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Cablegate: Ambassador Discusses Economy with Mexican-Based U.S.

VZCZCXRO1723
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0206/01 0252132
ZNR UUUUU ZZH
P 252132Z JAN 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 0240
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 000206

SIPDIS

SIPDIS

SENSITIVE

STATE FOR WHA/MEX, WHA/ESPC, EB/IFD/OIA
STATE FOR EB/ESC MCMANUS IZZO
STATE PLEASE PASS TO USTR (EINSSENSTATE/MELLE)
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
USDOC FOR ITS/TD/ENERGY DIVISION
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD

E.O. 12958: N/A
TAGS: ECON ENRG ETRD PGOV MX
SUBJECT: AMBASSADOR DISCUSSES ECONOMY WITH MEXICAN-BASED U.S.
EXECUTIVES

REF: MEXICO 146

1. (U) Summary. The Ambassador met with a group of Mexico based
executives for U.S. companies to discuss the economic situation in
Mexico. The leaders were pleased with the Calderon Administration's
performance. They believed energy reform would be less extensive
than needed to stem Mexico's declining production. They strongly
supported NAFTA and were not concerned that Mexican street protests
would lead to its renegotiation. They suggested that the USG help
citizens understand how Mexican immigration benefits the U.S.
economically. End Summary.

2.(U) On January 23, 2008, the Ambassador met with executives from
various Mexican based U.S. companies to get their perceptions of the
Mexican economy and key issues that affect the overall business
climate. Attendees included representatives from Chevron Energia de
Mexico, American Express Company Mexico, Lexmark International
Mexicana, Halliburton Energy Services Group, Oracle de Mexico,
Colgate Palmolive, Sun Microsystems de Mexico, MetLife, and
Kimberly-Clark de Mexico.

3.(U) The executives began with a discussion of the possible affect
to the Mexican economy of the current U.S. economic slowdown and
whether Mexico would be able to weather a U.S. recession. They
agreed that the Government of Mexico (GOM) has taken the steps to
shore up their macroeconomic position and that the country has
enough economic stability to survive a U.S. recession. The
executive from Kimberly-Clark made the point, however, that despite
Mexico's economic strengths, the country will still suffer since it
is so highly dependent on the U.S.

4.(U) The executives noted that, during this sensitive political
time, the Calderon Administration is "funding its way through a
mid-term election" with strong levels of government spending. The
representative from Sun Microsystems noted that the government has
made many large purchases in the Information Technology (I.T.)
sector, particularly to develop software to improve social services
(e.g. medical data software). The conversation then moved to the
global I.T. competition and India. Specifically, the executives
discussed how Indian companies are hiring workers in Mexico. (Indian
company Tata Consulting Services has set up a deliver center in
Guadalajara Mexico and plans to hire 5,000 in staff over the next
five years). The Indian executives have said that Indian labor
costs have risen to the point that Mexico is a viable alternative
for servicing the North American market.

5.(U) The executives were pleased with the Calderon administration
and agreed that Andres Manual Lopez Obrador (AMLO) plays an
important part in Calderon's approval because in his politically
weakened state he is a constant reminder of what could happen in the
absence of a more market friendly president.

6.(U) The executives suggested that the next big reform would be in
energy although justice reform was needed as well. The
representative from Halliburton noted that Mexico is the only
country in the world that does not allow private investment in the
oil sector and even Venezuela, "with all of Hugo Chavez's rhetoric"
still allows some private participation. He said that Pemex, the
oil parastatal, will have a difficult time maintaining a three
million barrel per day output since it does not have the
capabilities for needed deep water exploration and production
(upstream). Mexican oil production declined 10% over the last year
and subsequent declines will eventually have an effect on the
national budget which is heavily oil dependent.

7.(U) The GOM has signed agreements whereby technology and personnel
are shared between Pemex and private companies, but constitutional
changes would be necessary to allow upstream investment. The
representative from Kimberly-Clark said that there would be reforms
passed, possibly in the March-April 2008 timeframe, but it would not
be enough. The reform could allow limited partnerships for upstream
under severe constitutional restrictions, but only with other state
owned oil companies. Any constitutional changes were very unlikely
as key lawmakers have publicly denounced opening the sector to
private investment.

8.(U) The executive from Chevron noted that, despite the important
of energy reform and the private sector's desire to invest in the
Mexican oil industry, she was not allowed to lobby the Mexican
congress for changes to the constitution. The Halliburton

MEXICO 00000206 002 OF 002


representative concluded, however, that they were happy with the
amount of business they did in Mexico and were still able to win
many contracts for oilfield services.

9.(U) The Ambassador then steered the discussion to trade and
agriculture. He asked if the executives had an opinion of the
current agricultural debate (reftel), specifically what the
executives thought of the job Mexican Agricultural Secretary Alberto
Cardenas Jimenez was doing. The executives believed that Cardenas
was not doing a good job, adding that it was hard to tell whether it
was because he was trying to shut down the discussion on NAFTA or if
he was simply a bad politician. They agreed that the real test
would be on January 31st when a series of large anti-NAFTA protests
are scheduled, though they didn't believe that there would be enough
force behind the protests to cause a redressing of the Agreement.
They further agreed that any redressing of NAFTA would be a bad idea
and would be almost impossible to pass either the U.S. or the
Mexican congress with current political sensitivities.

10.(U)The Ambassador noted that free trade agreements are not always
looked upon as beneficial by the American public and NAFTA in
particular is linked to immigration in the public perception. The
executives wondered whether the American public understood the
importance of immigration to the general economic health of the
United States. They said that the U.S. is capital heavy, Mexico
abundant in labor, and the free flow of those factors benefit both
countries. The executives agreed that the American public does not
fully grasp the U.S. and Mexican population pyramids and the
positive effects of the labor flow. They also discussed the
possibility of discussing immigration reform in conjunction with the
social security debate in that the overwhelmingly young Mexican
immigrants could be used to fund benefits for the ageing native-born
population.

11.(U) The executives noted that the flow of U.S. citizen retirees
to Mexico is important as well. They said that these retirees are
very important economically to Mexico and the GOM needs to encourage
them. The executive from Oracle suggested U.S. laws be changed to
allow Medicare to be used in Mexico. The group said that Mexico
should change their laws to allow for easier permanent residency,
thereby leading to an increase in the number of permanent U.S.
retiree expatriates.

12.(U) Comment: While the executives are, for the most part,
resident in Mexico, they still maintain a strong understanding of
the current U.S. situation. They understand that 2008 will be a
very difficult year on both the political and economic fronts, and
did not appear to expect major changes from either government.
Despite a few complaints about problems they have faced in running
their businesses, they seem confident in Mexico's economic stability
and pleased with the overall business climate.

GARZA

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