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Cablegate: Mexican Congress Approves 2008 Budget

VZCZCXRO8834
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #5870/01 3202046
ZNR UUUUU ZZH
P 162046Z NOV 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 9596
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 005870

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, ANNA JEWEL)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD
NSC FOR RICHARD MILES, DAN FISK
EXIM FOR MICHELE WILKINS
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (ANDREA RAFFO)

E.O. 12958: N/A
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: MEXICAN CONGRESS APPROVES 2008 BUDGET

REF: MEXICO 4871

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

1. (U) Mexico's Chamber of Deputies (lower house) on November
12 approved a USD 236 billion spending bill, the largest in
the country's history. The income part of the budget package
was passed by both the Chamber and the Senate last month, but
the spending bill only requires lower house passage. The
budget includes USD 14 billion more than the Calderon
government initially proposed, largely due to extra resources
from the fiscal reform passed in September. Spending on the
government-defined categories of social development, economic
development, public security, and the environment are set to
increase by a real 8.8%, 13.6%, 39.4%, and 30.1%,
respectively. Legislators cut budgets for several autonomous
bodies, including the Federal Electoral Institute. End
Summary.

-----------------------------------
A Brief Synopsis of the 2008 Budget
-----------------------------------

2. (U) Mexico's Chamber of Deputies on November 12 approved
the 2008 spending bill with a vote of 449 to six, with three
abstentions. The income part of the budget package was
passed by both the Chamber and the Senate last month, but the
spending bill only requires lower house passage. President
Calderon still has to sign and publish the budget in the
Official Gazette before it becomes law.

3. (U) The budget plan allows for USD 236 billion ($2.57
trillion pesos) in spending -- a figure that is USD 14
billion ($152.5 billion pesos) higher than what the executive
originally proposed and 9.8% higher in real terms than the
approved 2007 budget. The budget is balanced when certain
off-budget items are excluded. The USD 14 billion of
additional revenue comes largely from the overhaul of the
country's tax laws that Congress approved in mid-September
(USD 11.7 billion), but also from changes Congress made to
the macroeconomic assumptions used in the budget
calculations. A noteworthy change was the increase in the
Mexican oil mix price estimate from USD 46.60 to USD 49.00
per barrel.

4. (SBU) Regarding revenues, non-oil related tax income is
expected to reach a record level of 11.5% of GDP. Finance
Secretary Carstens earlier this week said publicly that

SIPDIS
Pemex, the state-owned energy company, will account for 34%
of total government revenue next year, down from 37% this
year. He added that oil will make up a smaller percentage of
government revenue in the future. (Comment: This is an
important development because the less Mexico relies on
petroleum and volatile oil prices for its tax intake, the
better. End Comment.)

5. (U) Approved programmable expenditures for 2008 total USD
174 billion ($1.9 trillion pesos), a figure that represents
18.1% of GDP, its highest proportion since 1988. Public
investment levels are expected to reach their highest levels
in the last 20 years. Budgeted investment will represent
3.6% of GDP, while the "investment driven by the public
sector" item -- which includes expenditures for Pidiregas
(long-term infrastructure projects) -- will represent 5.0% of
GDP.

6. (U) Spending on the government-defined categories of
social development, economic development, public security,
and the environment is set to increase by a real 8.8%, 13.6%,
39.4%, and 30.1%, respectively. The Chamber approved USD 92

MEXICO 00005870 002 OF 002


million to support high-tech urban small- and medium-sized
businesses. Carstens this week said that a record USD 101
million will go to fund social programs -- a move that the
government undoubtedly hopes will help reduce persistent
poverty.

7. (U) The following government ministries received the
largest spending increases in real terms compared to 2007:
Tourism (79.3%), Communication and Transportation (43.8%),
Public Security (39.4%), Social Development (37.8%), and
Environment (30.1%). The historically large hike for the
Secretariat of Tourism is important because this industry has

SIPDIS
lagged in recent years, in part due to the small amount of
resources dedicated to this ministry. While the Secretariat
of Agriculture only received a 6.7% real increase in funding,
the Chairman of the Chamber's Agricultural Committee said
that the budget approved for the sector was historical. He
added that these resources will be channeled to improve the
sector's competitiveness and productivity. Funding for Pemex
and ISSSTE (the social security institute for government
workers) increased by almost 11%. Federal government
resources going to the federal entities for both
contributions and shared revenues will total $812 billion
pesos, 12.7% higher in real terms than in the 2007 budget.

8. (U) Legislators cut budgets for several autonomous bodies,
including the Federal Electoral Institute, the Supreme Court
of Justice, and the National Human Rights Commission. Among
the ministries, the General Attorney (-2.4%), Presidency
(1.5%), and Finance and Public Credit Secretariats received
the smallest spending increases.

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

9. (SBU) The recently passed tax reform and high oil prices
have allowed Mexico to pass the largest budget in its
history. The beneficiaries of this larger budget in the
government include Pemex, the federal entities, and several
secretariats -- including the Secretariat of Communications

SIPDIS
and Transportation, which will boost much-needed
infrastructure investment. This, together with increased
funding for social and economic development, will not only
help bolster the economy in the face of a slowdown in the
U.S., but will also directly benefit the Mexican public.


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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