VZCZCXRO5559
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2601/01 2432319
ZNR UUUUU ZZH
R 312319Z AUG 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8096
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 03 MEXICO 002601 
 
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 - August 21 
 
¶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: 
 
 
ENERGY 
------ 
 
PRODUCTION AT MEXICO'S MAIN OILFIELD FELL 70 PERCENT SINCE 2003 - 
Mexico City 
 
 
HEALTH 
------ 
 
WORLD BANK POISED TO ISSUE $480 MILLION LOAN TO MEXICO FOR FLU 
CONTROL AND PREVENTION 
 
 
ECONOMY AND FINANCE: 
-------------------- 
 
"MEXICO UNDERESTIMATED MAGNITUDE OF THE CRISIS" SAYS OECD SECRETARY 
GENERAL (Mexico City) 
 
INSTITUTE OF PUBLIC ACCOUNTANTS OF NUEVO LESN SUPPORTS FISCAL REFORM 
(Monterrey) 
 
CONFLICTING VIEWPOINTS REGARDING BORDER ECONOMY (Matamoros) 
 
SONORAN GOVERNMENT INTRODUCES TECHNOLOGY SECTOR STIMULUS PROJECTS 
(Hermosillo) 
 
 
TRADE AND INVESTMENT: 
--------------------- 
 
BEACH MOLD & TOOL, INC. CLOSING REYNOSA PLANT, MOVING OPERATIONS TO 
QUERETARO (Matamoros) 
 
TWO U.S. FORTUNE 500 COMPANIES EXPANDING EMPLOYMENT IN MEXICO 
(Monterrey) 
 
 
------- 
ENERGY: 
------- 
 
¶3.  (SBU) PRODUCTION AT MEXICO'S MAIN OILFIELD DOWN 70 PERCENT SINCE 
2003:  Cantarell, Mexico's largest oil field, fell to under 650,000 
barrels a day, a 21 percent since January 2009 and a full 70 percent 
down from its peak production of 2.2 million barrels a day in 
December 2003.  Cantarell currently accounts for 25 percent of 
Mexican crude oil production, down from 64 percent in 2003.  Pemex 
estimates total crude oil production will fall to 2.5 million 
barrels a day in 2010, down from 2.6 million barrels a day this 
year.  This estimate seems optimistic given Cantarell's rapid 
decline and disappointing results from another key field under 
development, Chicontepec.  (Mexico City) 
 
------- 
HEALTH: 
------- 
 
¶4.  (SBU) WORLD BANK POISED TO ISSUE $480 MILLION LOAN TO MEXICO FOR 
FLU CONTROL AND PREVENTION:  Mexico's Secretariat of Health is in 
line to receive a $480 million loan from the World Bank to pursue an 
"Influenza Control and Prevention Project" that will monitor the 
spread of viruses and control epidemic waves.  The loan will be 
accompanied by a $72.8 million contribution by the GOM and is 
scheduled for approval by the World Bank Board of Directors on 
September 10th.  The GOM estimates that public spending on the H1N1 
response has surpasses $600 million and the macroeconomic impact of 
the pandemic is expected to be 0.3-0.5 percent of Mexico's GDP. 
 
 
------------------- 
ECONOMY AND FINANCE: 
 
MEXICO 00002601  002 OF 003 
 
 
------------------- 
 
¶5.  (U) "MEXICO UNDERESTIMATED MAGNITUDE OF THE CRISIS": 
Mexico, as well as other countries, failed to appreciate the 
magnitude of the economic crisis, according to OECD Secretary 
General Jose Angel Gurria.  Speaking in Mexico City, Gurria added 
that Mexico is going through the worse "financial shock" in 70 
years.  In order to address the situation, Gurria opined that 
government expenditures in 2010 will have to be cut.  He underlined 
the urgent need to strengthen Mexico fiscal structure and reduce the 
country's heavy reliance on oil revenues.  As Finance Secretary 
during the Zedillo presidency, Gurria proposed a fiscal reform which 
was blocked by the PAN.  When former President Fox subsequently 
proposed his own fiscal reform, the PRI voted against it.  For 
Gurria, a fiscal reform should include taxes on consumption, lower 
taxes on investments and saving, an expanded taxpayer base, and 
higher rates of collection.  Gurria recommend reducing public 
investment for the next year or two.  (Mexico City) 
 
¶6.  (U) INSTITUTE OF PUBLIC ACCOUNTANTS OF NUEVO LESN SUPPORTS 
FISCAL REFORM:  Consistent with calls for fiscal reform at the 
national level from the President of the Council of Mexican 
Businessmen, Claudio X. Gonzlez and President of the Institute of 
Public Accountants of Neuvo Lesn, Jaime Garca, called for an 
elimination of preferential regimes from the value added tax (VAT). 
Garca argued that such a regime would be much more equitable, 
ensuring that those that consume the most carry the largest tax 
burden.  He further suggested that by augmenting the base of items 
contributing to the VAT, its rate could be reduced and its 
administration streamlined.  Garca also recommended the elimination 
of the IETU - a tax roughly analogous to the U.S. Governments 
Alternate Minimum Tax (AMT) - which he claimed discourages 
investment, and the reduction of ISR, Mexico's capital gains tax. 
(Monterrey) 
 
¶7. (U) SONORAN GOVERNMENT INTRODUCES TECHNOLOGY SECTOR STIMULUS 
PROJECTS.  The state of Sonora announced in July a $500 million 
Mexican peso(US$38 million) plan to invest in software development 
capabilities over the next five years with the help of the firm 
GoNet Mexico. The plan adds to an existing software incubator 
project and with the cooperation of four of southern Sonora's 
universities is expected to create 400 new software development jobs 
in the next three years, attracting talent and projects from all 
over North America.  On Aug 2nd, El Imparcial reported El Consejo 
Nacional de Ciencia y Tecnologa (CONACYT) approved $44.6 million 
pesos (US$3.4 million) for 14 companies in the technology related 
projects. The projects included copper extraction enhancements 
(Mexicanos de Cobre), aerospace turbine diagnosis (Teta Kawi), a 
Ford Motor manufacturing improvement and a water recycling project 
at a laboratory to name a few. Despite the "brand names" included in 
the list of recipients, the state says this is part of their effort 
to promote the development of micro to mid size companies. The 
economic development authorities express an interest in developing a 
long term competitive advantage for Sonora and point to Sonora's 
movement in the number of patents from 16th to 3rd nationally during 
the Bours administration as an example of their success in that 
regard. (Hermosillo) 
 
¶8. (U) CONFLICTING VIEWPOINTS REGARDING BORDER ECONOMY: 
El Colegio de la Frontera Norte (COLEF), an economic think tank with 
focus on the northern border of Mexico, recently stated that Mexican 
northern border cities will experience a further economic 
contraction in 2010.  Cirila Quintero, investigator for COLEF, 
highlighted two principal factors in the contraction:  a weak and 
extended recovery of the maquila sector and high levels of expected 
migration to the region.   She also indicated that some new 
companies have entered the region, but the number of jobs generated 
is not high enough to offset recent layoffs, particularly in the 
automotive sector.  Ms. Quintero also noted there is a lack of short 
and medium term economic strategies in Mexican automotive plants, 
which will undoubtedly result in further layoffs and adjustments in 
the maquila sector.  This is in contrast to the plans Econ Off heard 
during automotive sector sessions during Foro Internacional Clusters 
2009 two weeks ago, where maquilas outlined efforts to strengthen 
their common cluster interests, and share information. 
(Matamoros) 
 
--------------------- 
TRADE AND INVESTMENT: 
--------------------- 
 
¶9.  (U) BEACH MOLD & TOOL, INC. CLOSING REYNOSA PLANT, MOVING 
 
MEXICO 00002601  003 OF 003 
 
 
OPERATIONS TO QUERETARO:  According to local news reports, Beach 
Mold & Tool, Inc., a privately held custom injection molder that 
manufactures automotive, consumer, and other electronic parts will 
close its' Reynosa plant and move production to a sister plant in 
Queretaro, Mexico.  Beach indicates the move was made to offset the 
impact of lower sales volumes and to reduce infrastructure costs in 
Mexico. (Matamoros) 
 
¶10.  (SBU) TWO U.S. FORTUNE 500 COMPANIES EXPANDING EMPLOYMENT IN 
MEXICO:  In an August 21 conversation with Consul General, Whirlpool 
Mexico Director Luis Fernando Reyes stated that, assuming the 
incoming Nuevo Leon governor ratified certain tax breaks promised by 
the outgoing governor, his company planned to move a new line of 
production to the Monterrey region, adding more than 1,000 jobs to 
current payrolls.  Separately, Cummins announced that it would move 
filter production to its facilities in San Luis Potosi, thereby 
expanding employment in that city by an additional 800 new jobs.  In 
both cases, the employment increases in Mexico translate into job 
cutbacks at the companies' U.S. plants.  Meanwhile, officials from 
Altos Hornos de Mexico, one of Mexico's largest steel manufacturers, 
has told us that because of cash flow issues the company would soon 
have to announce a layoff (hopefully short) of 1,000 employees at 
its plant in Monclova, Coahuila. (Monterrey) 
 
PASCUAL