VZCZCXRO0160
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1841/01 1771800
ZNR UUUUU ZZH
P 261800Z JUN 09 ZDK
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7128
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USNORTHCOM
RHMFISS/CDR USSOUTHCOM MIAMI FL
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 04 MEXICO 001841 
 
SENSITIVE, SIPDIS 
 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
TREASURY FOR IA (RACHEL JARPE) 
DOE FOR INTERNATIONAL AFFAIRS (ALOCKWOOD) 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (BORA DURDU) 
NSC FOR O'REILLY 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT:  GOM FOCUSES ON MEXICO'S COMPETITIVENESS 
 
MEXICO 00001841  001.2 OF 004 
 
 
¶1. (SBU) SUMMARY:  On June 22, the World Economic Forum 
(WEF) released "The Mexico Competitiveness Report 2009," 
which provides a comprehensive overview of the country's 
current competitiveness and highlights Mexico's strengths 
and weaknesses.  Ranked 60th in the Global 
Competitiveness Index 2008-2009, Mexico's advantages 
include its market size, sophisticated business sector, 
and sound macroeconomic fundamentals, but it also has a 
number of weaknesses that need to be addressed, such as 
the quality of institutions, goods and labor markets, 
education standards, and the potential for innovation. 
The findings of the Report were discussed at the Mexico 
Competitiveness Workshop, organized by the WEF and the 
Secretariat of the Economy.  More than 100 key political 
and business leaders gathered to launch a dialogue in an 
effort to overcome existing differences and discuss a 
joint long-term National Competitiveness Agenda to help 
Mexico achieve long-sought sustained economic growth. 
While it is encouraging that the Calderon Administration 
has acknowledged the need to address competitiveness, 
finding common ground with the private sector and other 
key interest groups in the development of a National 
Competitiveness Agenda will be difficult.  END SUMMARY. 
 
A LONG-TERM NATIONAL COMPETITIVENESS AGENDA IN THE WORKS 
--------------------------------------------- ---------- 
 
¶2. (U) WEF, in collaboration with Harvard University, 
recently released "The Mexico Competitiveness Report 
2009," which provides an assessment of the country's 
competitiveness strengths as well as the challenges 
ahead.  On June 22, WEF, together with Mexico's 
Secretariat of the Economy and Harvard University, 
presented the results of its study before top business 
leaders, academia and key government officials. 
Participants then discussed ways of increasing the 
country's productivity and competitiveness based on WEF's 
competitiveness indices and rankings.  The WEF's report 
revealed that Mexico is no longer at a stage of 
competitiveness based solely on lower costs, but that it 
has progressed to a stage in which it has to compete in 
the global market based on productivity and market 
efficiency.  In order to attain a competitive advantage 
in these areas, and thereby achieve sustained economic 
growth, Mexico must have a strategy. 
 
HIGH-LEVEL EVENT TO DISCUSS COMPETITIVENESS ISSUES 
--------------------------------------------- ----- 
 
¶3. (U) Participants in the June 22 event included key 
cabinet officials and some of the country's most powerful 
business figures.  The discussion was led by Secretary of 
the Economy Gerardo Ruiz Mateos who was accompanied by 
Secretary of Finance Agustin Carstens, Secretary of the 
Interior Fernando Gomez Mont, and Secretary of Education 
Alonso Lujambio.  Other high-level government officials 
who attended the event included:  Under Secretary of 
Competitiveness and Regulation Felipe Duarte, who will be 
the operative person to lead the government's efforts; 
Under Secretary of Foreign Trade Beatriz Leycegui; former 
Under Secretary of Transportation and currently 
administrator of the Secretariat of the Interior Manuel 
Rodriguez; the Head of the Federal Competition Commission 
Eduardo Perez Motta; the Mexican Stock Exchange's Deputy 
Director Pedro Zorrilla, and Representatives from the 
Bank of Mexico and other agencies.  Among the business 
leaders and academia were:  Carlos Slim Jr.; Alberto 
Bailleres from Grupo Bal; Valentin Diez Morodo, Chairman 
of the Mexican Foreign Trade Council; Armando Paredes, 
Chairman of the Business Coordinator Council; Miguel 
Maron, Chairman of the National Chamber of the 
Manufacturing Industry; Ricardo Gonzalez Sada, Chairman 
of the Confederation of Mexican Employers; the Mexican 
Competitiveness Institute's (IMCO) Deputy Director, as 
well as representatives from the automobile industry. 
 
 
GOVERNMENT CALLS FOR A COMMON FRONT 
----------------------------------- 
 
MEXICO 00001841  002 OF 004 
 
 
 
¶4. (U) Economy Secretary Ruiz Mateos urged the different 
actors to find space for an improved dialogue and closer 
cooperation in order to help Mexico grow from being the 
thirteenth largest economy (in terms of real GDP) to the 
fifth greatest economy in the world.  He highlighted the 
GOM's pledge to achieve sustained economic growth by 
improving the country's competitiveness and innovation 
through better protection of intellectual property and 
more efficient regulation.  In order to maximize Mexico's 
macroeconomic stability, its large network of trade 
agreements, its enviable "geo-friendly" position, its 
cheap labor and its market size, Ruiz Mateos said, it has 
to advance to the designing of value-added and 
sophisticated manufacturing goods as well as overcome 
barriers identified in the WEF's report:  deficient 
tertiary education, weak institutions, lack of 
competition, lack of innovation, corruption and 
bureaucratic red tape.  Ruiz Mateos' call to act was 
underscored later in a speech by President Calderon, who 
urged everyone to work on behalf of Mexico.  Calderon 
stressed his fight against narco-trafficking was a way of 
strengthening the rule of law and providing legal 
certainty for local and foreign investors.  He adamantly 
dismissed the criticisms of some who prefer that the 
government should "let sleeping dogs lie."  Calderon 
acknowledged the country's lack of competitiveness and 
showed a genuine interest in addressing this challenge. 
 
MEXICO HAS LAID THE FOUNDATION 
------------------------------- 
 
¶5. (U)The Calderon Administration has passed key reforms 
over the past three years in order to strengthen the 
country's macroeconomic foundations:  energy, tax and 
pension reforms - the latter represented savings for 
public finances equivalent to 30 percent of Mexico's GDP 
at its present value.  The government also approved 
amendments to the Acquisitions and Public Works Law to 
facilitate public and private investment in 
infrastructure, and passed a new Research and Technology 
Law, which will foster innovation by providing additional 
resources for research and scholarships.  In terms of 
security and rule of law, the government has approved a 
reform of the judicial system and has implemented several 
anti-corruption and security programs, such as Cleaning 
Mexico, Plataforma Mexico and the National Security 
Accord.  The government has also made strong efforts to 
make public spending more transparent through the 
implementation of a result-based federal budget, and has 
reduced unnecessary foreign trade requirements and 
tariffs in addition to facilitating trade through the 
elimination of burdensome customs procedures.  The 
alliance between the government and the teachers' union, 
although still insufficient according to observers, has 
attempted to improve and stimulate the quality of 
teaching in Mexico. 
 
THREE KEY CHALLENGES: EDUCATION, RULE OF LAW AND MARKET 
EFFICIENCY 
--------------------------------------------- ---------- 
¶6. (SBU) Based on the Report's results and led by 
the recommendations of Harvard researchers Ricardo 
Hausmann and Lant Pritchett, the attendees broke 
into three groups led by Secretaries Lujambio, 
Gomez-Mont and Carstens to discuss three key areas 
identified as the main competitiveness challenges 
facing Mexico.  These workshops then became 
brainstorming sessions where the participants 
proposed various measures the government could take 
to improve the country's productivity and 
competitiveness.  Businessmen had to be frequently 
reminded by Harvard's Ricardo Hausmann to look 
beyond their wish lists of additional subsidies, 
lower taxes, and other demands on the federal 
budget; rather, that they should seek collaborative 
schemes and joint actions to improve 
competitiveness.  The main proposals that resulted 
from the three groups were: 
 
MEXICO 00001841  003 OF 004 
 
 
 
--Education:  Pass an education reform aimed at 
stimulating the students' analytical skills rather than 
memorizing text books; strengthen the linkage between 
universities and businesses to promote programs that 
address the companies' employment needs; judge Mexican 
universities against international standards; adjust 
Conacyt's (Mexico's National Council of Science and 
Technology) scholarship programs to ensure that grantees 
return to Mexico upon completion of their graduate 
studies; include concepts in the national curriculum 
related to finance, entrepreneurship and technology in 
order to prepare future generations to compete in the 
global community. 
 
--Security and Rule of Law:  The government's challenge 
has been to overhaul and rebuild Mexico's security 
institutions, as there cannot be economic development 
without trustworthy institutions.  The main goal is to 
professionalize the federal and local police force and 
prevent the dissipation of valuable resources and 
manpower.  There are currently 1,500 different police 
forces which need to regroup and improve their 
coordination.  The Calderon administration supports the 
creation of a National Police Force to better fight 
organized crime.  In terms of bilateral relations, the 
Mexican government publicly acknowledged the USG's 
serious and unprecedented commitment to address the 
problem of arms and money trafficking.  The group agreed 
that criminal activities have links to the informal 
economy. 
 
--Market Efficiency:  This working group was led by 
Finance Secretary Agustin Carstens, who expressed his 
regret over the lack of financing provided by larger 
banks to the productive sector.  While praising the 
country's macroeconomic stability and solid financial 
system, he urged the Mexican Congress to approve 
additional structural reforms after the July 5 elections; 
particularly reforms in the areas of labor, taxes and 
telecommunications.  Among the various proposals made by 
the businessmen to improve market efficiency were: 
improving the dialogue and coordination between the 
private sector and the government; taking advantage of 
Mexico's market size; enhancing the private sector 
participation in infrastructure projects; addressing the 
problems facing Mexico's diverse regions and many sectors 
when developing a national competitiveness agenda; 
valuing natural resources and including them as well as 
clean energy in future discussions; improving production 
chains in particular in the automobile and manufacturing 
industries; and sharing the vision between maquilas and 
their headquarters of advancing to high-tech 
manufacturing in Mexico.  Many complained about Mexico's 
high energy costs, which participants argued serve no 
other purpose than engendering additional tax revenues 
for the government. 
 
AUTOMOBILE INDUSTRY VOICED ITS CONCERNS 
--------------------------------------- 
 
¶7. (SBU) The automobile sector, represented by Ford Motor 
Co., took advantage of the opportunity to voice the 
industry's concerns about the importation of used cars 
and the lack of environmental standards for these 
vehicles.  Ford called for the elimination of taxes, the 
creation of more incentives and the implementation of a 
"scrappage" program similar to schemes in Brazil and 
other countries and presently under consideration in the 
United States.  The industry, the Ford representative 
said, foresees an excellent opportunity to bring 
production, particularly of auto parts, from the U.S. to 
Mexico. 
 
COMMENT: 
-------- 
 
¶8. (SBU) Mexico has progressed steadily over the past few 
years and has taken significant steps to achieve 
 
MEXICO 00001841  004 OF 004 
 
 
macroeconomic stability.  But despite its solid 
fundamentals and comparative advantages it has been 
unable to achieve growth rates sufficient to 
significantly increase per-capita income and tackle 
existing social inequities.  One of the reasons for this 
is its lack of productivity and long-term planning to 
converge with wealthier economies.  At a certain point, 
Mexico must establish the capacity to produce value-added 
and more sophisticated goods to be able to compete head- 
to-head with Brazil, China, or India. 
 
¶9. (SBU) It is encouraging that the Calderon 
Administration has acknowledged a need to improve 
Mexico's competitiveness and is willing to take action. 
However, it must be certain that it has correctly 
diagnosed the problem and prescribed the correct remedy, 
so as to avoid wasting time and valuable resources. 
Therefore, the identifiable indices included in this 
report are crucial.  Also essential is a strong 
coordinated effort and dialogue between the public and 
private sectors.  Perhaps one of the most significant 
challenges will be to achieve a common ground in the 
development of a National Competitiveness Agenda.  A 
change of business culture, in which the private sector 
allows for the country's well-being in addition to its 
own interests, will prove necessary.  END COMMENT. 
 
WILLIARD