VZCZCXRO6117
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2179/01 2052147
ZNR UUUUU ZZH
R 242147Z JUL 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 7591
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 002179 
 
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 - July 24 
 
¶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 Joe Salazar (salazarje3@state.gov) for 
questions or comments about this report. 
 
¶2.  (U) Table of Contents: 
 
 
ECONOMY AND FINANCE: 
-------------------- 
 
ECONOMY FALLS 9% DURING THE FIRST HALF OF 2009 - Mexico City 
 
CONSUMER PRICES ROSE 0.2% IN JULY - Mexico City 
 
GOVERNMENT ANNOUNCES ANOTHER CUT TO THE BUDGET - Mexico City 
 
MORE MEXICANS WORKING IN THE INFORMAL ECONOMY - Mexico City 
 
IMSS RECORDS INCREASE IN EMPLOYMENT - Monterrey 
 
NEW VENTURE CAPITAL FUND IN NUEVO LEON - MONTERREY 
 
TOURISM ON THE REBOUND IN CANCUN - Merida 
 
 
TRADE AND INVESTMENT: 
--------------------- 
 
EXPORTS FALL AT A RECORD LEVEL - Mexico City 
 
VW MEXICO TO INVESTING US$1 BILLION - Mexico City 
 
DELPHI TO REORGANIZE, A POSITIVE EFFECT IN MATAMOROS? - Matamoros 
 
ADDITIONAL FDI IN TAMAULIPAS? - Matamoros 
 
LOCAL MAQUILA HR MANAGER KIDNAPPED, RETURNED - Matamoros 
 
 
ENERGY AND ENVIRONMENT: 
----------------------- 
 
WATER RATIONING BEGINS IN MEXICO CITY - Mexico City 
 
JOHNSON CONTROLS SUSTAINABLE DEVELOPMENT PROJECT - Monterrey 
 
UPCOMING ENERGY SEMINARS SPONSORED BY THE BRITISH EMBASSY - 
Monterrey 
 
 
------------------- 
ECONOMY AND FINANCE: 
------------------- 
 
¶1. (U) ECONOMY FALLS 9% DURING THE FIRST HALF OF 2009:  During a 
ceremony to expand Volkswagen's plant in Puebla, President Calderon 
said that the economy has contracted by 9 percent during the first 
half of the year.  While the official figures are not out yet, 
Calderon strongly argued however that his government has faced the 
crisis effectively and has reduced the overall negative impact of 
the global crisis.  For example, thanks to his temporary employment 
program, formal employment has only dropped 3 percent this year. 
Calderon asserted that Mexico's automobile sector would trigger the 
global automobile industry's recovery since it offers the best 
production and investment conditions thanks to its competitive 
advantage in transportation, logistics and skilled labor.  He 
reminded the attendees that his government has injected more than 
US$3.7 billion into the sector and more than US$2.2 billion in 
credit lines through development banks for the auto parts sector. 
(Mexico City) 
 
¶2. (U) CONSUMER PRICES ROSE 0.2% IN JULY:  The Bank of Mexico 
reported on July 23 that annual headline inflation totaled 5.54 
percent during the first half of July.  Inflation is maintaining a 
downward trend in line with most analysts' predictions.  According 
to the central bank, year-end inflation will go down to between 4 
and 4.5 percent, still 1.5 percent higher than its 3 percent target. 
 The bank aims to meet its inflation target of 3 percent by the end 
of 2010.  For most analysts, inflation has not dropped in Mexico as 
fast as other countries due to the existing rigidity in the 
 
MEXICO 00002179  002 OF 004 
 
 
administration and the setting of some prices, which prevents them 
from adjusting to market conditions.  According to most analysts, 
the Bank of Mexico will be cautious by continuing to borrow at the 
current 4.5 percent interest rate for the remaining of 2009. 
(Mexico City) 
 
¶3. (U) GOVERNMENT ANNOUNCES ANOTHER CUT TO THE BUDGET:  Due to the 
crisis and the estimated fiscal shortage of US$32.6 billion this 
year, the government announced yesterday a second cut of 50 billion 
pesos (US$3.8 billion) to public spending.  This is the second cut 
after Finance Secretary Carstens announced that the 2008 budget 
would be cut by 35 billion pesos (US$2.6 billion) in May.  Carstens 
asserted that social, health and security expenditures will not 
suffer from the cut and added that infrastructure projects would be 
marginally affected.  The government will pass the razor to 78 
percent of current spending and 22 percent on public investment. 
Carstens also stated that the government will propose a new tax 
reform which will be included in the economic package, to be 
submitted to the Congress on September 8.  He pledged to maintain 
fiscal stability while continuing to stimulate the economy through 
public spending.  Such spending would be through a fiscal reform 
that could include taxes to consumption and an amendment to the 
budget law to allow a slight increase of the fiscal deficit in 
difficult times.  However, it would also included a pledge to 
eliminate these measures once the economy recovers.  (Mexico City) 
 
¶4. (U) MORE MEXICANS WORKING IN THE INFORMAL ECONOMY:  Local press 
reports that as a result of the crisis and low salaries, many 
Mexicans have chosen to shift into the informal sector.  Others have 
found a second job in the informal economy as a way to increase 
their income.  In 2006, the income of "independent" (informal) 
workers represented 8.5 percent of the total labor force, but in 
2008 the percentage grew to 12.8 percent.  The payment for an 
informal job has risen 47.2 percent in two years, while the salary 
for formal sector jobs grew only slightly by 0.6 percent. 
Remittances, migration and government support are all insufficient 
to mitigate the decline in families' incomes.  (Mexico City) 
 
¶5. (U) IMSS RECORDS INCREASE IN EMPLOYMENT:  The Instituto Mexicano 
del Seguro Social (IMSS) reported a nationwide upturn in formal 
sector jobs by over 19,200 in June.  The state of Nuevo Leon created 
the greatest number of jobs followed by Jalisco, Guanajuato, 
Quintana Roo, and Mexico.  The highlight of the employment report 
was the 1,500 net job increase in the manufacturing sector in Nuevo 
Leon, while nationwide the sector lost 15,090 jobs.  Nuevo Leon 
depends highly on U.S. exports and was one of the first states 
affected by the U.S. recession.  The state now appears to be leading 
a recovery.  However, despite these optimistic job statistics, an 
executive with Soriana, one of Mexico's largest grocery chains, told 
EconOff on July 15 that gross June sales in the company's regional 
grocery divisions dropped from 6 - 20 percent compared with the 
previous year.  The official said that, in his opinion, he had not 
seen any indication that household consumption or the economic 
recession has bottomed out in Mexico.  (Monterrey) 
 
¶6. (U) NEW VENTURE CAPITAL FUND IN NUEVO LEON:  The Instituto de 
Innovacion y Transferencia de Technologia (I2T2) of Nuevo Leon 
launched a new US$8 million venture capital fund on July 15 for 
investments in technology startups.  The fund, named the Nuevo Leon 
Innovation Fund, will invest up to 150,000 pesos in new companies. 
The startup funds will be a welcome source of capital for new 
companies since many other traditional sources of investment have 
dried up due to the economic crisis.  The institute itself is a 
public-private partnership between the state science commission and 
Monterrey Tec University to promote economically viable research and 
development in the state.  In addition to the new fund, I2T2 also 
announced 100 scholarships for local students to complete post 
graduate studies abroad in either science or technology-related 
fields.  (Monterrey) 
 
¶7. (U) TOURISM ON THE REBOUND IN CANCUN:  More than forty days since 
the United States lifted its H1N1 travel warning to Mexico, Cancun's 
hotel occupancy is at 74 percent.  However, this is still down 12 
percent from last year.  Cancun, one of Mexico's major tourist spots 
that represents a third of Mexico's total tourism revenue, was hit 
hard during the H1N1 outbreak when hotel occupancy dipped to less 
than 20 percent in early May and forced 15,000 of the city's 28,000 
rooms to temporarily close at a loss of around US$120 million.  Key 
to Cancun's recovery, the Cancun hotel association representative 
told RSO, is the return of events such as the Ms. Espana competition 
last week.  The representative also mentioned that hotels are seeing 
an increase of domestic tourists.  (Merida) 
 
MEXICO 00002179  003 OF 004 
 
 
 
--------------------- 
TRADE AND INVESTMENT: 
--------------------- 
 
¶8. (U) EXPORTS FALL AT A RECORD LEVEL:  During the first half of the 
year, exports fell 30 percent in annual terms, a decline not seen 
since 1980.  From January through June, the value of exports totaled 
US$104.3 billion.  The steep decline in total exports was largely 
due to the 56 percent drop in oil exports.  Lower international 
prices and the continued decline in oil output had a negative impact 
on Mexican exports.  The Mexican mix oil price averaged US$47.3/bbl 
during the first half of the year and the volume of export was 1.2 
million barrels per day, 15 percent lower than the previous year. 
Non-oil exports plummeted 24 percent, largely due to the decline in 
manufacturing exports, which fell 25.2 percent.  Due to the crisis, 
the industrial sector also adjusted their imports.  Thus, imports of 
intermediate and capital goods fell 30 percent and 21 percent, 
respectively.  Notwithstanding, there was a more moderate decline of 
exports in June.  Last month, total exports fell 27 percent compared 
to 33 percent the previous month.  Banamex's analysts opined that it 
is still too soon to indicate a fast recovery, but at least the most 
critical phase in foreign trade seems to be over.  (Mexico City) 
 
¶9. (U) VW MEXICO TO INVEST US$1 BILLION:  On July 15, Volkswagen 
Mexico's Head of Corporate Communications announced the leading auto 
manufacturer will invest US$1 billion into its plant in the central 
Mexican state of Puebla to build a new model.  Volkswagen will 
likely begin production of this new model in March or April of 2010. 
Currently, the Puebla plant is Volkswagen's only North American 
plant, producing the Jetta and Bora models, and is the only plant 
that builds the popular new Beetles.  The plant has suffered from 
rolling work stoppages to counter the economic crisis, and has 
sought government assistance from Mexico for its workers.  (Mexico 
City) 
 
¶10. (SBU) DELPHI TO REORGANIZE, A POSITIVE EFFECT IN MATAMOROS? 
Auto parts supplier Delphi is the largest maquiladora in Matamoros, 
Tamaulipas.  Delphi has a number of plants in the area that produce 
a variety of auto parts, including steering and radio components. 
Guillermo Rico Leal, Secretary of Economic Development for Matamoros 
spoke to local media about Delphi this week.  He predicts Delphi's 
announced reorganization will quickly create a positive impact on 
the city's economy.  Rico also stated there would be a total 
recovery of the city's economy by the end of 2010 or early 2011. 
(Note:  EconOff and PD FSN note these statements seem overly 
optimistic.  Media reports indicate General Motors (GM) is buying 
back ownership of four U.S. plants and the steering business. 
However, some Delphi plants in the area produce other items, such as 
radio components, that are not included in the sale to GM, and 
Delphi's plans for these plants are unknown.  End Note.) 
(Matamoros) 
 
¶11. (SBU) ADDITIONAL FDI IN TAMAULIPAS?  Local media has reported 25 
multinational businesses are planning to invest US$698 million in 
the state of Tamaulipas.  Nine of these businesses will be based in 
Matamoros.  The planned investments should generate 5,600 jobs 
according to reports.  EconOff spoke with Guillermo Rico Leal, 
Secretary of Economic Development for Matamoros last week regarding 
local economic developments.  He mentioned there was a German 
company prospecting in the area of Matamoros, but he had no details. 
 The Matamoros maquila association director, Roberto Mattus told 
EconOff recently a few European companies were looking into 
Matamoros, but none of them appeared to be serious at this time.  He 
noted security is still a concern of most prospects.  EconOff 
observes that local media has a tendency to report nearly verbatim 
press releases of local and state economic officials without asking 
critical questions and the reality of maquila developments are not 
as positive as media reports indicate.  (Matamoros) 
 
¶12. (SBU) LOCAL MAQUILA HR MANAGER KIDNAPPED, RETURNED:  A personnel 
manager from Schumex, a local maquiladora specializing in battery 
chargers, was kidnapped on July 10.  Notable about this kidnapping 
is where it took place: the parking lot of Schumex, at 5 p.m. on a 
Friday afternoon.  The manager was returned before midnight the same 
night.  The motive is unknown.  A local contact shared this with 
EconOff this week.  This incident was not covered by local media. 
(Matamoros) 
 
----------------------- 
ENERGY AND ENVIRONMENT: 
----------------------- 
 
MEXICO 00002179  004 OF 004 
 
 
 
¶13. (U) WATER RATIONING BEGINS IN MEXICO CITY:  The National Water 
Commission (Conagua) decreased water supply to the city's 23 million 
inhabitants yesterday by 10 percent.  The rationing, a result of 
meager rainfall and a mere 40 percent capacity in three critical 
dams, will mean a 10 percent water reduction from Sunday to 
Thursday, 25 percent reduction on Fridays and 50 percent on 
Saturdays for Mexico City.  Authorities estimate these indefinite 
measures will save the city 6.68 million cubic meters of water per 
month.  Efren Villalsn, president of the Mexico Valley Water Basin 
Organization, told the media that the cuts will be spread evenly 
across the city and should not noticeably affect residential areas. 
(Mexico City) 
 
¶14. (U) JOHNSON CONTROLS SUSTAINABLE DEVELOPMENT PROJECT:  On July 
14, U.S. manufacturing company Johnson Controls, the City of 
Escobedo, and the environmental NGO Mundo Sustentable announced a 
new pilot reforestation project.  In the partnership Johnson 
Controls will provide US$200,000 in startup capital for greenhouses, 
Escobedo will donate land and equipment and Mundo Sustentable will 
supply the technical expertise needed to launch the project. 
Escobedo is a rapidly industrializing city and the lack of proper 
urban planning has blighted large parts of the city.  In addition to 
replanting trees in large tracts of land, the project aims to 
provide trees in public areas to improve the quality of life.  If 
the project is successful, the partnership plans to expand the 
project to other outlying cities in the area.  (Monterrey) 
 
¶15. (U) UPCOMING ENERGY SEMINARS SPONSORED BY THE BRITISH EMBASSY: 
The British Embassy kicked off a Climate Change Seminar Series in 
Monterrey on July 9.   The one day seminar covered likely outcomes 
of a Post-Kyoto energy agreement, carbon trading and successful 
examples of private renewable energy projects.  The British Embassy 
has been active in promoting renewable energy and combating climate 
change in Mexico.   In Nuevo Leon alone, the U.K. embassy provided a 
US$600,000 grant allowing the state to complete a greenhouse gas 
inventory in 2009.   Additional seminars include:  "Efficient Energy 
Technologies" in Mexico City on July 23 and in Veracruz on August 
27; "Efficiencies in Carbon Markets" in Hermosillo on August 20; 
"Corporate Leadership in Climate Change" in Monterrey on September 
29-30 and in Mexico City on October 1-2. (Monterrey) 
 
FEELEY