Cablegate: Mexico Economic Weekly, May 4-11, 2007

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UNCLAS SECTION 01 OF 03 MEXICO 002334

SIPDIS

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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/ARUDMAN
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (ALICE FAIBISHENKO)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND SLADISLAW
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 ELAB EFIN PGOV ETRD PREL MX
SUBJECT: MEXICO ECONOMIC WEEKLY, MAY 4-11, 2007

REFL (A) 06 Mexico 3905; (B) 06 Mexico 1080

1. (SBU) Summary: Inflation fell in April, despite
price increases for some commodities. President
Calderon is exploring how to proceed with fiscal
reform. The United States and Mexico held the inaugural
meeting of the U.S.-Mexico Consultative Committee on
Agriculture, and discussed implementing the final NAFTA
provisions on agricultural products. A planned
teachers? strike failed to gain the support it had
hoped for. A major bond sale by the state of Hidalgo
went off successfully. On May 21, the Supreme Court
will publicly broadcast one of its sessions considering
changes to the controversial April 2006
telecommunications and broadcasting law, dubbed the
?Televisa Law? because it favored Mexico?s powerful
telecom and broadcasting oligopolies. End Summary.

Inflation Falls in April
------------------------

2. (U) Consumer price inflation fell 0.06% in April,
lowering the annual inflation rate to 3.99% from 4.21%
in March. The drop, which was in line with market
expectations, brought inflation below the upper limit
of what the central bank considers acceptable. A Bank
of Mexico (BOM) report said that lower electricity
prices in two northern states as well as lower prices
for onions and tourist services pulled consumer prices
down, despite an increase in the price of tomatoes and
rent. Core inflation fell from 3.83% in March to
3.66%.

Political Maneuvering Over Fiscal Reform
----------------------------------------

3. (U) President Calderon and members of his
administration in recent weeks have been meeting with
Congress to build support for fiscal reform. As the
PAN lacks a majority in Congress, it will need PRI
support to pass the initiative. PRI representatives
have suggested to the press that they would only
support the reform if more funds are released to the
states (the PRI controls 53% of Mexican states). PRI
officials also have said they want the Agriculture,
Development, and Environment Secretariats at the state
level decentralized. The PAN is likely to balk at both
proposals. Meanwhile, PAN Senator Gustavo Madero, the
head of the Senate Finance Committee, called for
levying the VAT on food and medicine -- a move that the
PRI has said publicly it will not support. Movement in
the debate is unlikely to come before State of Yucatan
elections on May 20.

Opening Final NAFTA Chapters on Agriculture
-------------------------------------------

4. (U) The United States and Mexico held the inaugural
meeting of the U.S.-Mexico Consultative Committee on
Agriculture (CCA) May 8, following renewal of the
bilateral forum by the two governments in March 2007.
Mark E. Keenum, Under Secretary for Farm and Foreign
Agricultural Services of the U.S. Department of
Agriculture, and Ambassador Richard T. Crowder, Chief
Agricultural Trade Negotiator of the Office of the U.S.
Trade Representative, led the U.S. delegation. Under
Secretary Beatriz Leycegui of the Ministry of the

SIPDIS
Economy (Economia) and Under Secretary Francisco Lopez
Tostado of the Ministry of Agriculture, Livestock,
Rural Development, Fisheries, and Food Supply (SAGARPA)
led the delegation from Mexico. Key among the issues
discussed was full implementation of the remaining
NAFTA provisions on opening trade in North America?s
corn, bean, milk, and sugar sectors. Among other

MEXICO 00002334 002 OF 003

outcomes, the parties agreed to conduct several
technical assistance projects in Mexico in the corn and
dry bean areas to help prepare Mexican producers for
NAFTA implementation. Officials also discussed pending
U.S. and Mexican farm legislation, biotechnology, and a
number of sanitary and phytosanitary issues.

National Teachers? Strike Fizzles
---------------------------------

4. (SBU) For some time the CNTE, a non-conformist
faction within the National Teachers? Union (SNTE), has
been organizing a national strike to protest the
Mexican government?s late March approval of a pension
(and health care) reform law for federal civil
servants. The strike, which finally took place on May
7, was supposed to shut down schools all over Mexico
and CNTE reportedly told the media that the labor
action could go on indefinitely. PRD politicians in
the lower house of the Mexican Congress predicted that
violence could breakout if the reform law was not
changed. When the strike actually took place it was far
from the national work stoppage the CNTE had advertised
and in fact was only noticeable in 6 states. The
starkly limited results of this ?national? strike is
both a commentary on the mixed feelings Mexicans have
about the pension reform law (ISSSTE) and the poor
state of inter-union relations in Mexico?s organized
labor movement.

State Public Finance Success
----------------------------

5. (U) The upcoming bond sale reported in Mexico 2202
occurred as expected on May 10, and was a major
success. The total amount of the sale was Mexican
pesos 2,450,000,000 (USD $226,851,851). The state
revolving fund for the state of Hidalgo received offers
from over 20 institutions for Mexican pesos 6.8
billion, demand exceeding supply by roughly 2.7 times.
The spread is 14 basis points lower than the previous
record rate for a bond issuance by the state of
Chihuahua. The Hidalgo state treasurer?s office told
USAID that they are thrilled with the result, and very
appreciative of the support they received through the
US Embassy for this effort to provide states and
municipalities with greater sources of financing.
Thanks to USAID technical assistance provided through
Evensen Dodge, the bond issuance was rated at AAA.Mx,
Mexico?s highest rating. Since the bond rating for the
state of Hidalgo is only A.Mx, the state of Hidalgo,
its municipalities and parastatal enterprises can now
obtain financing under more favorable terms through
this new state revolving fund.

Supreme Court Considers Changes to Televisa Law
--------------------------------------------- --

6. (U) Last year, 47 Senators filed a constitutional
challenge to the so-called Televisa Law, changes to the
Federal Radio and Television Law passed by the Mexican
Senate in April 2006 (Refs A and B). The Supreme Court
will finally hear the case behind closed doors on May
14-18. On May 21, the judges will meet with experts
from several universities and organizations. This
session will be broadcast on television. The judges?
considerations will be based on a 500-page draft
decision currently available on the web at
http://200.38.86.53/NR/rdonlyres/86289019-526 E-4A3E-
89F4-15BDC8F0FECF/0/AccionInconstitucional262 006v1.pdf.
This draft proposes elimination of five articles. Among
them is article 28, which favors the current
oligopolies by stating that broadcasting companies that
currently have spectrum (granted by the government to

MEXICO 00002334 003 OF 003

transfer from analogue to digital) can keep it without
being obliged to pay any fee for the privilege.
Another proposed change would eliminate the article
that gives the Senate the power to reject Cofetel
commissioners. That article was a partial
implementation of an OECD recommendation to require a
Congressional confirmation process for COFETEL
commissioners. At the time it was passed, the bill was
seen by some experts as making some progress toward
modernizing telecommunications, such as allowing for
public auctions of frequencies. Others expressed
concern that community stations unable to bid on
frequencies would be pushed off the air. Many experts
criticized the bill for failing to eliminate unfair
practices, and leaving power with the oligopolies that
dominate telecom and broadcasting in Mexico. (See
Septel for additional reporting.)

Garza

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