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Cablegate: Mexico Economic Notes, May 11 - May 18

VZCZCXRO0297
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2545/01 1382154
ZNR UUUUU ZZH
P 182154Z MAY 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 7041
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFIUU/CDR USSOUTHCOM MIAMI FL PRIORITY
RHMFIUU/CDR USNORTHCOM PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 002545

SIPDIS

SIPDIS

STATE FOR A/S SHANNON
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (ALICE FAIBISHENKO)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)
NSC FOR DAN FISK

E.O. 12958: N/A
TAGS: ECON ECPS EFIN ELAB MX PGOV PREL
SUBJECT: MEXICO ECONOMIC NOTES, MAY 11 - MAY 18


Summary
-------

1. (U) Mexico's economy grew at an annualized rate of 2.6
percent in the first quarter of 2007, the lowest in a year.
In a speech accompanied by controversial teachers' union
president Gordillo, President Calderon outlined coming
educational reforms. The Mexican Supreme Court began
considering a constitutional challenger to the April 2006
"Televisa Law." A ruling could overturn the government's
decision to allow broadcasters to hold on to their existing
spectrum for new services without charge. Economy Secretary
Sojo criticized the U.S. House of Representatives passage of
a bill halting the pilot project allowing Mexican trucks to
operate in the U.S. The Guatemalan Ambassador to Mexico
criticized President Calderon's decision to significantly
reduce the volume crude Mexico would supply to the proposed
Central American refinery. End summary.

Mexican Economy Slows
---------------------

2. (U) In the first quarter of 2007, the Mexican economy
grew at its slowest rate in more than a year, largely because
of a drop off in automobile output and construction. Real
GDP grew 2.6% from a year earlier, slightly below the average
market expectation of 2.7% but down sharply from the 4.3%
growth registered in the fourth quarter of 2006. Slower
growth in the U.S. is weakening demand for Mexican goods in
the U.S., the destination of 85% of Mexico's exports. The
automobile sector in particular has suffered, with vehicle
production down 12.4% in the first quarter compared with the
first quarter of 2006. Auto output in April rebounded 11%
over the same month in 2006, but it is too early to project a
recovery. Industrial production rose only 0.2% in March,
after growing only 0.1 in February and 1.5% in January.
Construction, which surged during last year's election season
and from Hurricane Wilma cleanup, fell 0.7% in February and
rose only 1% in March.

Calderon Outlines Education Reform
----------------------------------

3. (U) President Calderon publicly proposed education
reforms in five areas (1) improving teaching quality, by
promoting freedom, civic responsibility, and competitiveness
in the classroom (2) evaluating teachers in cooperation with
the union (3) improving buildings and infrastructure (4)
increased use of technology, and (5) linking education more
closely t the demands of the labor market. The President
announced the initiative accompanied by Education Secretary
Josefina Vazquez Mota and controversial teachers' union
leader Elba Ester Gordillo.

Supreme Court Considers "Televisa Law"
--------------------------------------

4. (U) This week the Mexican Supreme Court began considering
a draft ruling on the constitutional challenge filed last
year to the April 2006 "Televisa Law." If approved, the
ruling would overturn many key elements of the Law including
the right to allow broadcasters to hold on to their existing
spectrum for free and to simply inform the government of
their intent to offer new services. While overall the draft
ruling appears to encourage competition in the sector, it
could also overturn the Article that established that public
auctions be conducted to grant frequencies. The judge who
wrote the draft ruling stated that this Article violates the
Constitution because it privileges economic interests before
the social use of the spectrum. Opponents of the 2006 law
have picked up support across the political spectrum over the
past two weeks. (See Mexico 2507)


MEXICO 00002545 002 OF 002


Economy Secretary Criticizes U.S. Congress on Trucking
--------------------------------------------- ---------

5. (U) Economy Secretary Eduardo Sojo, speaking in Paris,
said the Mexican Government would 'sensitize' the U.S. Senate
so they would not pass the trucking bill approved by the
House last week. Sojo said the bill "would restrict the
entrance of Mexican trucks to the U.S. in violation of
NAFTA." He added that Mexico "did not want to lose is
greatest competitive advantage, access to the largest market
in the world." He called opening the border to Mexican
trucks a U.S. NAFTA obligation, and the result of an
agreement between the U.S and Mexican governments.

Guatemalan Ambassador on Mesoamerican Refinery
--------------------------------------------- -

6. (U) The Guatemalan Ambassador to Mexico, Manuel Soto,
criticized President Calderon's decision to reduce the crude
Mexico would supply to the proposed Central American refinery
from 230 to 80 thousand barrels per day. The refinery, a
cornerstone of the Mesoamerican Energy Integration Plan
(PIEM), would have benefited from a steady supply of Mexican
heavy crude. Without that steady supply, the project's
economics become unsustainable according to Embassy sources.
Soto's criticisms are the first since Calderon announced the
reduction in a Calderon Plan Puebla Panama speech April 10.
Soto said the decision would allow other suppliers, such as
Venezuela, to satisfy Central American energy demand.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

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