VZCZCXRO2466
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2996/01 2892241
ZNR UUUUU ZZH
R 162241Z OCT 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8641
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 06 MEXICO 002996 
 
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 - October 16 
 
¶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: 
 
 
ECONOMY AND FINANCE: 
-------------------- 
 
INFLATION CONTINUES TO DROP, BUT NOT FOR LOW-INCOME 
FAMILIES - Mexico City 
 
BUDGET WOES IMPACT THE PRICE OF STAPLES - Monterrey 
 
OBSTACLES FOR BUSINESSES: REGULATION, MONOPOLIES AND 
INSECURITY - Mexico City 
 
JUAREZ: A GOOD PLACE TO DO BUSINESS - Ciudad Juarez 
 
THE NORTHEAST CONTINUES TO LEAD RECOVERY - Monterrey 
 
SECURITY-RELATED COSTS CREATE DRAG ON LOCAL JUAREZ 
ECONOMY - Ciudad Juarez 
 
U.S. BUSINESS EXPERT WARNS AGAINST TAX HIKE, RECOMMENDS 
ALTERNATIVE STRATEGIES - Monterrey 
 
TOURISM FROM US AND CANADA REBOUND IN YUCATAN BUT 
EUROPEANS STAYING AWAY - Merida 
 
 
 
TRADE AND INVESTMENT: 
--------------------- 
 
INTEL DISCUSSING PLAN TO DOUBLE PRESENCE IN GUADALAJARA - 
Guadalajara 
 
ENORMOUS METAL AND MINERAL DEPOSITS DISCOVERED IN 
ZACATECAS, SAN LUIS POTOSI - Monterrey 
 
USD $55 MILLION WHIRLPOOL INVESTMENT IN NUEVO LEON - 
Monterrey 
 
OPERATION TO BE LAUNCHED AGAINST PIRATED SOFTWARE IN 
NUEVO LEON - Monterrey 
 
NUEVO LEON EXPORTS REBOUND - Monterrey 
 
 
TRANSPORTATION AND INFRASTRUCTURE: 
---------------------------------- 
 
NUEVO LEON'S HIGHWAY INFRASTRUCTURE EXPANDS - Monterrey 
 
AEROMAR RETURNS TO MONTERREY - Monterrey 
 
 
ENERGY AND ENVIRONMENT: 
----------------------- 
 
NATIONAL HYDROCARBONS COMMISSION RECOMMENDS PEMEX RETHINK 
CHICONTEPEC STRATEGY - Mexico City 
 
CALDERON ANNOUNCES MEXICO TO ENTER IRENA AT GLOBAL 
RENEWABLE ENERGY FORUM - Mexico City 
 
 
ENVIRONMENT, SCIENCE, TECHNOLOGY AND HEALTH: 
-------------------------------------------- 
 
OCTOBER 5 NORTH AMERICAN INFLUENZA MEETING IN MEXICO CITY 
- Mexico City 
 
H1N1 CLAIMS 14TH VICTIM IN NUEVO LEON - Monterrey 
 
 
------------------- 
 
MEXICO 00002996  002 OF 006 
 
 
ECONOMY AND FINANCE 
------------------- 
 
¶3.  (U) INFLATION CONTINUES TO DROP, BUT NOT FOR LOW- 
INCOME FAMILIES:  Annual inflation fell to 4.89% in 
September from 5.08% the previous month.  However, some 
food prices - especially those that have the largest 
impact on lower income families - have continued to rise. 
Produce prices rose 20.3%, the largest increase in three 
years.  Tomato prices rose at an annual rate of 103%. 
For lower income households, the inflation rate rose from 
5.75% in August to 5.84% in September, while inflation 
for households earning more than six times the minimum 
wage, headline inflation dropped from 4.72% to 4.48%. 
(Mexico City) 
 
¶4.  (U) BUDGET WOES IMPACT THE PRICE OF STAPLES:  Public 
relations officials for HEB and Soriana announced 
September 30 that the price of tortillas in metropolitan 
Monterrey would increase the first week in October by 15% 
due to a reduction in flour and corn subsidies.  Porfirio 
Garza Rojas, President of the Federation of Dough and 
Tortilla Producers, announced that neighborhood tortilla 
producers would likely follow suit, contingent upon 
approval from the Federal Attorney for Consumers 
(PROFECO).  (Monterrey) 
 
¶5.  (U) OBSTACLES FOR BUSINESSES: REGULATION, MONOPOLIES 
AND INSECURITY:  According to the World Economic Forum, 
(WEF), Mexico generally has a good business climate, with 
an enviable geographical location, cheap labor and a 
productive demographic.  However, WEF cites some 
challenges to overcome in order to improve 
competitiveness and attract more investment, such as 
reducing regulations and streamlining the time to open 
and operate businesses.  Other barriers include the lack 
of credit especially for small and medium-sized 
businesses and the growing informal sector.  WEF says 
Mexico should improve the efficiency and productivity of 
its public institutions, make its labor market more 
flexible and improve education.  In addition, the 
government should eliminate monopolies and continue to 
combat the security situation.  Mexico also needs to 
strengthen the Rule of Law, especially with respect to 
land acquisition in order to protect investors from 
quarrels with 'ejidatarios'.  The private sector 
acknowledged the government's efforts in passing and 
approving reforms, but it says it is time for 'second 
generation reforms'.  (Mexico City) 
 
¶6.  (U) JUAREZ: A GOOD PLACE TO DO BUSINESS:  Despite 
record violence associated with the ongoing drug war, 
Ciudad Juarez has one of the most favorable procedural 
environments in Mexico to do business.  According to the 
World Bank report "Doing Business 2009" Ciudad Juarez 
ranks 11th among 32 cities in Mexico as far as ease of 
doing business.  Juarez beat out metropolitan centers 
Mexico City and Monterrey, as well as its fellow border- 
towns of Tijuana and Matamoros.  The report evaluates the 
ease of starting a business, dealing with construction 
permits, registering property and enforcing contracts. 
On average, it takes 17 days to start a business in 
Juarez compared to 29 in Tijuana, 28 in Mexico City , 24 
in Matamoros and 19 in Monterrey. Juarez is one of the 
least expensive cities to register property.  In Juarez 
the cost of registering a new property averages 2.9% of 
the property's value, compared to 4.8% in Mexico City, 
3.6% in Tijuana, 3.5% in Monterrey and 3.3% in Matamoros. 
Juarez is also cheaper than the aforementioned cities in 
terms of the cost to enforce commercial contracts. 
Measuring cost as a percentage of the claim, the average 
in Juarez is 22.8% compared to 33.4% in Monterrey, 32% in 
Mexico City, 30.8% in Matamoros and 27.4% in Tijuana. 
Aguascalientes topped the list of Mexican cities.  Of the 
183 world economies evaluated, Mexico ranked 51st, and of 
the 32 countries in Latin America and the Caribbean, it 
ranked 6th.  (Ciudad Juarez) 
 
¶7.  (U) THE NORTHEAST CONTINUES TO LEAD RECOVERY:  The 
Northeast of Mexico continues to lead the national 
recovery in employment, according to statistics provided 
by the Mexican Institute of Social Security (IMSS).  From 
 
MEXICO 00002996  003 OF 006 
 
 
June to September, Coahuila generated 14,122 jobs, second 
only to Nuevo Leon, which generated 19,813 jobs over the 
same period.  According to these statistics, construction 
leads in job creation, while agriculture, communications 
and transport continue to shrink.  While the overall 
growth in employment is positive news, Fanny Arellanes, 
representative of Nuevo Leon's Secretary of Labor, 
affirms that this rate would not be enough to replace the 
approximately 80K jobs lost to the economic crisis within 
a year.  Marcelo Canales, president of Coparmex in Nuevo 
Leon, speaking at Monterrey TEC's annual business forum 
on October 6, emphasized that simply recovering lost 
employment would not be enough:  he estimated that Nuevo 
Leon would need to generate 100K jobs annually in order 
to replace lost jobs and absorb young adults into the 
labor pool.  (Monterrey) 
 
¶8.  (U) SECURITY-RELATED COSTS CREATE DRAG ON LOCAL 
JUAREZ ECONOMY:  A recent Inter-American Development Bank 
study claims that the cost of security in Mexico could be 
as high as 15% of GDP.  Recent information suggests this 
number could be even higher in Ciudad Juarez.  Security- 
related costs include wages for security guards, the 
installment of iron bars at businesses, extortion, 
movement of domestic investment to neighboring El Paso, 
or the diversion of funds from public works to pay for 
security.  In the past year Juarez has experienced a 40% 
decrease in restaurant business due in large part to 
security concerns, according to the local business 
association, CANIRAC.  At least 25 bars and 20 
restaurants have closed in recent months.  Anecdotally, 
many of these close to reappear on the other side of the 
border in El Paso.  The Mexican Construction Industry 
Chamber (CMIC) says that around 90% of its members have 
faced some form of extortion.  The construction industry 
estimates its losses at 720 million Mexican pesos (USD 
55.3 million), or 60% of the total allotment of public 
funds to infrastructure improvements.  While the security 
situation has had less impact on foreign domestic 
investment (FDI) and the maquilas, it has hit domestic 
investment and the local retail sector hard.  Also, 
despite reallocating its budget to respond to security 
issues, the recently published "Doing Business 2009" 
prepared by the World Bank (SEE JUAREZ A GOOD PLACE TO DO 
BUSINESS) found that Juarez municipal authorities have 
improved procedural efficiency related to doing business 
in the city.  These gains somewhat offset the negative 
externalities created by the poor security environment. 
(Ciudad Juarez) 
 
¶9.  (U) U.S. BUSINESS EXPERT WARNS AGAINST TAX HIKE, 
RECOMMENDS ALTERNATIVE STRATEGIES:  Speaking to an 
audience of approximately 800 business leaders at 
Monterrey TEC's annual Business Forum, Professor Michael 
Porter, Director of the Harvard Business School's 
Institute for Strategy and Competitiveness, suggested 
that it would be a mistake for Mexico to increase taxes 
during an economic crises, and urged the Mexican 
government to instead restructure its tax collection 
system, and expand its base.  Porter suggested there is 
insufficient competition in Mexico, and that current 
political realities were stifling innovation:  he 
suggested the solution lie not simply in government 
reform, but in the business community becoming more 
involved in the political process and pushing that 
reform.  Porter emphasized the value of forming clusters 
to create synergy and promote innovation, but warned that 
clusters established at government initiative rarely 
function, and that only those driven by industry have a 
track record of success.  (Monterrey) 
 
¶10.  (U) TOURISM FROM US AND CANADA REBOUND IN YUCATAN 
BUT EUROPEANS STAYING AWAY:  Juan Jose Martin 
Pacheco(PRI), Yucatan's Secretary of Tourism, told Merida 
Principal Officer that tourism from the US and Canada has 
rebounded but European tourism is still lagging.  He 
cited a number of upcoming events and conferences in 
Merida in October, as well as a concert by Sarah 
Brightman at Chichen Itza on October 31, which he hoped 
would attract "cultural tourists."  Although Yucatan has 
the third-highest number of H1N1 cases among Mexico's 
states, Martin Pacheco noted that the state has not seen 
 
MEXICO 00002996  004 OF 006 
 
 
a new outbreak this fall.  He touted plans to expand 
services at Chichen Itza Airport, and sees an opportunity 
to take business away from the Cancun airport, where wait 
times at customs and immigration have recently increased. 
He also pointed to new flights from Merida to Chiapas and 
Oaxaca as another inducement to tourists interested in 
culture, and that the increased frequency of flights to 
Mexico City starting at the end of October will increase 
domestic tourism as well as providing another easy 
connection for tourists with other destinations in 
Mexico.  Finally, he is in contact with JetBlue and 
Spirit Air, and hopes to take advantage of their policy 
to allow passengers to buy "open jaw" tickets by 
establishing two or three flights weekly from Merida.  He 
hopes that this will help draw tourists going to Cancun 
and the Maya Riviera westward.  (MERIDA) 
 
-------------------- 
TRADE AND INVESTMENT 
--------------------- 
 
¶11.  (U) INTEL DISCUSSING PLAN TO DOUBLE PRESENCE IN 
GUADALAJARA:  The Director of the Design Center of 
technology firm Intel announced that the company is 
looking to double its operations in Guadalajara.  The 
project to create a second design center was originally 
conceived prior to the economic crisis, but suspended 
until this month.  The company will recompile its data to 
reflect the current situation over the next few months 
and make a final decision in early 2010.  The potential 
cost of the project has not been announced, but in the 
past year Intel invested about USD$7 million in new 
laboratories.  Intel currently employs just under 400 
workers, of which about 90% are electronic and computer 
engineers.  (Guadalajara) 
 
¶12.  (U) ENORMOUS METAL AND MINERAL DEPOSITS DISCOVERED 
IN ZACATECAS, SAN LUIS POTOSI:  Mining firm Pietro Sutti 
S.A. announced on October 9 the discovery of what may be 
the world's largest deposit of lithium in a region that 
straddles the border between the states of Zacatecas and 
San Luis Potosi.  According to Pietro Sutti's owner, 
Martin Sutti Courtade, the deposit might not only prove 
the largest, but the densest, yielding 700-900 grams of 
lithium per ton of excavation, where most deposits 
average 200 grams of lithium per ton.  The metal has 
increased in value by a factor of approximately four over 
the last five years, as it has become the metal of choice 
in fabricating large scale industrial batteries.  Sutti 
noted that initial tests indicated that the deposits were 
also rich in potassium, a mineral that Mexico currently 
imports to produce fertilizer.  His firm contemplates an 
investment of $1.8 billion to build three plants 
dedicated to processing the rich deposits.  Jos de Jesus 
Parga, a geologist at the Autonomous University of 
Zacatecas, predicted that the discovery would be of great 
economic significance to Mexico, contributing to the 
nation's food security, transforming it into a leading 
exporter of lithium, and generating significant 
employment in a part of Mexico economically-marginalized. 
(Monterrey) 
 
¶13.  (U) USD $55 MILLION WHIRLPOOL INVESTMENT IN NUEVO 
LEON:  Luis Fernando Reyes Pacheco, President of 
Whirlpool, Mexico, announced on October 7 the company's 
decision to invest USD$55 million in its Apodaca, Nuevo 
Leon, facility, where it produces its Supermatic line of 
refrigerators.  A production line in Evansville, Indiana 
will be shut down and transferred to Nuevo Leon. 
According to Reyes, the Apodaca plant will gain 
approximately 1,100 jobs and production will increase 
from 1.5 to 2.5 million units, the majority destined for 
export.  According to Michael Todman, president of 
Whirlpool North America, the decision to relocate the 
production line to Nuevo Leon was motivated by the 
facility's advantages in capacity and competitiveness. 
Reyes Pacheco notes that domestic sales of Whirlpool 
products in Mexico have fallen 12%-15% since the economic 
crisis began, but that the company expects to see a 
rebound in sales by the third quarter of 2010. 
(Monterrey) 
 
 
MEXICO 00002996  005 OF 006 
 
 
¶14.  (U) OPERATION TO BE LAUNCHED AGAINST PIRATED 
SOFTWARE IN NUEVO LEON:  The Business Software Alliance 
of Mexico (BSA) announced on October 12 an operation in 
conjunction with the Mexican Institute of Industrial 
Property (IMPI) to inspect software installations in 
Nuevo Leon businesses.  This would be the third such 
inspection conducted this year.  Prior inspections have, 
according to IMPI, resulted in proceedings against 35 
businesses using software for which they could not 
provide licensing.  From January to September of this 
year, BSA initiated 1,019 proceedings against copyright 
violators in Mexico:  penalties range from administrative 
sanctions to fines and damages equivalent to a 40% 
premium over the original cost of the software pirated. 
According to an October 6 government report, state and 
federal authorities destroyed over 3 million pirated 
items in Monterrey, including compact disks, video games, 
DVD movies, tennis shoes, dish antennas, various kinds of 
clothing, and equipment used to copy genuine articles, 
such as disk burners and screen painters.  (Monterrey) 
 
¶15.  (U) NUEVO LEON EXPORTS REBOUND:  According to 
statistics released by the state government of Nuevo Leon 
last week, July's exports among the state's top seven 
manufacturing sectors, including automotive, electronics, 
and appliances, rose 19.4% over the monthly average six 
months ago.  While this incipient recovery still leaves 
exports trailing 19% behind those of July 2008, according 
to the Nuevo Leon government, the trend signals a 
definite recovery.  The lion's share of that recovery 
belongs to the automotive sector, which has increased its 
exports by 43% in from Jan to July 2009.  That growth is 
largely credited to the now ended U.S. "cash for 
clunkers" stimulus and this recovery is still very 
uncertain.  (Monterrey) 
 
--------------------------------- 
TRANSPORTATION AND INFRASTRUCTURE 
--------------------------------- 
 
¶16.  (U) NUEVO LEON'S HIGHWAY INFRASTRUCTURE EXPANDS: 
Without fanfare, the new four-lane highway linking 
Monterrey and Saltillo was opened to the public October 
¶1.  The project, initiated in March of 2007, is one year 
behind schedule; planned lateral roads connecting the 
route to Santa Catarina have not yet been completed. 
Isolux Corsan, the Spanish contractor awarded the 
concession to build the thoroughfare, will charge users 
approximately $3.00 during the first two months of 
operation and $3.60 thereafter to use the 50 KM highway. 
The highway, constructed with hydraulic concrete, is 
considered faster and safer than the existing link 
between the capitals of Nuevo Leon and Coahuila, but 
still offers a few risks to motorists in locations where 
dividers and retention barriers to guard against 
landslides have not yet been installed.  (Monterrey) 
 
¶17.  (U) AEROMAR RETURNS TO MONTERREY:  A year and a half 
after ceasing operations in Monterrey, regional airline 
Aeromar announced on October 5 its intention to return to 
the city with twice daily connections to San Luis Potosi. 
The company also announced plans to form an alliance with 
Mexicana to create other more direct routes that would 
avoid the need to pass through Mexico City.  Aeromar 
hopes to establish five routes out of Monterrey by 2010. 
(Monterrey) 
 
---------------------- 
ENERGY AND ENVIRONMENT 
---------------------- 
 
¶18.  (U) NATIONAL HYDROCARBONS COMMISSION RECOMMENDS 
PEMEX RETHINK CHICONTEPEC STRATEGY:  Mexico's newly 
created oil and gas sector regulator, the National 
Hydrocarbons Commission (NHC) wants energy monopoly Pemex 
to suspend new contracts at its Chicontepec oil field 
until the state-owned company completes a study on how to 
improve results.  The NHC is in the process of submitting 
its recommendations to Pemex but the decision will 
ultimately be up to the company.  Pemex has spent more 
than $3.4 billion so far on Chicontepec, amidst promises 
that the field's large reserves would halt declining 
 
MEXICO 00002996  006 OF 006 
 
 
Mexico's oil output.  Production at the Chicontepec field 
has lagged far behind its targets.  The NHC is 
recommending that Pemex halt new contracts and revise 
existing ones until it can further study the geology of 
the area.  Pemex will study the recommendations made by 
the NHC, Pemex officials insist that drilling in 
Chicontepc will continue in the most profitable areas. 
Pemex officials note that oil projects are long term and 
cannot be turned off from one day to the next. 
Investment in Chicontepec in the 2010 budget was cut from 
26 billion pesos to 20 billion pesos.  (Mexico City) 
 
¶19.  (U) CALDERON ANNOUNCES MEXICO TO ENTER IRENA AT 
GLOBAL RENEWABLE ENERGY FORUM:  President Calderon used 
his opening remarks at the Global Renewable Energy Forum 
(GREF) in Guanajuato to announce that Mexico will become 
a member of the International Renewable Energy Agency. 
He added that the GOM new investments in the electricity 
sector would focus more heavily on renewable, but 
provided no details.  Over a thousand participants from 
forty countries attended the GREF October 7-9 in Leon 
Guanajuato.  The organization was co-hosted by the 
Government of Mexico and UNIDO and well attended by 
senior Mexican officials (four cabinet secretaries), 
foreign government and private sector representatives. 
Participants agreed that to promote renewable energy 
technologies, governments needed to establish a price for 
carbon; create stable and long term programs to support 
renewables; support commercialization of technologies and 
follow the market.  Participants also agreed that 
renewable could be used to support rural electrification, 
but noted that electrification would not lead to 
development unless electricity is used for productive 
activities.  (Mexico City) 
 
------------------------------------------- 
ENVIRONMENT, SCIENCE, TECHNOLOGY AND HEALTH 
------------------------------------------- 
 
¶20.  (U) OCTOBER 5 NORTH AMERICAN INFLUENZA MEETING IN 
MEXICO CITY:  The GOM hosted a North American trilateral 
meeting to address H1N1 response capabilities on October 
5 at the Secretariat of Foreign Relations in Mexico City. 
The trilateral focused on improving North American 
preparation and cooperation strategies during the 2009- 
2010 H1N1 influenza season.  Participants pledged to keep 
each other informed about vaccination programs and to 
exchange scientific and medical influenza experts to 
deepen channels of communication between public health 
agencies.  The Mexican side subsequently put forth a set 
of action items that, if they are agreed, are 
comprehensive enough to form the basis of a new 
trilateral agreement on pandemic influenza.  (Mexico 
City) 
 
¶21.  (U) H1N1 CLAIMS 14TH VICTIM IN NUEVO LEON:  With the 
death of a 59 year old woman on October 12, Nuevo Leon 
confirmed the 15th fatality caused by the H1N1 virus 
since the season began.  The state has confirmed 2,081 
cases of infection as of October 13.  On October 7, Nuevo 
Leon Governor Rodrigo Medina announced that his 
administration would invest $1.7 million USD in programs 
designed to combat the virus.  Those funds will purchase 
vaccinations, 10K doses of Tamiflu and 10K doses of 
Relenza, 40 respirators, 500 oximeters - used to measure 
pulse - and other needed equipment.  Health Secretary 
Villarreal is confident that the state is ready to deal 
with this latest wave of infections, which he credits to 
students having returned to school in recent months.  He 
warns that this wave could bring from 75-300 mortalities. 
(Monterrey) 
 
PASCUAL