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Cablegate: Mexico Economic Weekly - August 21

VZCZCXRO5559
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2601/01 2432319
ZNR UUUUU ZZH
R 312319Z AUG 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8096
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 002601

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:


ENERGY
------

PRODUCTION AT MEXICO'S MAIN OILFIELD FELL 70 PERCENT SINCE 2003 -
Mexico City


HEALTH
------

WORLD BANK POISED TO ISSUE $480 MILLION LOAN TO MEXICO FOR FLU
CONTROL AND PREVENTION


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

"MEXICO UNDERESTIMATED MAGNITUDE OF THE CRISIS" SAYS OECD SECRETARY
GENERAL (Mexico City)

INSTITUTE OF PUBLIC ACCOUNTANTS OF NUEVO LESN SUPPORTS FISCAL REFORM
(Monterrey)

CONFLICTING VIEWPOINTS REGARDING BORDER ECONOMY (Matamoros)

SONORAN GOVERNMENT INTRODUCES TECHNOLOGY SECTOR STIMULUS PROJECTS
(Hermosillo)


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

BEACH MOLD & TOOL, INC. CLOSING REYNOSA PLANT, MOVING OPERATIONS TO
QUERETARO (Matamoros)

TWO U.S. FORTUNE 500 COMPANIES EXPANDING EMPLOYMENT IN MEXICO
(Monterrey)


-------
ENERGY:
-------

3. (SBU) PRODUCTION AT MEXICO'S MAIN OILFIELD DOWN 70 PERCENT SINCE
2003: Cantarell, Mexico's largest oil field, fell to under 650,000
barrels a day, a 21 percent since January 2009 and a full 70 percent
down from its peak production of 2.2 million barrels a day in
December 2003. Cantarell currently accounts for 25 percent of
Mexican crude oil production, down from 64 percent in 2003. Pemex
estimates total crude oil production will fall to 2.5 million
barrels a day in 2010, down from 2.6 million barrels a day this
year. This estimate seems optimistic given Cantarell's rapid
decline and disappointing results from another key field under
development, Chicontepec. (Mexico City)

-------
HEALTH:
-------

4. (SBU) WORLD BANK POISED TO ISSUE $480 MILLION LOAN TO MEXICO FOR
FLU CONTROL AND PREVENTION: Mexico's Secretariat of Health is in
line to receive a $480 million loan from the World Bank to pursue an
"Influenza Control and Prevention Project" that will monitor the
spread of viruses and control epidemic waves. The loan will be
accompanied by a $72.8 million contribution by the GOM and is
scheduled for approval by the World Bank Board of Directors on
September 10th. The GOM estimates that public spending on the H1N1
response has surpasses $600 million and the macroeconomic impact of
the pandemic is expected to be 0.3-0.5 percent of Mexico's GDP.


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

MEXICO 00002601 002 OF 003


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

5. (U) "MEXICO UNDERESTIMATED MAGNITUDE OF THE CRISIS":
Mexico, as well as other countries, failed to appreciate the
magnitude of the economic crisis, according to OECD Secretary
General Jose Angel Gurria. Speaking in Mexico City, Gurria added
that Mexico is going through the worse "financial shock" in 70
years. In order to address the situation, Gurria opined that
government expenditures in 2010 will have to be cut. He underlined
the urgent need to strengthen Mexico fiscal structure and reduce the
country's heavy reliance on oil revenues. As Finance Secretary
during the Zedillo presidency, Gurria proposed a fiscal reform which
was blocked by the PAN. When former President Fox subsequently
proposed his own fiscal reform, the PRI voted against it. For
Gurria, a fiscal reform should include taxes on consumption, lower
taxes on investments and saving, an expanded taxpayer base, and
higher rates of collection. Gurria recommend reducing public
investment for the next year or two. (Mexico City)

6. (U) INSTITUTE OF PUBLIC ACCOUNTANTS OF NUEVO LESN SUPPORTS
FISCAL REFORM: Consistent with calls for fiscal reform at the
national level from the President of the Council of Mexican
Businessmen, Claudio X. Gonzlez and President of the Institute of
Public Accountants of Neuvo Lesn, Jaime Garca, called for an
elimination of preferential regimes from the value added tax (VAT).
Garca argued that such a regime would be much more equitable,
ensuring that those that consume the most carry the largest tax
burden. He further suggested that by augmenting the base of items
contributing to the VAT, its rate could be reduced and its
administration streamlined. Garca also recommended the elimination
of the IETU - a tax roughly analogous to the U.S. Governments
Alternate Minimum Tax (AMT) - which he claimed discourages
investment, and the reduction of ISR, Mexico's capital gains tax.
(Monterrey)

7. (U) SONORAN GOVERNMENT INTRODUCES TECHNOLOGY SECTOR STIMULUS
PROJECTS. The state of Sonora announced in July a $500 million
Mexican peso(US$38 million) plan to invest in software development
capabilities over the next five years with the help of the firm
GoNet Mexico. The plan adds to an existing software incubator
project and with the cooperation of four of southern Sonora's
universities is expected to create 400 new software development jobs
in the next three years, attracting talent and projects from all
over North America. On Aug 2nd, El Imparcial reported El Consejo
Nacional de Ciencia y Tecnologa (CONACYT) approved $44.6 million
pesos (US$3.4 million) for 14 companies in the technology related
projects. The projects included copper extraction enhancements
(Mexicanos de Cobre), aerospace turbine diagnosis (Teta Kawi), a
Ford Motor manufacturing improvement and a water recycling project
at a laboratory to name a few. Despite the "brand names" included in
the list of recipients, the state says this is part of their effort
to promote the development of micro to mid size companies. The
economic development authorities express an interest in developing a
long term competitive advantage for Sonora and point to Sonora's
movement in the number of patents from 16th to 3rd nationally during
the Bours administration as an example of their success in that
regard. (Hermosillo)

8. (U) CONFLICTING VIEWPOINTS REGARDING BORDER ECONOMY:
El Colegio de la Frontera Norte (COLEF), an economic think tank with
focus on the northern border of Mexico, recently stated that Mexican
northern border cities will experience a further economic
contraction in 2010. Cirila Quintero, investigator for COLEF,
highlighted two principal factors in the contraction: a weak and
extended recovery of the maquila sector and high levels of expected
migration to the region. She also indicated that some new
companies have entered the region, but the number of jobs generated
is not high enough to offset recent layoffs, particularly in the
automotive sector. Ms. Quintero also noted there is a lack of short
and medium term economic strategies in Mexican automotive plants,
which will undoubtedly result in further layoffs and adjustments in
the maquila sector. This is in contrast to the plans Econ Off heard
during automotive sector sessions during Foro Internacional Clusters
2009 two weeks ago, where maquilas outlined efforts to strengthen
their common cluster interests, and share information.
(Matamoros)

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

9. (U) BEACH MOLD & TOOL, INC. CLOSING REYNOSA PLANT, MOVING

MEXICO 00002601 003 OF 003


OPERATIONS TO QUERETARO: According to local news reports, Beach
Mold & Tool, Inc., a privately held custom injection molder that
manufactures automotive, consumer, and other electronic parts will
close its' Reynosa plant and move production to a sister plant in
Queretaro, Mexico. Beach indicates the move was made to offset the
impact of lower sales volumes and to reduce infrastructure costs in
Mexico. (Matamoros)

10. (SBU) TWO U.S. FORTUNE 500 COMPANIES EXPANDING EMPLOYMENT IN
MEXICO: In an August 21 conversation with Consul General, Whirlpool
Mexico Director Luis Fernando Reyes stated that, assuming the
incoming Nuevo Leon governor ratified certain tax breaks promised by
the outgoing governor, his company planned to move a new line of
production to the Monterrey region, adding more than 1,000 jobs to
current payrolls. Separately, Cummins announced that it would move
filter production to its facilities in San Luis Potosi, thereby
expanding employment in that city by an additional 800 new jobs. In
both cases, the employment increases in Mexico translate into job
cutbacks at the companies' U.S. plants. Meanwhile, officials from
Altos Hornos de Mexico, one of Mexico's largest steel manufacturers,
has told us that because of cash flow issues the company would soon
have to announce a layoff (hopefully short) of 1,000 employees at
its plant in Monclova, Coahuila. (Monterrey)

PASCUAL

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