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Cablegate: Mexico's 2008 Budget Process

VZCZCXRO9718
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4552/01 2362201
ZNR UUUUU ZZH
P 242201Z AUG 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8581
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEHNSC/NSC WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 004552

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: MEXICO'S 2008 BUDGET PROCESS

REF: MEXICO 4015

-------
Summary
-------

1. (SBU) The Calderon administration is required to submit
its 2008 budget proposal to Congress by September 8. The
Chamber of Deputies has until October 20 to approve the
budget,s revenue section and send it to the Senate, which
has until October 31 to ratify it. The Chamber must pass the
expenditures section by November 15. By law, the oil price
used in budget calculations is determined by a pre-set
formula, and the budget must be balanced. The government
still hopes that fiscal reform will be approved in time to
incorporate it into the 2008 budget. Since the approval of
fiscal reform will likely run up against the
administration,s September 8 deadline, it is preparing
different budget proposals based on the passage, or not, of
fiscal reform. Post still believes that fiscal reform will
be approved in time to be incorporated into the 2008 budget.
End Summary.

-------------------------------
The Budget Process and Timeline
-------------------------------

2. (U) Mexico's budget package is divided into two main
parts: a "Revenue Law" and an "Expenditure Law." The Revenue
Law, which sets the overall spending cap, must be approved by
both houses of Congress. The Expenditure Law, however, is
only reviewed and approved by the Chamber of Deputies.

3. (U) The timeline for the 2008 budget is as follows.
President Calderon must submit a federal budget proposal to
the Chamber of Deputies by September 8, 2007. The Chamber
has until October 20 to approve the budget's revenue section
and send it to the Senate, which has until October 31 to
ratify it. The Chamber must pass the Expenditures Law by
November 15. Once Congress approves the budget package, the
legislative process is over. The President has 20 days to
publish the budget in the Official Gazette after
congressional approval. The Executive does not have veto
power over the budget, but it is responsible for executing
the budget through the Finance Secretariat (Hacienda).

4. (U) Under the Budget and Fiscal Responsibility Law, the
price of oil used in budget calculations is set according to
a formula that is based on the average price of Mexican crude
oil for the last ten years and the forecasted market price
for the next four years. The law also specifies that the
budget must be balanced. (Note: the GOM does not use the
Public Sector Borrowing Requirement statistic for calculating
the budget balance, but rather a definition that excludes
significant public borrowing. End Note.) If Congress
approves more expenditures than are in the President's budget
proposal, it must identify a revenue source to offset the
extra spending. A deficit is only allowed in extraordinary
situations, such as natural disasters, and will only be
approved if there is a proposal that specifies revenue
sources to cover the extra spending and a timetable for
returning to a balanced budget.

----------------------------------------
Fiscal Reform Up Against Budget Deadline
----------------------------------------

5. (SBU) A complicating factor for the 2008 budget process is
fiscal reform. The Calderon government in June proposed a
tax reform package that would increase the country's meager
tax intake from approximately 10% of GDP to 13% by 2012, but
the proposal has not yet been approved by Congress. The
government had initially hoped to have the initiative

MEXICO 00004552 002 OF 002


approved during a special session of Congress this month so
it could incorporate fiscal reform into the budget proposal
due September 8. However, in an August 21 meeting with
visiting U.S. Congressman Roy Blunt (R-Missouri),
Undersecretary of Finance Alejandro Werner (strictly protect)
said that negotiations on fiscal reform would continue into
September. Werner remained hopeful that the reform would be
approved by September 8. He said that the government is
working two budget proposals: one that assumes fiscal reform
is passed and another that assumes the initiative fails.
This tracks with what another Hacienda official told Econoff
on July 30 (reftel). Post has heard separately that Hacienda
is also preparing for a situation where fiscal reform is
approved, but the reform does not increase tax collection by
as much as the government's proposal.

-------
Comment
-------

6. (SBU) The Calderon administration has been vocal in its
calls for the passage of fiscal reform, noting that
additional tax revenues are needed for it to implement its
planned infrastructure and social projects. In particular,
the government has said that without fiscal reform, the
private sector would have to fund a greater percentage of the
infrastructure projects presented in Calderon's National
Infrastructure Program, or risk returning to the status quo
of limited investment in this area. Post still believes that
fiscal reform will be approved in time to be incorporated
into the 2008 budget (i.e. before the October 20 deadline for
the Revenue Law).


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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