VZCZCXYZ0005
PP RUEHWEB

DE RUEHME #2018/01 1910012
ZNR UUUUU ZZH
P 100012Z JUL 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7399
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHOT/AMEMBASSY OTTAWA 2638

UNCLAS MEXICO 002018 
 
SENSITIVE, SIPDIS 
 
STATE FOR EEB/TPP/BTA/GROUT 
STATE FOR WHA/MEX/LEE/ROMANS 
USTR FOR MELLE/SHIGETOMI 
COMMERCE FOR ITA/MAC/ONAFTA/WORD/OLSEN 
NSC FOR O'REILLY 
TREASURY FOR JARPE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD PINR PGOV PREL MX
SUBJECT: POTENTIAL EFFECT OF ELECTIONS ON MEXICO'S ECONOMIC AGENDA 
 
¶1.  (SBU) SUMMARY:  The worse-than-expected congressional election 
defeat for Calderon, giving the PRI a near majority in the House of 
Deputies, will now afford the PRI the opportunity to assume greater 
initiative and certainly assert greater leverage in debates over the 
economic reform agenda.  Prospects for a more ambitious energy 
reform are significantly diminished; the fiscal reform that is 
necessary to boost Mexico's credit ratings will only happen on the 
PRI's terms.  As the House of Deputies enjoys sole responsibility 
for passing the federal budget, the PRI is in a position to drive 
this debate as well.  This situation will likely prompt the Calderon 
Administration to rely increasingly on non-legislative changes 
within institutions and programs over which the government has 
direct discretion and take initiatives to advance its reform agenda, 
promote growth and address poverty.  This should afford us new 
opportunities for cooperation in the areas of competitiveness, the 
development of alternative energies, education, and competition. 
END SUMMARY. 
 
¶2. (SBU) The PRI will likely be less inclined to compromise on its 
core principles and interests when it comes to GOM policy proposals 
on economic reforms.  For example, the PRI has long opposed the 
participation of the private sector in the exploration, extraction, 
or refining of Mexico's petroleum, as laid out in the government's 
deeper energy reform plan.  And while the 2012 election provides the 
PRI with an incentive to set the economy on a stronger footing, the 
PRI may push for the possible elimination of the personal income tax 
and the business flat tax, which could have negative effects on the 
government's fiscal situation.  The PRI has also announced its 
intent to pass a new Emergency Economic Law to give businesses 
access to credit and help offset the negative impact of the 
financial crisis.  Separately, while the Revenue Law must be 
approved by both the Lower House and the PAN-controlled Senate, the 
Expenditures Law is controlled only by the Lower House.  As such, 
with its near majority in the House of Deputies, the PRI will 
effectively drive the debate over the federal budget, and will seek 
to direct greater resources to its constituencies in the countryside 
and the 19 of Mexico's 31 states where a PRI governor resides. 
 
¶3.  (SBU) No one in PAN or the Administration has stated publicly 
how this will affect Calderon's economic agenda.  We believe the GOM 
will seek to improve the economic situation by creating jobs and 
opportunities for Mexicans.  It may also work within the confines of 
institutions and programs over which it can exercise discretion to 
move forward on its reform agenda, without relying on Congress for 
approval.  The hope is that, when a United States recovery 
translates into a Mexican recovery, Mexico will rebound close to the 
6-8 percent growth rate necessary to address its 40 percent poverty 
level. 
 
¶4.  (SBU) The GOM will likely focus on competitiveness - by 
strengthening IPR protection and enforcement, by facilitating the 
cross-border movement of products and people, and by urging the 
United States Government to replace the cancelled pilot trucking 
program.  It will also focus on improved education, research and 
development of alternative energies, and the growth of SME's by 
facilitating their access to credit.  Roberto Newell from the 
Mexican Institute for Competitiveness, a leading think tank in 
Mexico that has done considerable research on the country's 
competitiveness, anticipates that the GOM will intensify its efforts 
to improve competition by legally challenging the monopolies in the 
electricity, oil, energy, telecommunications, cement, and other 
sectors.  Mexico's anti-trust watchdog, the Federal Competition 
Commission, has stepped up its efforts recently.  In the last month, 
it has fined two of Mexico's major railroad companies for collusive 
practices and has declared Mexico's largest fixed line telephone 
company to be the dominant player in the market.  The GOM will 
attempt to close the tax loopholes, reduce deductions, and 
strengthen tax collection through non-legislative revisions of 
existing regulations.  It will also likely move forward on several 
planned infrastructure projects.  In short, the Administration will 
do as much as it can without legislative approval to ensure that the 
economy grows and the PAN does not lose in 2012. 
 
¶5.  (SBU) COMMENT:  Despite the stinging rebuke to Calderon that the 
mid-term elections represented, we have a good opportunity to 
support his administration's concentration on improving Mexico's 
competitiveness and efficiency.  One caveat, however: President 
Calderon has publicly stated on numerous occasions that NAFTA is not 
open for renegotiation.  Any attempt to upgrade the side agreements 
on labor and the environment should be framed as building on the 
successes of NAFTA by focusing on improving the benefits of this 
trade agreement - in the areas of competitiveness, creating jobs and 
opportunities, eradicating poverty, social inclusion, and labor and 
environment.  END COMMENT. 
 
FEELEY