VZCZCXRO1596
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1862/01 1801602
ZNR UUUUU ZZH
R 291602Z JUN 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 7150
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 04 MEXICO 001862 
 
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 - June 26 
 
¶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: 
 
 
TRADE AND INVESTMENT: 
--------------------- 
 
SUPPLY CHAIN REACTION - Matamoros 
 
MARY KAY CONSIDERS MOVING PRODUCTION TO MEXICO TO AVOID 
RETALIATORY TARIFF - Mexico City 
 
NUEVO LEON'S LATEST INTERNATIONAL TRADE NUMBERS - 
Monterrey 
 
 
ECONOMY AND FINANCE: 
-------------------- 
 
AMERICAN CHAMBER OF COMMERCE CHIEF ECONOMIST'S PREDICTS 
6.2% FALL IN GDP - Monterrey 
 
CALLS TO SUSPEND FLAT TAX GROW IN MONTERREY - Monterrey 
 
SOME POSITIVE ECONOMIC NEWS FOR BAJA CALIFORNIA'S 
INDUSTRIAL SECTOR - Baja California 
 
SUMMARY OF NAFINSA AND BANCOMEXT ECONOMIC AID - Monterrey 
 
 
ENERGY AND ENVIRONMENT: 
----------------------- 
 
RENEWABLE ENERGY PROJECTS BRING OPPORTUNITIES TO 
CHIHUAHUA - Ciudad Juarez 
 
 
TRANSPORTATION AND INFRASTRUCTURE: 
---------------------------------- 
 
AIR TRAFFIC:  AWFUL MAY FOLLOWS POOR FIRST QUARTER - 
Mexico City 
 
 
--------------------- 
TRADE AND INVESTMENT: 
--------------------- 
 
¶3.  (U) SUPPLY CHAIN REACTION:  Auto suppliers have 
tended to locate along the Texas border in Mexico, 
providing swift access to auto plants in the Midwestern 
region of the US, with 31% of total employment hours 
dedicated to the transportation sector in the Tamaulipas 
border region.  However, as the US manufacturing industry 
went into a steep decline in 2008, the Mexican 
transportation sector also went into a free fall.  One 
local account stated that auto parts producers have seen 
production levels fall an average of 40%, laying off 
numerous workers and contributing to a 5.3 percent 
decline in employment in Tamaulipas over the last 12 
months.  (Matamoros) 
 
¶4.  (U) MARY KAY CONSIDERS MOVING PRODUCTION TO MEXICO TO 
AVOID RETALIATORY TARIFF:  The Director General of Mary 
Kay Mexico confirmed to the media on June 25 that the 
health and beauty products manufacturer is investigating 
the feasibility of producing its line of cosmetics in 
Mexico, or importing these products from China, in order 
to avoid the 15 percent tariff imposed on such products 
from the United States.  Cosmetic products were one of 89 
products totaling $2.4 billion in imports that was hit 
with a retaliatory tariff by the GOM in March 2009 in 
order to evoke action by the USG to replace the cancelled 
Cross-Border Demonstration Trucking Project.  Mary Kay 
estimates this tariff has caused an additional cost of 
$450,000 per month to bring these products from its 
 
MEXICO 00001862  002 OF 004 
 
 
production facility in the United States (its other 
production plant is in China).  The Director General said 
that Mary Kay will not try to block the action by the 
GOM, and Mary Kay will not raise its prices in Mexico to 
compensate for this additional incurred cost.  "We know 
that this is a problem that is affecting many industries, 
but we believe the authorities are going to work on this 
issue in order to resolve it favorably," he told 
reporters.  Mary Kay has a production facility in Dallas 
Texas that employs 800 workers.  Moving production to 
Mexico would affect truck drivers who would no longer be 
needed to haul goods from Dallas to the warehouses in 
McAllen.  (Mexico City) 
 
¶5.  (U) NUEVO LEON'S LATEST INTERNATIONAL TRADE NUMBERS: 
From January to April of 2009, exports in Nuevo Leon fell 
23% compared to the previous year.  Compared to the 
country as a whole where exports fell 25%, Nuevo Leon 
performed slightly better.  Exports across all of Nuevo 
Leon's exporting sectors were weak.  However, in April 
there was a sharp 35% increase in automotive exports 
which was largely driven by trucking parts manufacturer 
Navistar and car engine block manufacturer Nemak.  In the 
heavy electric machinery sector, sales are off 37% 
compared to 2008.  Unlike the automotive sector, sales 
continue to deteriorate on a month to month basis 
affecting American companies such as GE Electrical, 
Thomas & Betts, and Cooper Lighting.  (Monterrey) 
 
 
------------------- 
ECONOMY AND FINANCE: 
------------------- 
 
¶6.  (U) AMERICAN CHAMBER OF COMMERCE CHIEF ECONOMIST'S 
PREDICTS 6.2% FALL IN GDP:  In June 16-17 presentations 
in Saltillo, Coahuila, and Monterrey, Nuevo Leon, the 
American Chamber of Commerce's Chief Economist, Deborah 
Riner, provided her latest forecasts for the Mexican 
economy.  According to Riner, Mexico continues to be 
severely hurt by the recession because of its ties to the 
United States.  The international fall in demand hit all 
of Mexico's major exports - cars, TV's, manufactured 
goods, and oil.  Mexican GDP will fall around 6.2%, much 
worse than Riner's 1% fall in GDP prediction in February 
and similar to the 1995 recession.  However, there are 
major differences in Mexico's current economic situation 
- i.e., a low level of inflation, a relatively stable 
currency, and strong international reserves (with access 
to additional funds from the IMF and U.S. Federal 
Reserve) -- that will make this recession less traumatic 
than in 1995.  In addition, Riner predicted the country-s 
road to a complete recovery will be much slower than the 
previous recession because it will not be able to rely on 
a quick recovery of exports.  A full recovery will also 
depend on fiscal reform - lower dependence on oil 
revenues, increased tax collection, and increased 
competitiveness.  (Monterrey) 
 
¶7.  (U) CALLS TO SUSPEND FLAT TAX GROW IN MONTERREY:  In 
Monterrey, increases in job losses and falling sales have 
united businessmen and politicians from the two main 
parties against the national flat tax (IETU).  On June 
16, PRI candidates for the federal congress, not usually 
known for their desire to lower business taxes, all 
signed an agreement to work to suspend the IETU on the 
grounds that such a move would help with employment and 
protect small and medium sized companies.  The PRI 
candidates joined in on similar proposals already made by 
the PAN party and CANACO, a business group.  The IETU was 
implemented in 2008 by President Calderon in an effort to 
increase tax collection from businesses.  However, since 
the IETU taxes revenues (i.e. not profits), it compounds 
the effects of the recession on businesses, further 
dampening economic growth.  (Monterrey) 
 
¶8.  (U) SOME POSITIVE ECONOMIC NEWS FOR BAJA CALIFORNIA'S 
INDUSTRIAL SECTOR:  The president of Sony in Baja 
California, Takahiro Kawamura, announced June 19 his firm 
will generate nearly 1500 new jobs in the state this 
year.  Sony already has significant operations in Baja 
and plans to expand, leasing an additional 400,000 square 
 
MEXICO 00001862  003 OF 004 
 
 
feet of industrial space.  Also, Sempra Energy's 
subsidiary in Baja California announced that, despite the 
economic crisis, the firm does not plan any staff cuts in 
Mexico.  Sempra employs 200 people in Baja.  This 
positive news comes amid a downturn in industrial output 
in the region, though the outlook for the industrial 
sector is mixed.  In the first quarter of 2009 in 
Tijuana, for example, six companies ceased operations and 
two reduced their output, but three new companies set up 
shop and five expanded their operations.  (Baja 
California) 
 
¶9.  (U) SUMMARY OF NAFINSA AND BANCOMEXT ECONOMIC AID: 
In a June 25 presentation to local businessmen, Hector 
Rangel, the director of the National Development Bank 
(NAFINSA) and National Export Bank (BANCOMEXT), outlined 
what his organizations have done to combat the economic 
recession and increase the flow of credit in Mexico. 
Most of the aid disbursed by these two entities is 
designed for small and medium sized businesses (PYMES) 
that are responsible for 73% of all employment in Mexico. 
-- NAFINSA has committed the federal government to 
awarding 20% or approximately US$10.4 billion of its 
annual purchases to PYMES, a 50% increase compared to the 
previous year. 
--NAFIN has provided US$3.2 billion in loan guarantees to 
PYMES since the start of the crisis, with a goal of 
reaching US$4 billion by the end of 2009. 
--Rangel has created programs to provide references, 
training, and guarantees to help PYMES join supply chains 
of public sector institutions such as universities and 
PEMEX, the state owned oil company. 
--BANCOMEXT has supplied US$730 million in direct 
financing and loan guarantees to automotive companies to 
help keep them operating through the GM and Chrysler 
restructurings.  Mexico exports over a US$1 billion in 
auto parts annually to the United States. 
--To offset the economic blow of the H1N1 flu, NAFINSA 
has made available financing to companies in the tourism 
industry.  NAFINSA is able to provide tourism related 
companies new low fixed-rate loans, an extension of 
payment terms, and, in some cases, loan forgiveness. 
(Monterrey) 
 
 
----------------------- 
ENERGY AND ENVIRONMENT: 
----------------------- 
 
¶10.  (U) RENEWABLE ENERGY PROJECTS BRING OPPORTUNITIES TO 
CHIHUAHUA:  On June 9, the Spanish wind turbine producer, 
Preneal, announced that it has initiated a feasibility 
study to determine the environmental and financial 
potential of installing a 2,000 hectare (4,940 acres) 
wind farm approximately 20 miles southwest of Ciudad 
Juarez.  A Preneal representative explained that the wind 
farm will generate 100 megawatts of energy, which the 
company could potentially sell to Mexico's state-owned 
electricity company, Comision Federal de Electricidad 
(CFE).  For the investment to generate a positive net 
present value, the wind farm will require a minimum wind 
speed of 15 km per hour for at least 2,500 hours 
annually.  The feasibility study will reportedly take 8 
months to complete.  In addition to the Chihuahua wind 
farm, Preneal plans to begin operations on a 400 megawatt 
wind farm in Oaxaca, Mexico in 2010.  Meanwhile, the U.S. 
electronics manufacturer, Jabil Circuit, announced on 
June 10 that it will invest $US 15 million into its 
Chihuahua City plant to produce solar panels for the 
California-based SunPower Corp.  The decision to shift 
production to Chihuahua is part of SunPower Corps' long- 
term strategy to increase its panel assembly production 
in Mexico to reduce production costs, said the company's 
Chief Operating Officer Marty Neese in a press release. 
Solar panel production will begin at the Chihuahua plant 
in the second half of 2009 and will create 900 jobs. 
(Ciudad Juarez) 
 
 
---------------------------------- 
TRANSPORTATION AND INFRASTRUCTURE: 
---------------------------------- 
 
MEXICO 00001862  004 OF 004 
 
 
 
¶11.  (U) AIR TRAFFIC:  AWFUL MAY FOLLOWS POOR FIRST 
QUARTER:  A slew of new data underlines statistically the 
dismal results air carriers, airport operators, and civil 
aviation authorities have reported to the Embassy in 
recent months.  International Air Transport Association 
(IATA) figures for May show scheduled air traffic in 
Mexico fell 40% relative to 2008.  This flu-inspired 
decline was the world's worst in May.  The worldwide 
decline was a still-bad 9.3%, but blamed largely on 
recession vice flu.  At 64.7% and dragged down by Mexico, 
the Latin America-wide load factor was the weakest in the 
world in May.  Mexico's Secretariat of Tourism estimates 
the fall in passenger volume for the period from 24 April 
to 24 May at 52.2%, with Cancun (63.3%) and Puerto 
Vallarta (58.6%) worst hit.  Passenger volume in Mexico 
City fell 45.9%.  Public and private airport operators 
across Mexico reported weak revenue for the first 
quarter.  Public fuel distributor Aeropuertos y Servicios 
Auxiliares (ASA), which operates 20 airports across the 
country with cash from fuel sales, suffered its worst 
quarter on record, off 47.2%.  With fewer flights needing 
less gas, revenue has dried up.  Compounding the problem, 
Mexico's financially fragile airlines are not all paying 
promptly for the fuel they do use (notably Aviacsa, but 
also others).  In a 25 June press conference 
acknowledging his company's cash-strapped state, 
Aeromexico chief Andres Conesa proposed taking on debt 
against the carrier's ASA account.  It is not clear 
whether ASA is in a position to field such a request. 
(Mexico City) 
 
WILLIARD