Cablegate: Mexico Market Reaction - Sept. 29

VZCZCXRO5546
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2918 2742219
ZNR UUUUU ZZH
P 302219Z SEP 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 3431
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC

UNCLAS MEXICO 002918

SENSITIVE, SIPDIS

STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)

E.O. 12958: N/A
TAGS: ECON EINV EFIN PGOV MX

SUBJECT: MEXICO MARKET REACTION - SEPT. 29

1. (U) The Mexican stock market's index, the IPC, fell 6.4% on
Monday, September 29 and the inter-bank Peso depreciated to 11.04
pesos to the dollar and to 11.15 pesos to the dollar in retail
markets. President Calderon instructed Finance Minister Carstens to
follow the markets' development very closely and to implement
measures if necessary. The risk premium closed at 261 basis points,
the highest since 2003. The Mexican Stock Market's Chairman,
Guillermo Prieto, asked investors to avoid panic from gripping the
market, because markets could significantly recover after the U.S.
Congress approves the plan, hopefully this week. Under Secretary
Werner also advised investors to be calm.

GOM: "Mexican finances are solid"
--------------------------------
2. (U) In a media interview September 30, Finance Under Secretary
Alejandro Werner said that Mexican financial institutions were solid
as their reserves and capitalization accounted for 1.5 times the
current overdue payments. With regard to the deterioration of
consumer credit, he said banks have already taken the necessary
steps to reduce lending, to increase their controls to issue credit
cards, and recover overdue payments. He said Mexican businesses had
obtained financing mostly from the domestic institutions. However,
the Bank of Mexico Deputy Governor Guillermo Guemez said yesterday
that larger companies in Mexico will feel the effects of the credit
crunch because most of their financing was obtained abroad.

Impact of U.S. Economic Difficulties
-------------------------------------
3. (U) On the impact of U.S. economic difficulties on Mexico, Guemez
said that obviously Mexico's economic growth will have to be revised
downward, but that unlike other crises, Mexico is better prepared to
face the current situation. The challenge for the government, he
said, will be to strengthen the internal mechanisms that stimulate
the economy, such as making public spending more effective, in
particular in infrastructure and construction, and granting
financing, via development banks to the agricultural sector, to
SMEs, to housing and construction.

4. (U) Adolfo Albo, chief economist at BBVA-Bancomer, the
Spanish-owned bank, said yesterday that Mexico's construction and
housing sector have already slowed down and suggested that they
would probably not recover before the end of 2009. Mexican tycoon
Carlos Slim said this was the worse U.S. crisis since the Great
Depression. He and the Chairman of the Mexican Institute of Finance
Executives recommended the government and the Congress revise the
2009 federal budget, in particular revising the Mexican oil mix
reference price and the expected 3% GDP growth downward. Otherwise,
the government might have to begin 2009 with some spending cuts.
Slim said he said he supported the Bank of Mexico's monetary policy
and that the most important thing right now was to watch over
inflation to prevent rising poverty levels.
GARZA

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