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Cablegate: Mexico Economic Weekly - August 21

VZCZCXRO0979
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2519/01 2380236
ZNR UUUUU ZZH
R 260236Z AUG 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8017
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 03 MEXICO 002519

SIPDIS
SENSITIVE

STATE FOR WHA/MEX, WHA/EPSC
STATE FOR EEB
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
TREASURY FOR IA
ENERGY FOR WARD, LOCKWOOD AND DAVIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD ENRG ELTN EAIR PGOV SENV MX
SUBJECT: Mexico Economic Weekly - August 21

1. (U) The Mexico Economic Weekly supplements reporting from
Mission Mexico Consulates and the Embassy Mexico Economic Section to
provide a sense of ongoing trends. Please contact Adam Shub
(shubam@state.gov) or Sigrid Emrich (emrichs@state.gov) for
questions or comments about this report.

2. (U) Table of Contents:


ECONOMY AND FINANCE:
--------------------

INFLATION DROPS TO 5.12% - Mexico City

CNBV WILL SUPERVISE "CENTROS CAMBIARIOS" - Mexico City

ECONOMIC ADVANTAGES OVERRIDE SECURITY ISSUES - Matamoros

ECONOMY CONTINUES TO BE WEAK - Monterrey

SMALL BUSINESSES ASK NAFINSA TO EXPAND AID - Monterrey

POSITIVE JOBS DATA IN JUAREZ MAQUILA SECTOR MAY INDICATE EARLY
STAGES RECOVERY - Ciudad Juarez

US RECESSION HITS ECONOMY IN SONORA AND SINALOA - Hermosillo


TRADE AND INVESTMENT:
---------------------

EXPORTS FALL IN JULY - Mexico City

REIT INVESTMENT STALLS - Matamoros

THE "THIRD COAST" - Matamoros

TAMAULIPAS ATTRACTING IT CORPORATIONS WITH NEW SCIENCE AND
TECHNOLOGY PARK - Matamoros


INFRASTRUCTURE:
---------------

GUADALAJARA BELTWAY TO BE COMPLETE IN 2011 - Guadalajara


-------------------
ECONOMY AND FINANCE:
-------------------

3. (U) INFLATION DROPS TO 5.12%: During the first half of August
annual inflation totaled 5.12%, 0.21 percentage points lower than
the second half of July. Should inflation continue with its
downward trend, it will likely converge toward the Bank of Mexico's
target of 4.75%-5.25% for the third quarter of 2009. Merchandise
and processed food, as well as government administered prices did
not grow as much as last year. On the other hand, produce prices
dropped 0.51%. Given this downward trend, the Bank of Mexico
decided to keep its benchmark lending rate at 4.5% on August 21.

4. (U) CNBV WILL SUPERVISE "CENTROS CAMBIARIOS": Around 6,000
unregulated money exchange houses (centros cambiarios), will be
supervised by the banking regulator, the National Banking and
Securities Commission (CNBV, Mexico's SEC equivalent) rather than
the Tax Administration Services (IRS equivalent). As a result, the
CNBV will have more control over these exchange houses in terms of
preventing money laundering and other illegal activities. The bill
still needs to be approved by the Senate. In order to conduct
operations, centros cambiarios will have to obtain an authorization
from the CNBV, be registered as a company rather than an individual,
and have a fixed address. Among the new rules that the centros
cambiarios will have to implement is to identify and create a record
of the users or clients who conduct operations of USD 500 or more.


5. (U) ECONOMIC ADVANTAGES OVERRIDE SECURITY ISSUES: While there
is an acute awareness of recent clashes between military and drug
trafficking organizations in the area, it has not deterred companies
from conducting business in and around Reynosa. General security is
of concern, but the industrial parks are reasonably secure, and
dedicated to conducting and basing businesses in Tamaulipas and

MEXICO 00002519 002 OF 003


Reynosa, contacts told ECON and CONOFFS at the Foro Internacional
Clusters 2009 last week. The conference focused on recent security
issues in Reynosa with companies in the auto, medical, real estate
and information technology (IT) sectors. All contacts emphasized
the operational savings they experience in Mexico, especially in
this time of economic uncertainty. One attendee highlighted the
positive involvement of government officials in Reynosa during
recent security incidents (Matamoros)

6. (U) MONTERREY BANKER ON WEAK ECONOMY: The Mexican economy
continues to suffer, but the U.S. economy appears to be improving
and the Mexican economy should follow suit after a few months delay,
according to Agustin del Rio, the regional Bank of Mexico delegate
in Monterrey who spoke at an August 7 presentation to U.S. and
Mexican real estate executives. Del Rio said Northern Mexico is
expected to lead the recovery, which is the reverse of the economic
decline which began in southern Mexico and spread north. Del Rio's
major concern for long-term growth was the poor outlook for Mexico's
public finances. More than one third of all public sector revenue
in Mexico is from petroleum. The depletion of petroleum reserves
and lower worldwide oil prices have combined to adversely impact
revenues. Many Mexican states are already borrowing to avoid
spending cuts. (Monterrey)

7. (U) SMALL BUSINESSES ASK NAFINSA TO EXPAND AID: Caintra, an
association of Nuevo Leon's manufacturing businesses, has formally
requested Mexico's national development bank, Nafinsa, to expand aid
to small and medium sized businesses in Nuevo Leon under its special
financing program to combat the effects of the H1N1 influenza. At
an August 18 press conference, Eduardo Coronado, a representative of
Caintra, said of the nearly US$200 million in credit Nafinsa has
promised as economic relief for small businesses in Mexico, Nuevo
Leon area companies have only received US$2 million. Nuevo Leon's
manufacturing sector, which was already reeling from the effects of
the economic crisis, was hit hard by the H1N1 flu the results of
which caused sales to plummet from April to June. The association's
members, which have already laid off numerous employees or enacted
temporarily plant shutdowns, have claimed they will have to lay-off
additional employees if they do not receive economic aid soon.
(Monterrey)

8. (U) POSITIVE JOBS DATA IN JUAREZ MAQUILA SECTOR MAY INDICATE
EARLY STAGES RECOVERY: Recent jobs data reveals the 18 month labor
contraction in the Juarez maquila sector may have reached its trough
this past June. After losing 84,000 jobs since 2007, in July the
Juarez Maquila Association (AMAC) reported the city's maquila sector
added almost 2,500 jobs (166,458 to 168,883), which represents the
first month-over-month increase in maquila jobs since the downturn
began. According to AMAC's President, the recent rise in U.S.
manufacturing production has led to higher orders for Juarez-based
suppliers, which will increase demand for labor during the second
half of 2009. AMAC forecasts an increase of 12,000 jobs from the
June low by the end of the year. In addition, from March to June of
this year, the total number of maquila employees working reduced
hours fell from 55,000 to 35,000. Despite this positive news, many
economists warn that continued improvement in the Juarez maquila
sector will depend on the U.S. economic recovery. (Ciudad Juarez)

9. (U) US RECESSION HITS ECONOMY IN SONORA AND SINALOA: News
reports from Sonora and Sinaloa indicate that they are struggling as
a result of the U.S. recession. A recent article in Culiacan's El
Debate described the troubled state of Sinaloa's agricultural
economy where local businesses in small farming towns are seeing
sales to wholesalers drop by 50 percent from last year. Sinaloan
Undersecretary for Economic Development, Lic. Amadeo Zazueta, noted
a sharp increase in unemployment, indicating the quantity of
packaged agricultural goods shipped from Sinaloa to the United
States has dropped by more than 15 percent since last year. His
staff attributes lower agricultural product purchases to frugality
in American households theorizing that they are now buying just
enough produce instead of buying more than they need each week and
letting some spoil. According to Hermosillo's El Imparcial
newspaper, three thousand Sonoran workers from the recently
bankrupted retail and grocery chain VH are struggling to find work.
On an optimistic note, local officials noted unemployment held
steady in July and government run job placement programs are
reporting some openings, but it's not clear that these employees are
qualified for the vacant positions. (Hermosillo)


---------------------
TRADE AND INVESTMENT:

MEXICO 00002519 003 OF 003


---------------------

10. (U) EXPORTS FALL IN JULY: During July Mexican exports fell
34.7% after having dropped 26.6% in June. The value of exports
totaled USD 17.9 billion, while the value of imports reached USD
19.2 billion. Thus, the trade deficit rose 5% in annual terms.
Manufacturing exports plummeted 30.6% with vehicle exports to the
U.S. falling by 32.8%. Oil exports fell 51.2%.

11. (U) REIT INVESTMENT STALLS: ProLogis, a global real estate
investment trust (REIT) that owns and manages investments in
distribution facilities, offices, and industrial properties, many of
which are in Mexico, has completely reevaluated its business model.
As manufacturers have reduced production, the need for industrial
space has diminished, leaving higher vacancy rates in industrial
rental properties. According to representatives from ProLogis, the
company has dramatically reduced its Mexican staff by 37 percent.
The company recognizes that the previous growth model in Mexico was
unsustainable, and future growth will be at a more measured pace.
Despite the more cautious approach to future development, a
representative from ProLogis is forecasting a recovery of the
Mexican industrial rental market after the first quarter of 2010.
(Matamoros)

12. (U) THE "THIRD COAST": Tamaulipas is positioning itself to
provide product distribution and logistics support to the vast U.S.
consumer import market. The Economic and Employment Development
office of Tamaulipas stated at the Foro Internacional Clusters 2009
in Reynosa that Mexican ports provide a viable alternative to U.S.
ports in California. While much attention has focused on the
Mexican Pacific Coast as an alternative import route to the U.S.,
state officials believe that Tamaulipas' 15 border crossing points
with Texas and the port capacities of Tampico and Altamira, which
already handle 30% of Mexican exports and imports, will make
Tamaulipas an important logistics hub for U.S. imports. They also
stated that Tamaulipas' proximity to the Trans-Texas Corridor, a
long-term infrastructure plan stretching from Texas to the Great
Lakes, will be a distinct competitive advantage for the State of
Tamaulipas, helping cement its role as the "third coast" of the U.S.
(Matamoros)

13. (U) TAMAULIPAS ATTRACTING IT CORPORATIONS WITH NEW SCIENCE AND
TECHNOLOGY PARK: TECHNOTAM Science and Technology Park is scheduled
to open in late October or early November in Ciudad Victoria,
Tamaulipas. Phase one of the park is nearly complete. The first
tenants will include: CINVESTAV, a center for research and advanced
studies specializing in IT and Computer Science, granting Master's
and PhD's; the Universidad Autonoma de Tamaulipas, specializing in
technology education to support the IT sector; TiT@M, the Tamaulipas
Information Technology cluster; an IT business incubator; and SVAM
International, a global IT services provider. Anil Kapoor,
President and CEO of SVAM International, appeared at Foro
Internacional Clusters 2009 in McAllen, Texas last week, praising
the dedication and involvement of the Tamaulipas government and
economic development officials as a key reason why his company
decided to expand in Mexico. He enthusiastically recounted the
involvement and willingness of local educational institutions to
work with his company in setting up curricula that will develop the
workforce SVAM International needs as they grow in Mexico.
(Matamoros)


---------------
INFRASTRUCTURE:
---------------

14. (U) GUADALAJARA BELTWAY TO BE COMPLETE IN 2011: A new six lane
11.5 kilometer (7 mile) stretch of the beltway that loops around
Guadalajara, el Perifrico, opened Tuesday August 18 to light
traffic. The newly opened portion represents two of the five
planned phases to finish the ring originally planned fifty years
ago. At the inauguration ceremony Jalisco Governor Emilio Gonzlez
announced that the additional 25-30 kilometers (15-19 miles) needed
to complete the loop would be finished in 2011. The effort is
intended to reduce congestion in the city center and along a major
east-west thoroughfare ahead of the 2012 Pan American games.
(Guadalajara)

FEELEY

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