VZCZCXRO6771
PP RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0508/01 3261626
ZNR UUUUU ZZH
P 211626Z NOV 08
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC PRIORITY 3270
INFO RUEHME/AMEMBASSY MEXICO PRIORITY 4294
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 8790

UNCLAS SECTION 01 OF 02 MONTERREY 000508 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV EPET PGOV MX
SUBJECT: MEXICAN CENTRAL BANK REGIONAL DELEGATE PAINTS A GRIM PICTURE 
OF THE ECONOMY 
 
REF: A) MEXICO 3345 B) MONTERREY 495 
 
MONTERREY 00000508  001.2 OF 002 
 
 
¶1.      (SBU)  Summary.  On November 14 the Nuevo Leon regional 
delegate of the Mexican Central Bank briefed the local American 
Chamber of Commerce on the U.S. financial crisis and its impact 
on Mexico.  His analysis reflects many negative trends and 
portrays a much more negative picture of the Mexican economy 
than described by the Mexican Treasury Ministry.  In particular, 
delegate Agustin del Rio emphasized that the Central Bank's 
immediate priority will have to be market intervention in order 
to maintain a stable exchange rate.  He foresaw long term 
threats to the Mexican peso in view of  dropping oil production, 
exports and remittances.  He stated that the outlook for the 
Mexican economic growth has dimmed due to declines in the 
Mexican stock market, falling consumer demand and retail sales. 
Employment is not growing,  wage growth is stagnant, and total 
bank credit is declining.  End Summary. 
 
 
 
Central Bank Interventions to Stabilize the Mexican Peso 
 
 
 
¶2.      (SBU)  According to del Rio, the Mexican peso has lost 
value due to the `flight to quality' to the U.S. dollar, and 
money is draining out of Mexico.  Del Rio presented graphs 
showing that the Mexican peso devalued 16% from September 11 to 
October 13, the Mexican stock market fell 19%, and Mexico 
country risk, measured by EMBI+ (Emerging Markets Bond Index 
plus) rose from 200 basis points in September to 400 basis 
points.  In addition, over $6 billion dollars have been 
withdrawn from emerging markets (not just Mexico) in the last 
month or six weeks.  Del Rio thought that the economy had not 
yet reached the bottom, and mutual funds would continue to pull 
investments from the emerging markets.  He also worried that 
although the Federal Reserve and other Central Banks have 
invested in the commercial banks, there is still a lack of 
access to credit and liquidity. 
 
 
 
¶3.      (SBU)  Del Rio stated that the Mexican Central bank will 
continue to intervene to stabilize the value of the peso (see 
reftel B).  In addition, the U.S. Federal Reserve has offered 
$30 billion dollars to the Central Bank to support the Mexican 
currency.  That said, Del Rio is still worried about the long 
term exchange rate, since Mexico's oil production and exports 
are declining, as are worker remittances, all three of which 
will bring fewer dollars into the Mexican economy. 
 
 
 
Impacts on the Real Mexican Economy 
 
 
 
¶4.      (SBU) The Central Bank found that the U.S. financial 
crisis has resulted in sharp reductions in the growth of 
consumer spending, retail sales, exports and industrial 
production.  Mexican industrial output is closely tied to the 
U.S. index of manufacturing production, and the U.S. index is 
falling rapidly.  Del Rio did not present Mexican figures, but 
he expected them to follow suit.  Del Rio did present charts 
showing that growth in Mexican private consumption, bank 
consumption credit and retail sales have fallen since March 
2008, although they are still positive.  In addition, Mexican 
worker remittances are dropping following the fall in U.S. 
construction employment.  The Central Bank statistics also show 
that since August there has been a large decline in the growth 
of gross capital formation and a small drop in investment 
growth.  In general manufacturing exports are still increasing 
at 10% per year according to the most recent statistics, 
although automotive exports declined by 4%.  The same trend 
holds for industrial production, manufacturing output, and 
electrical consumption, where annual growth rates have fallen 
substantially since December 2007, and each of the indexes are 
now growing at only 1-2% per year. 
 
 
 
¶5.      (SBU)  The slowdown in the Mexican economy has also 
affected employment and wages.  Since December 2007 the annual 
increase in total wages have fallen from 5.3% to 1.8%, formal 
employment growth has declined from 3.9% to 1.6%, and the mean 
wage in the formal economy, which was up 1.4% in December 2007, 
is now stagnant at 0.1% growth.  The growth in formal employment 
has fallen from 3.87% in December 2007 to 1.64% in September 
¶2008.  The percentage increase in permanent formal employment 
 
MONTERREY 00000508  002.2 OF 002 
 
 
fell from 4.3% in April 2007 to 1.5% in September 2008, while 
the increase in temporary workers has fallen from 14.4% in July 
2006 to 3.2% in September 2008. 
 
 
 
Mexican Central Bank Distributing Business Surveys 
 
 
 
¶6.       (U)  Del Rio gave his presentation to the American 
Chamber of Commerce monthly board meeting, and requested that 
board members fill out a survey of their perceptions of business 
conditions.  Del Rio had requested that the Consulate arrange 
for the briefing to the AmCham, so that he could gather more 
real time information on economic trends.   Post will forward an 
electronic copy of the presentation (in English) upon request to 
the following e-mail address: heartneyep@state.gov 
 . 
 
 
 
¶7.      (SBU)  Comment.  There is a clear division between the 
public stances of the Mexican Central Bank and the Ministry of 
Hacienda (Treasury).  Hacienda argues that the U.S. financial 
crisis has had a much more mild impact on Mexico and that the 
Mexican economic fundamentals are solid.  Del Rio acknowledged 
Hacienda's differing view, but countered that the numbers 
support the Central Bank position.  End Comment. 
WILLIAMSON