VZCZCXRO6440
RR RUEHCD RUEHGD RUEHHO RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHMC #0314/01 2311716
ZNR UUUUU ZZH
R 191716Z AUG 09
FM AMCONSUL MONTERREY
TO RUEHC/SECSTATE WASHDC 3890
INFO RUEHME/AMEMBASSY MEXICO 4960
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHMC/AMCONSUL MONTERREY 9486

UNCLAS SECTION 01 OF 02 MONTERREY 000314 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD EINV ELAB PGOV ECON MX
SUBJECT: MONTERREY ECONOMIST WEIGH PROSPECTS FOR RECOVERY IN 
EMPLOYMENT 
 
REF: A)  MONTERREY 304  B)  MONTERREY 292 C)  MONTERREY 278 
 
MONTERREY 00000314  001.2 OF 002 
 
 
¶1.  (SBU)  Summary.  Monterrey-based economists remain hopeful 
as employment in Mexico's formal sector recorded its second 
straight month of growth in July.  Even though they believe the 
worst of the recession may be over, David Martinez, the Chief 
Economist for Nuevo Leon's Secretary of Economic Development, 
recently warned Post that a full recovery will likely take two 
more years.  Separately, Monterrey central bank delegate Agustmn 
Del Rio speculated that Bank of Mexico Governor Guillermo Ortiz 
may not be reappointed when his term expires in December 2009 
because of dissatisfaction with him within the PAN party.  End 
Summary. 
 
 
 
A Long Road to Recovery 
 
 
 
¶2.  (SBU)  According to July statistics from the Mexican Social 
Security Institute, employment in Mexico increased modestly for 
the second month in a row, signaling the start of a possible 
economic recovery.  Nationally, official Mexican employment 
increased by 19,243 jobs in June and 14,260 jobs in July.  For 
the year, however, national employment in the formal sector is 
still down by 221,028 jobs.  For the two month period, job 
growth was led by the states of Jalisco and Nuevo Leon - two of 
the most industrially advanced states in Mexico.  Informal 
sector jobs such as those in underground retailers and 
restaurants are believed to have increased as well but are 
harder to measure.  Current unemployment in Nuevo Leon according 
to Mexico's statistics bureau (INEGI) unemployment is currently 
at 7.02% vs. 11.57% for the entire country. 
 
 
 
¶3.  (SBU)  David Martinez, Chief Economist for the State of 
Nuevo Leon's Secretariat of Economic Development, applauded the 
news as a sign the worst of the recession is over, however, he 
predicted a long recovery period.  Martinez compared the current 
recession to the 2000-2002 recession in Mexico, precipitated by 
the dot-com crash in the United States, the 9/11 attacks, and 
the wars in Afghanistan and Iraq.  U.S. demand, like in the 
current recession, fell dramatically.  The lack of export demand 
prolonged the Mexican recession (Ref A).  Indeed, he forecast 
that it will take 47 months for employment to reach 
pre-recession levels.  Based on this comparison, he believed 
that a complete economic recovery will not occur until December 
¶2011. 
 
 
 
¶4.  (SBU)  Martinez added that analysts err by comparing the 
current recession to the 1994-1995 Peso Crisis - even though he 
said the current recession is as severe or worse.  Then, exports 
to the United States remained high, since the crisis was caused 
by internal factors opposed to worldwide ones.  At that time, 
the country also suffered from high rates of inflation and an 
accompanying loss of wealth.  Mexico only needed 22 months to 
recover from the Peso Crisis. 
 
 
 
Central Bank Perspective and Possible Changes 
 
 
 
¶5.  (SBU)  In an August 7 presentation to U.S. and Mexican 
real-estate executives, the regional delegate to Monterrey for 
the Bank of Mexico (Mexico's central bank), Agustin del Rio, 
agreed that the Mexican economy continues to suffer from the 
recession and will take years to recover.  Central bank 
economists have been surprised by the severity of the 
recession..  Recently, Fitch Ratings downgraded the debt of the 
border state of Coahuila, where many export related companies 
are located.   For the first time ever, Del Rio stated that 
Mexican union leaders have not requested an increase in the 
minimum wage this year, in order to help save jobs. 
 
 
 
¶6.  (SBU)  Del Rio reported of speculation that Bank of Mexico 
Governor Guillermo Ortiz will not be reappointed when his term 
expires in December.  Ortiz, who was nominated to be the 
governor by former PRI President Zedillo in 1998 is not popular 
within the PAN party.  However replacing him would be difficult. 
 The most likely candidate is the current Secretary of Finance 
Agustmn Carstens, but Carstens' deputy, Alejandro Werner, cannot 
 
MONTERREY 00000314  002.2 OF 002 
 
 
become the Secretary because he is not a natural born Mexican 
citizen.  Moreover, Ortiz is also the chairman of the board of 
directors of the Bank of International Settlements.  Mexico 
would lose the international prestige of the position if Ortiz 
were to be replaced. 
 
 
 
¶7.  (SBU)  Comment:  The economy continues to show signs of 
improvement.  The employment numbers for Nuevo Leon were 
encouraging since it will likely be one of the states to lead 
the rest of the country out of the recession.  The state, where 
many maquilas are located, would be one of the first to benefit 
from a rebound in the U.S. economy.  However, if the forecasts 
for an extended recession are true, it will have a devastating 
effect on state budgets (Ref B).  The reduced income from 
payroll taxes combined with lower transfers from the federal 
government (largely because of falling oil revenue) could mean 
states will have to cut spending on essential programs, such as 
social services and law enforcement.  End Comment. 
WILLIAMSONB