VZCZCXRO1818
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3094/01 3002310
ZNR UUUUU ZZH
R 272310Z OCT 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8790
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 05 MEXICO 003094 
 
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 23 
 
¶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: 
-------------------- 
 
SENATE TO CONSIDER 2010 REVENUE BILL - MEXICO CITY 
 
NUEVO LEON'S ECONOMY IS LOOKING UP AS EXPORTS INCREASE 
AND JOBS MOVE SOUTH - Monterrey 
 
TOURISM FOREIGN CURRENCY INFLOWS DROP - Mexico City 
 
STEEL INDUSTRY HIT HARD BY THE ECONOMIC CRISIS, CRIME, 
AND INTERNATIONAL COMPETITION - Monterrey 
 
LABOR: 
------ 
 
SINDICATO MEXICANO DE ELECTRICISTAS (SME):  THE CONFLICT 
LOSES ENERGY AS IT GRINDS ON - Mexico City 
 
FORUM ON UNION AUTONOMY AND LABOR RIGHTS - Mexico City 
 
 
TRADE AND INVESTMENT: 
--------------------- 
 
CUSTOMS SEEKS TO STREAMLINE TRADE - Mexico City 
 
GRUPO ALFA REPORTS STRONG THIRD QUARTER - Monterrey 
 
BEST BUY'S EXPANSION INTO MEXICO OFF TO STRONG START - 
Guadalajara 
 
 
 
TRANSPORTATION AND INFRASTRUCTURE: 
---------------------------------- 
 
QUARTERLY BAJA CALIFORNIA PORTS OF ENTRY BORDER LIAISON 
MECHANISM (BLM) - Tijuana 
 
 
ENERGY AND ENVIRONMENT: 
----------------------- 
 
MEMBERS OF CONGRESS CHALLENGE CONSTITUTIONALITY OF ENERGY 
REFORM REGULATIONS - Mexico City 
 
CFE TO TAKE OVER ELECTRICITY SERVICE IN MEXICO CITY - 
Mexico City 
 
SONORA SEEKS WATER TO MAINTAIN GROWTH - Hermosillo 
 
------------------- 
ECONOMY AND FINANCE 
------------------- 
¶3. (SBU) As rating companies consider downgrading Mexican 
debt, the Senate now takes up the 2010 Revenue Bill that 
the Mexican Chamber of Deputies amended and approved 
October 20.  While the Senate usually acts in a more 
conservative manner, Senators are divided over whether to 
accept the Chamber's increase in VAT taxes.  The Chamber 
made considerable changes to the Calderon 
Administration's original proposal, modifying tax rates 
and tax laws designed to strengthen public finances and 
avert a credit rating downgrade.  The Chamber scrapped 
the GOM's proposed 2% anti-poverty sales tax, but 
increased the VAT by 1% (to 16% and 11% at the border), 
keeping a zero rate for food and medicine. The Chamber 
also approved raising income taxes to 30%, up from 28%. 
The forecast for the average export price of Mexican oil 
was also increased to US$59/barrel (from US$53.9) and the 
 
MEXICO 00003094  002 OF 005 
 
 
on-balance sheet fiscal deficit was raised to 0.75% of 
GDP (from 0.5%).  The Revenue Bill must be approved by 
the Senate by October 31.  Although the arithmetic of the 
Chamber's modified package adds up to cover the fiscal 
gap anticipated for 2010, it raises the reliance on a 
higher fiscal deficit and public debt issuance.  The 
modified revenue budget will be significantly weaker and 
more ad-hoc than the GOM's original proposal.  It is 
doubtful that the measures are strong enough to avoid a 
ratings downgrade as this version stops short of 
providing a long-term solution to falling public revenue 
and will not help generate alternative income sources to 
replace the government's dependence on oil. (Mexico City) 
 
¶4.  (U) NUEVO LEON'S ECONOMY IS LOOKING UP AS EXPORTS 
INCREASE AND JOBS MOVE SOUTH:  Unlike previous economic 
recoveries, where job creation in Mexico followed the 
United States, Mexico, and Nuevo Leon in particular, 
appear to be ahead of the US in creating new jobs in the 
wake of the economic crisis.  According to recent 
statistics published by the state government, over 19,000 
jobs were created in Nuevo Leon between June and 
September, many of them at the expense of American jobs. 
Manufacturers Whirlpool, Carrier, Ficosa and Navistar 
have all recently relocated production lines from the 
United States to Nuevo Leon, creating almost 2,000 new 
jobs here, but closing production facilities or 
eliminating jobs in Indiana, Texas, and Tennessee.  Local 
job recovery has dovetailed with an increase in exports 
as the electronic, automotive, mineral, and electrical 
appliance sectors all saw double digit increases in 
exports from Nuevo Leon over the previous six-month 
period.  (Monterrey) 
 
¶5.  (U) TOURISM FOREIGN CURRENCY INFLOWS DROP:  As a 
result of the H1N1 flu and the economic crisis, Mexico 
registered an accumulative loss of USD 1.76 billion in 
tourism inflows (from January through August).  The 
government and the private sector expect total losses for 
2009could reach USD 2 billion.  The Bank of Mexico 
reported October 14 that from January through August, 
tourism inflows dropped 18.01% from USD 9.47 billion 
during the same period of 2008 to USD 7.76 billion. 
Average spending per person fell 10.83% from USD 153 to 
USD 136.44.  Miguel Torruco, president of the National 
Tourist Confederation said Mexico will fall from 18 to 
22in the global rankin of countries with the largest 
tourism inflows.  (Mexico City) 
 
 
¶6.  (U) STEEL INDUSTRY HIT HARD BY THE ECONOMIC CRISIS, 
CRIME, AND INTERNATIONAL COMPETITION:  The Mexican steel 
industry has been deeply affected by the economic crisis, 
with production only at 30% of capacity through this year 
according to Jaime Martinez Gallegos, President of the 
Association of Mexican Foundries' Western Region.  . 
Spokesman for Altos Hornos de Mexico, headquartered in 
Monclova, Coahuila, have told Consulate officers that 
after a disastrous 4th quarter 2008 and 1st semester 
2009, sales of hot and cold roll products have picked up. 
The States of Nuevo Leon and Coahuila, where 70% of 
Mexico's foundries are located, have been particularly 
affected because of the downturn in the automotive 
industry and the increase in theft of scrap iron intended 
for production.  The Mexican steel industry consumes 
about 900,000 tons of scrap iron per year, which is 
recycled by foundries for various uses, including the 
automotive industry, agriculture and domestic use.  In 
addition to theft of scrap iron en route by rail from the 
United States, Gallegos said that his industry has been 
hurt by competition from China and India, the fastest- 
growing markets for scrap iron.  (Monterrey) 
 
----- 
LABOR 
----- 
 
¶7.  (SBU) SINDICATO MEXICANO DE ELECTRICISTAS (SME):  THE 
CONFLICT LOSES ENERGY AS IT GRINDS ON:  The 150,000- 
person march on October 15 was the last show of force the 
SME will be able to make despite its calls for a national 
strike, according to Embassy contacts.  Question about 
 
MEXICO 00003094  003 OF 005 
 
 
the legality of the decree ending the power company Luz y 
Fuerza del Centro (LFC) have been sent to committee by 
the House of Deputies for discussion.  One Laboff contact 
believes this will release political pressure and provide 
the majority parties in the Congress a means to end the 
issue quietly.  The government seems well prepared for 
the risk it took in ending one of the strongest and 
oldest unions in the country:  severance packages are 
being paid, service is still delivered, and the protests 
are dying down.  On its side, SME leadership is keeping 
up the rhetoric of the oppressed workers and drawing some 
attention from radical groups.  There is, however, a 
legitimate concern about union autonomy in part of this 
process, and other powerful unions are watching 
developments carefully.  The manner in which this issue 
is resolved will set a precedent for future union- 
government relations, and it is in the government's 
interest to see it finished well.  (Mexico City) 
 
¶8.  (U) UNION AUTONOMY AND LABOR RIGHTS:   Participants 
at an AFL-CIO Solidarity Center and the Friedrich Ebert 
Foundation conference on employer protection contracts 
October 15 called for union solidarity to support new 
organizing efforts, the miners' union (on strike now for 
three years), and the electricians' union recently 
dissolved by the federal government.  The conference 
presented a series of radical speakers interspersed with 
case studies of young people who had become active in 
organizing in their workplaces as a result of abuses, 
real and perceived.  The primary themes of the conference 
were threats to union autonomy, the need for union 
solidarity against the federal government and private 
enterprise, and the sorry state of the employment 
situation in Mexico.  (Mexico City) 
 
 
-------------------- 
TRADE AND INVESTMENT 
--------------------- 
 
¶9.  (U) STREAMLINING TRADE PROCEDURES: Through financing 
from the World Bank for USD 10 million, Mexican Customs 
is working to revamp its procedures and simplify trade 
procedures.  The simplification process is expected to 
conclude in 2011.  Through this process, importers and 
exporters will be able to conduct their operations 
through one government office.  Customs is currently 
drafting the bids for the companies that will develop the 
software and conduct the re-engineering process.  The 
burdensome customs procedures increase trade costs, which 
makes Mexican exporters less competitive than China. 
According to the media, Mexican exporters are realizing 
cheap labor costs are not enough to compete against China 
and wish to take advantage of the fact that China is 
losing its comparative advantage with the appreciation of 
the yuan. (Mexico City) 
 
¶10.  (U) GRUPO ALFA REPORTS STRONG THIRD QUARTER: 
Monterrey-based conglomerate Grupo ALFA reported third 
quarter earnings (EBITDA) of $290 million dollars, a 14% 
increase over the same period last year and 9% over the 
second quarter of this year.  Quarterly sales increased 
by 9% to $2.2 billion dollars.  Noting that this is the 
second consecutive quarter with earnings at pre-crisis 
levels, President Dionisio Garza Medina said it was 
ALFA's strongest quarter as measured by EBITDA and that 
he is confident ALFA will negotiate its way through the 
economic crisis and be well-positioned for long-term 
growth.  ALFA is the world's leading manufacturer of 
high-tech aluminum engine blocks and is a leading 
petrochemical producer.  Headquartered in Monterrey, it 
is divided into four business groups:  Alpek 
(petrochemicals), Nemak (aluminum auto components), Sigma 
(refrigerated food) and Alestra (telecommunications) and 
has operations in 17 countries.  (Monterrey) 
 
¶11.  (U) BEST BUY'S EXPANSION INTO MEXICO OFF TO STRONG 
START:  The American electronics store Best Buy opened 
its first store in Jalisco just over two weeks ago, but 
its unexpectedly strong sales have already caused the 
company to overhaul its logistics and restocking plans. 
The opening on October 2 is Best Buy's second store in 
 
MEXICO 00003094  004 OF 005 
 
 
the country, following its launch in Mexico City last 
year.  The company sold a month and a half's worth of 
goods in the store's first week, putting sales three 
times higher than expectations.  Best Buy will open its 
second store in the Guadalajara area in early 2010 and 
decided to expand its warehouse at that location to make 
the stores less dependent on stocks in Mexico City.  In 
addition, the company plans to open three more stores in 
the Mexico City area to have five by the end of this 
year.  (Guadalajara) 
 
 
 
 
 
--------------------------------- 
TRANSPORTATION AND INFRASTRUCTURE 
--------------------------------- 
 
¶12.  (U) QUARTERLY BAJA CALIFORNIA PORTS OF ENTRY BORDER 
LIAISON MECHANISM (BLM):  The October 13-14 meetings 
regarding the San Ysidro/El Chaparral Otay Mesa, Otay 
Mesa East, and Mexicali/Calexico projects revealed the 
usual frustrations over mismatched timelines (GOM wants 
US to accelerate timelines, particularly for San Ysidro 
and Otay East) and placement and number of pedestrian 
crossings at San Ysidro /El Chaparral.  On the latter, 
the Mexicans have agreed to the U.S. request for two 
south-bound pedestrian crossings, but the General 
Services Administration (GSA) and its Mexican partner 
agency, INDAABIN, are still working out technical issues 
regarding their placement, and the U.S. denied Mexico's 
request for "reciprocity" and will not create two 
northbound crossings due to CBP staffing issues.  Land 
acquisition and right-of-way issues continue to be 
problems on both sides of the border for San Ysidro and 
both Otay projects.  Calexico and Mexicali officials were 
disappointed to find the timeline for that project pushed 
back another year, and the number of southbound vehicle 
lanes reduced to five, though GSA says studies suggest 
this will not create traffic backups in Calexico.  The 
BLM is beginning to discuss moving forward on a Port of 
Entry renovation project in Tecate, though CBP was not 
available at the meeting, limiting discussion.  (Tijuana) 
 
 
---------------------- 
ENERGY AND ENVIRONMENT 
---------------------- 
 
¶13.  (SBU) MEMBERS OF CONGRESS CHALLENGE 
CONSTITUTIONALITY OF ENERGY REFORM REGULATIONS:  The 
Mexican Chamber of Deputies (with a majority of 
opposition PRI and PRD members) has presented before the 
Supreme Court a constitutional challenge against the 
implementing regulations of the energy reform bill which 
were released by the Calderon Administration in 
September.  PRI and PRD deputies are challenging the 
articles in the regulations which would allow the 
administration to pay service contracts based on 
productivity, capacity and production.  The Secretariat 
of Energy and Pemex have been working to develop the new 
performance based service contracts for exploration and 
production with this regulation being a key to attracting 
interest from international oil companies, and increasing 
Pemex' flexibility and efficiency.  Pemex had hoped to 
issue the first round of bids under the new service 
contracts early in 2010.  Embassy contacts expect the 
appeal could delay that process by six to eight months. 
This is a sobering development for the Calderon 
Administration which had hoped to use the new performance 
based contracts to enhance exploration and development 
activities in the deepwater of the Gulf of Mexico. 
(Mexico City) 
 
¶14.  (U) CFE TO TAKE OVER ELECTRICITY SERVICE IN MEXICO 
CITY:  The Energy Ministry (SENER) said it will leave the 
state-run Federal Electricity Commission (CFE) in charge 
of power distribution in and around Mexico City following 
the recent shutdown of the Luz y Fuerza del Centro 
utility (LFC).  SENER said the decision by President 
Calderon guarantees that electricity service will remain 
 
MEXICO 00003094  005 OF 005 
 
 
in state hands.  Citing annual losses running into USD 
billions and lack of efficiency, Calderon decreed the 
shutdown of LFC, which distributed electricity in Mexico 
City and parts of the central states, but stressed that 
electricity will not be privatized.  The government 
previously had been considering creating another state 
company to replace LFC, which employed 44,504 people. 
(Mexico City) 
 
¶15.  (U) SONORA SEEKS WATER TO MAINTAIN GROWTH:  Governor 
Padres announced on Tuesday, October 20 a historic budget 
proposal of 2.43 billion pesos to invest in exploration 
of new water sources, which is a 291 percent increase 
from the previous year.  According to an August report by 
CONAGUA, current reservoirs are 71 percent of capacity 
due to increased population growth in the cities and less 
than average rainfall over the last decade.  State 
officials are concerned about sustainable development as 
Sonora relies on its heavily irrigated agricultural 
industry as the backbone of its economy.  (Hermosillo) 
 
FEELEY