican effort to address the current trade imbalance with 
China.  He urged the Mexican government to actively promote 
quality goods and services in China.  Saying that China had some 
USD 7-8 trillion dollars in reserves, Chen advocated for more 
Mexican trade in architecture, food, cultural and other products 
unique to this country.  Chen also noted that Mexico should take 
greater advantage of its position as the gateway to the U.S. 
 
 
 
 
MONTERREY 00000506  005.2 OF 006 
 
 
¶20.  Chen stated that three of the 10 largest Chinese auto 
manufacturers currently maintain investments in Mexico and 4 
more companies are considering establishing production here. 
When asked how this could be happening at a time when the auto 
industry is under stress, Chen viewed the financial crisis as a 
passing phenomenon, stating that Chinese companies sought to be 
in a strong position to serve the US auto market when economic 
conditions improve. 
 
 
 
¶21.  Several speakers promoted a comprehensive trade agreement 
between China and Mexico and some commented on the importance of 
Japan, Malaysia, Vietnam, and other Asian markets as essential 
to further diversification of Mexican global trade.  Note. 
Mexico has free trade agreements with over 40 countries, but 78% 
of its exports are still destined for the American market.  End 
Note. 
 
 
 
Mexico's Political System produces Tepid Economic Reforms 
 
 
 
¶22.   Several prominent political commentators agreed that 
Mexico's political system produces minimal economic reforms that 
cannot transform the country.  Political commentator Denise 
Dresser described Calderon as a pragmatic minimalist, who thinks 
small so reforms are diluted.  Dresser castigated the Mexican 
political class for celebrating political consensus, such as on 
energy reform, which does not solve the problem.  Political 
analyst Sarmiento agreed that the energy reform was a political 
success for Calderon, especially since it divided the leftist 
opposition PRD party, but questioned whether the reforms would 
result in increased oil production.  Sarmiento commented that 
the ISSTE pension reform was the best reform, the fiscal reform 
only met a small part of the needs, and the energy reform was 
primarily a political success.  In contrast, in a panel 
discussion on increasing Mexico's internal market, several 
speakers mildly praised Calderon's reforms as a step forward and 
improving competitiveness.  Similarly Alfonso Zarate Flores, CEO 
of Grupo Consultor Interdisciplinary, acknowledged weaknesses in 
the Calderon reforms, but he put them in the context of the 
evolution of the Mexican political system, so there are 
political checks on the Mexican President, who can no longer 
dictate reforms. 
 
 
 
Security Battle 
 
 
 
¶23.  Although Mexico remains a major drug transshipment country, 
there have been significant successes in the war on drug 
cartels.  Jorge Chabat, Professor at the Economic Education and 
Study Center, maintained that the Mexican Government military 
offensive against the drug cartels and extradition of key 
narcotics traffickers has fragmented the cartels and increased 
Calderon's popularity, albeit at the price of much higher 
violence.  Chabat also said that the GOM had improved its 
intelligence systems, and cited the Merida Initiative as an 
example of the increased level of trust with USG law 
enforcement.  Monte Rubido Garcia, executive secretary for the 
National System of Public Security, claimed significant advances 
in the fight against drug cartels, citing the arrest of drug 
kingpins, seizures of cocaine, money and arms, and attributed 
these successes to better intelligence work.  Despite these 
advances, much remains to be done.  Rubido Garcia acknowledged 
that citizens are reluctant to report crimes, since the police 
forces were originally designed to control the population, not 
to protect the people.  A questioner described Mexico as having 
a culture of impunity, beginning with black market goods and 
extending to police corruption. 
 
 
 
¶24.  In spite of the diagnosis, there were few real suggestions 
how to change Mexico's culture of impunity or improve the police 
forces.  For example, Thody of the Economist Intelligence Unit 
stated that Colombia substantially improved its police force 
through higher salaries financed through higher taxes, but no 
one responded that they were willing to pay more taxes for a 
more effective police force.  Instead the panel ended with 
comfortable platitudes that all Mexicans are in this together 
 
MONTERREY 00000506  006.2 OF 006 
 
 
and we must improve the culture of lawfulness in Mexico. 
 
 
 
U.S. Priority will be the U.S. Economy; Immigration Reform will 
Wait 
 
 
 
¶25.  Panelists forecast that President-elect Obama would 
principally focus on the U.S. economy and mark time on 
immigration reform.  James Kolbe, former U.S representative and 
current senior fellow with the German Marshall fund, thought 
that President-elect Obama would need to focus first and 
foremost on the U.S. financial crisis.  Roger Wallace of the 
Mexico Center in the Woodrow Wilson Center agreed that Mexico 
would not be a priority, but other panelists pointed out that 
this is positive, because the bilateral relationship was strong. 
 The panel generally agreed that with rising unemployment, Obama 
would not be able to tackle immigration reform in the first two 
years of his presidency.  However, it is also possible that the 
issue could bubble up through pressure from Congress.  Several 
speakers also praised the Merida Initiative as symbolic of the 
shared responsibility to confront the problem of drug cartels. 
 
 
 
¶26.  Comment.  Although the 2008 Mexican Business Summit had 
headliners such as Colombian President Uribe and Mexican Energy 
Secretary Kessel, the Mexican Government representation was 
lower level.  President Calderon made presentations at the 2006 
and 2007 Summits, Treasury Secretary Carstens spoke at the 2006 
Summit and Central Bank President Guillermo Ortiz in 2007.  In 
Econoff's view, the summit mood also shifted.  In 2006 there 
were great expectations for the Calderon Administration, and 
President-elect Calderon promised that Mexico would become the 
best place in the world for foreign investment.  In 2007, 
business leaders were frustrated that President Calderon had not 
enacted the fundamental structural economic reforms needed to 
lift Mexican international competitiveness.  In the 2008 
edition, although there were calls to improve Mexican economic 
competitiveness and enhance security, the Mexican attendees 
seemed less demanding and accepted that Mexico had taken the 
first steps on reforms and would ride out the U.S. financial 
crisis.    End Comment. 
 
 
 
¶27.  This cable was drafted collaboratively between the Embassy 
in Mexico City and the Consulate General in Monterrey. 
WILLIAMSON