VZCZCXRO1753
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1428/01 1431842
ZNR UUUUU ZZH
R 231842Z MAY 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 6649
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 05 MEXICO 001428 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE FOR EEB 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD 
TREASURY FOR IA 
ENERGY FOR WARD, LOCKWOOD AND DAVIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ENRG ELTN EAIR PGOV SENV MX
SUBJECT: Mexico Economic Weekly - May 22 
 
¶1.  (U) The Mexico Economic Weekly supplements reporting 
from Mission Mexico Consulates and the Embassy Mexico 
Economic Section to provide a sense of ongoing trends. 
Please contact Adam Shub (shubam@state.gov) or Sigrid 
Emrich (emrichs@state.gov) for questions or comments 
about this report. 
 
¶2.  (U) Table of Contents: 
 
 
ECONOMY AND FINANCE: 
-------------------- 
 
ZEDILLO AND ORTIZ CALL FOR TAX REFORMS - Mexico City 
 
INDUSTRIAL OUTPUT PLUNGES 9.9% IN THE FIRST QUARTER - 
Mexico City 
 
ECONOMIC AID OR ELECTION PLOY? - Monterrey 
 
NUEVO LEON STATE ECONOMIC AID AFTER H1N1 - Monterrey 
 
BAJA CALIFORNIA ECONOMY SUFFERS FROM THE SWINE FLU - 
Tijuana 
 
ENSENADA'S TOURISM SECTOR LOSES MILLIONS OF DOLLARS - 
Tijuana 
 
MEXICO COUNTRY RISK - Monterrey 
 
BUSINESS LEADERS REQUEST FEDERAL SUPPORT DURING CALDERON 
VISIT - Ciudad Juarez 
 
 
TRADE AND INVESTMENT: 
--------------------- 
 
H1N1 AFFECTS BAJA EXPORTS - Tijuana 
 
JUAREZ REGISTERS RISE IN INFORMALITY AS FORMAL SECTOR 
OPTIONS DIMINISH - Ciudad Juarez 
 
ASIAN COMPANIES COMING TO BAJA CALIFORNIA - Tijuana 
 
PRESIDENT CALDERON HIGHLIGHTS STRENGTH OF CHIHUAHUA?S 
AERONAUTICAL INDUSTRY - Ciudad Juarez 
 
AUTO SUPPLY MANUFACTURERS CONTINUE TO STRUGGLE IN 
TAMAULIPAS - Matamoros 
 
H1N1 STILL CONCERNING MAQUILADORA MANAGERS - Matamoros 
 
 
ENERGY: 
------- 
 
INCREASING BLACKOUTS DAMAGING MACHINERY - Matamoros 
 
 
-------------------- 
ECONOMY AND FINANCE: 
-------------------- 
 
¶3.  (U) ZEDILLO AND ORTIZ CALL FOR TAX REFORM:  Bank of 
Mexico Governor Guillermo Ortiz acknowledged Mexico's 
fiscal vulnerability and called for the approval of a tax 
reform aimed at increasing collection in the medium term, 
but without raising taxes.  He argued that "raising taxes 
in the middle of a recession is simply not a good idea." 
He recalled that Mexico has the lowest collection rate 
among OECD members.  The income tax and the value-added 
tax currently represent 8.8% of GDP while the average in 
the OECD is 19.8% of GDP.  Tax collection in Mexico is 
even lower than the average in Latin America, which is 
11.3% of GDP.  Ortiz also criticized the country's 
significant reliance on oil revenues, which last year 
represented 8.7% of GDP.  This year, oil revenues are 
expected to fall to 7.1% of GDP.  Criticizing Calderon's 
government for not doing enough to offset the negative 
impact of the economic crisis, former President Ernesto 
Zedillo also called for the approval of a fiscal reform. 
Zedillo noted that the existing resources are 
 
MEXICO 00001428  002 OF 005 
 
 
insufficient to face a decline in remittances, demand and 
credit.  (Mexico City) 
 
¶4.  (U) INDUSTRIAL OUTPUT PLUNGES 9.9% IN THE FIRST 
QUARTER:  The government reported May 18 that Mexico's 
industrial production fell dropped at an annual rate of 
9.9% in the first quarter of the year, the deepest 
decline since 1983 when it fell 12.6%.  During the so- 
called Tequila Crisis in 1995, industrial output fell at 
an annual rate of 10.8%.  The index has been declining 
since August of 2008.  Manufacturing output, which 
contributes 60% of total production, fell 13.8%, while 
production in the transportation sector dropped 38.3%, 
followed by software and hardware with a decline of 29%. 
The construction sector, which had been the strongest 
before the crisis, fell 7.7%, and mining and utilities 
fell 3% and 1.1%, respectively.  (Mexico City) 
 
¶5.  (U) ECONOMIC AID OR ELECTION PLOY?:  The governor of 
Nuevo Leon announced free water (up to five cubic meters 
per month) and metro service to help cash strapped 
residents in the state from May 15 until July 15.  The 
offer comes in response to growing unemployment, rising 
inflation and the aftershocks of the H1N1 flu.  The 
latest April jobs report shows that the state has lost 
over 76,000 formal sector jobs since October 2008.  This 
stimulus plan will cost the state over $6 million USD in 
lost revenue.  A portion of the funds will come from 
federal programs to alleviate the effects of the economic 
recession.  Critics of the PRI governor called the latest 
measure an election year ploy to win over voters in the 
upcoming July 5 midterm elections.  (Monterrey) 
 
¶6.  (U) NUEVO LEON STATE ECONOMIC AID AFTER H1N1:  The 
economic sector of Nuevo Leon took a MXN$6 billion direct 
hit as a result of the H1N1 flu according to Guillermo 
Dillon, the director of the trade group CAINTRA Nuevo 
Leon.  Dillon warns that the state could lose an 
additional MXN$6 billon as part of ongoing flu concerns. 
The tourism sector has been the hardest hit in Nuevo 
Leon.  Other than a small temporary tax benefit for the 
tourism sector, the state has not offered any flu related 
economic aid relying on the federal government to take 
the lead.  According to Monterrey's tourism office, hotel 
occupancy fell to 20% during the peak of the H1N1 flu 
epidemic and the full impact will not be known until the 
peak travel season that starts in November.  Several 
convention organizers have already cancelled events 
scheduled for this summer.  (Monterrey) 
 
¶7.  (U) BAJA CALIFORNIA ECONOMY SUFFERS FROM THE H1N1FLU: 
The tourism, services, export, and construction 
industries in Baja California were hard hit by the 
suspension of activity announced by authorities in 
response to the influenza scare.  In construction, over 
50% of the affiliates of CMIC (Mexican Chamber of 
Construction Industry)halted work due to the AH1N1 virus. 
Additionally, a survey of 3,000 workers affiliated with 
the Alliance of Carriers in Tijuana found that the 
occupancy of taxis and trucks had dropped to 20 percent 
from May 3 to May 5.  (Tijuana) 
 
¶8.  (U) ENSENADA'S TOURISM SECTOR LOSES MILLIONS OF 
DOLLARS:  The president of CANIRAC said that the two week 
"break" imposed by the federal government because of the 
H1N1 virus had caused a loss of one million dollars in 
Ensenada's tourism sector alone.  He added that the 
12,500 tourists who anchor at the port each week, were 
diverted to San Diego after it was announced that there 
was a risk of influenza throughout Mexico.  Ensenada was 
one of the most heavily affected cities in Mexico. 
(Tijuana) 
 
¶9.  (U) MEXICO COUNTRY RISK:  Monterrey area economic 
contacts expect a deeper recession than the federal 
government estimates but a recovery in Mexico is expected 
as early as the first quarter of next year.  Econoffs met 
with area economists and industrial sector experts 
between May 6 and May 12 and there was a strong consensus 
that Mexico GDP will fall 5.5% or more and inflation 
could run as high as 6%.  Our contacts believe a recovery 
in Mexico depends highly on a U.S. recovery and the long- 
 
MEXICO 00001428  003 OF 005 
 
 
term effects of the H1N1 flu were downplayed.  The fall 
in GDP may be steeper than expected but Mexico still has 
many factors in its favor such as a federal deficit that 
is only 2% of GDP and a forecasted current account 
deficit of only 3% of GDP.  (Monterrey) 
 
¶10.  (U) BUSINESS LEADERS REQUEST FEDERAL SUPPORT DURING 
CALDERON VISIT: The president of the Ciudad Juarez 
Maquiladora Association (AMAC) told local press that she 
conveyed to President Calderon and Secretary of Economy 
Gerardo Ruiz Mateos the need for the federal government 
to develop an economic stimulus plan that addresses the 
unique needs of Ciudad Juarez.  President Calderon met 
with local business leaders in Ciudad Juarez May 14 to 
discuss stimulus options for Chihuahua's ailing economy. 
Chihuahua has lost more formal sector jobs over the past 
18 months than any other Mexican state, despite 
accounting for only 3 percent of the nation's total 
population.  In addition to the 115,000 formal sector 
jobs lost state-wide during this period, in Ciudad Juarez 
there are currently 40,000 workers in temporary lay-off 
arrangements (paro tecnico), according to AMAC. 
Meanwhile, the President of the Southwestern Maquila 
Association (based in El Paso, Texas), Enrique Morales, 
purportedly urged Calderon to consider additional 
government subsidies for natural gas, electricity and 
water to improve the manufacturing sector's 
competitiveness.  Morales also communicated to Calderon 
that many maquilas under paro tecnico have been unable to 
access federal funding under the stimulus plan, because 
they have not reduced the number of employees on their 
payroll.  While Calderon reportedly acknowledged the 
acute needs of Chihuahua's economy, he did not establish 
a time-line to respond to the business leaders' 
proposals.  (Ciudad Juarez) 
 
--------------------- 
TRADE AND INVESTMENT: 
--------------------- 
 
¶11.  (U) H1N1 AFFECTS BAJA EXPORTS:  Major importers of 
Mexican meat from Baja have closed their borders almost 
100% to the product.  About 20 tons of fine cuts of beef 
per day are affected.  Local merchant Barraquiel Fimbres 
asserted that the image of Mexico prompted by the H1N1 
flu also affected cattle exports to China, Japan, and 
Korea.   Mario Escamilla, president of National Chamber 
of Transformation Industries (CANACINTRA), said that 
container ships loaded with Baja California merchandise 
have been stranded at sea near major Asian ports by dock 
workers who refuse to handle the ships of fears about the 
AH1N1 virus.  At the same time, Mexican law prohibits the 
return and sale of the goods in Mexico, effectively 
leaving the articles marooned at sea.  Canacintra 
representatives asked the intervention of Baja California 
Governor Osuna Millan to help resolve the issue and 
prevent the loss of millions of dollars in goods. 
(Tijuana) 
 
¶12.  (U) JUAREZ REGISTERS RISE IN INFORMALITY AS FORMAL 
SECTOR OPTIONS DIMINISH:  The number of informal vendors 
in the city increased from 15,000 in January of this year 
to 29,000 in May, according to the Municipal Commerce 
Office of Ciudad Juarez.  Municipal authorities require 
all informal street vendors to purchase a 500 peso permit 
to sell their products.  Since permits are not registered 
with the state treasury, vendors are not required to pay 
taxes or meet other payroll requirements.  Permits are 
required for all activities ranging from selling food to 
shining shoes.  Despite registering with the city, 
vendors exhibit many of the characteristics typically 
associated with the informal sector.  Thus, the increase 
in permits issued serves as a sound proxy for the state 
of informality in the city, which appears to be on the 
rise as formal sector job opportunities decline. 
Monitoring trends in the informal economy can provide 
insight into future levels of fiscal collection, national 
productivity and credit expansion.  (Ciudad Juarez) 
 
¶13.  (U) ASIAN COMPANIES COMING TO BAJA CALIFORNIA:  Two 
companies of oriental origin are locating in Tijuana and 
are expected to generate more than 2,000 jobs, said Jesus 
 
MEXICO 00001428  004 OF 005 
 
 
Manuel S ndez Contreras, secretary of Economic 
Development City XIX.  S ndez Contreras explained that a 
Taiwanese manufacturer of computer monitors and 
televisions will open its doors next September.  Another 
company - an automobile manufacturer - is expected to be 
established in Tijuana in early 2010.  According to the 
secretary of Economic Development City XIX, these 
companies will operate in the Otay area, initially 
employing over 250 people, and expanding to more than a 
thousand by 2010.  (Tijuana) 
 
¶14.  (U) PRESIDENT CALDERON HIGHLIGHTS STRENGTH OF 
CHIHUAHUA'S AERONAUTICAL INDUSTRY:  President Calderon 
claimed that Cessna Aircraft and Bell Helicopters 
decision to invest an estimated USD 106 million in 
Chihuahua over the next eight years highlights Mexico's 
continued competitive advantages even amidst a period of 
considerable economic contraction.  President Calderon 
visited two new parts assembly plants owned by U.S. 
aeronautical companies, Cessna Aircraft and Bell 
Helicopter during his May 14 trip to Chihuahua. 
According to local media, Calderon claimed that 20 
percent of all jobs in Mexico related to the aeronautical 
industry are in Chihuahua.  He further commented that the 
goal of Mexico's aeronautical industry should be to move 
up the value chain from parts assembly to final assembly 
production of airplanes and helicopters.  The two new 
parts assembly plants will reportedly create almost 900 
jobs once they reach full operation.  (Ciudad Juarez) 
 
¶15.  (U) AUTO SUPPLY MANUFACTURERS CONTINUE TO STRUGGLE 
IN TAMAULIPAS:  1,700 Matamoros jobs will be lost due to 
the closing of two maquiladora plants, according to Mayor 
Erick Silva.  Both maquiladoras are linked with General 
Motors.  However, other plants in the area are moving 
forward with expansion efforts.  Inteva, formerly part of 
auto parts supplier Delphi, held an inaugural ceremony 
this week for its second Matamoros plant, a new metal 
stamping and injecting molding facility.  Despite moving 
forward with the expansion, Joe Long, Chief Engineer for 
Inteva, noted that the new facility is operating at only 
about 40 percent capacity.  (Matamoros) 
 
¶16.  (U) H1N1 STILL CONCERNING MAQUILADORA MANAGERS: 
Maquiladora Association Meetings in both Reynosa and 
Matamoros focused heavily on the continuing effects of 
the H1N1 flu on manufacturing operations, particularly in 
regard to human resources concerns.  Managers in Reynosa 
plants, in particular, continue to be concerned about 
regulations involving pregnant and nursing employees and 
semantics surrounding safe working conditions and 
national regulations mandating that such workers be sent 
home with pay under certain circumstances.  Approximately 
50 percent of member companies of the Reynosa Maquiladora 
Association (RAMMAC) had called pregnant and nursing 
employees back to work, while the rest continue to give 
them paid leave.  Francisco Pena, a local attorney who 
represents numerous manufacturers in the area, noted that 
the verbiage of the national regulations mandate that 
such workers stay home.  However, he also noted that the 
support of local and state government entities offer 
certain protection for employers who have asked their 
workers to return to work in the wake of the influenza 
scare, eliminating fears of fines.  Randy Main, a member 
of the RAMMAC board of directors, noted that the 
difficulty lies in a company's ability to prove that it 
is a 'low risk operation' and relevant ambiguity around 
the regulations.  (Matamoros) 
 
 
------- 
ENERGY: 
------- 
 
¶17.  (U) INCREASING BLACKOUTS DAMAGING MACHINERY:  A 
string of blackouts in Matamoros blamed on an alleged 
lack of maintenance to local substations are affecting 
local businesses.  "All the Matamoros business owners are 
worried about damages caused to their equipment by the 
constant blackouts, some of them last up to five hours," 
said local merchant Yadala Charur.  The General Secretary 
of the Matamoros Electricians Union, Mauro Longoria, said 
 
MEXICO 00001428  005 OF 005 
 
 
that the latest frequent blackouts that sectors of 
Matamoros suffer are caused by the lack of maintenance by 
the Federal Electricity Commission (CFE).  (Matamoros) 
 
WILLIARD