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Cablegate: Mexico Economic Weekly - September 4

VZCZCXRO0908
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2666/01 2512302
ZNR UUUUU ZZH
R 082302Z SEP 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8177
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 002666

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 - September 4

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:
--------------------

MEXICO'S ECONOMIC OUTLOOK IMPROVES SLIGHTLY (Mexico City)

CALDERON ADMINISTRATION FACES 2010 BUDGET CHALLENGE (Mexico City)

BUSINESS CLOSURES RISE IN CHIHUAHUA AMIDST RISING CRIME AND ECONOMIC
SLOWDOWN (Ciudad Juarez)


HEALTH
------

CONFIRMED H1N1 CASES ON THE RISE IN MEXICO (Mexico City)


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

DESPITE DIFFICULT SECURITY CONDITIONS, FDI TO CHIHUAHUA INCREASES IN
SECOND QUARTER (Ciudad Juarez)

ONE OF INDIA'S LARGEST IT COMPANIES EXPANDING IN MEXICO
(Guadalajara)

IMPROVING TIJUANA'S IMAGE TOP PRIORITY FOR SAN DIEGO/TIJUANA
BUSINESS COMMUNITY (Tijuana)


ENERGY AND ENVIRONMENT
----------------------

ETHANOL PLANT TO GO ONLINE IN VALLE HERMOSO IN 2010 (Matamoros)

TAMAULIPAS HAS MORE HAZMAT INCIDENTS THAN OTHER MEXICAN BORDER
STATES (Matamoros)

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

3. (U) MEXICO'S ECONOMIC OUTLOOK IMPROVES SLIGHTLY: Many analysts
are forecasting slightly more optimistic trends for the Mexican
economy in 2010 in light of the latest global and domestic economic
indicators. This more optimistic outlook is based on the U.S.
recovery, along with better-than-expected data for key domestic
indicators, such as consumer confidence, retail sales, purchaser
manufacturing indexes. The price of oil, Mexico's largest source of
foreign revenue, has strengthened. The central bank's August survey
of economists indicates a GDP growth forecast of 2.9 percent (from
2.5). HSBC has also revised its growth estimate for 2010 to 3.6
percent (from 2.9). Banamex projects 3.6% growth. Despite the
encouraging news, economists remain concerned about Mexico's high
dependence on oil revenues, lower than anticipated oil production,
biased tax structure, overblown bureaucracy, and subsidy
expenditures. (Mexico City)

4. (SBU) CALDERON ADMINISTRATION FACES 2010 BUDGET CHALLENGE: The
Calderon administration faces a formidable challenge in preparing
the 2010 budget which will be presented to Congress September 8.
Hacienda anticipates a spending gap of 2.7 percent of Mexico's GDP
which will be financed through a combination of debt, expenditure
cuts, and a moderate increase in the deficit. The GOM is also
exploring other non-oil revenue generating options (e.g. higher
taxes, reducing energy subsidies, and simplification of the tax
system). In recent weeks some economists and politicians have
pointed to incurring more debt as a preferred means to finance the
gap. This would likely be done through the domestic market.

MEXICO 00002666 002 OF 003


Although increasing debt may put pressure on interest rates and
inflation, most economists believe that Mexico has the capacity to
incur slightly more debt and inflation. (Mexico City)

5. (U) BUSINESS CLOSURES RISE IN CHIHUAHUA AMIDST RISING CRIME AND
ECONOMIC SLOWDOWN: From January to August 2009, 1,061 formal sector
businesses closed in Chihuahua (33,174 total businesses to 32,113),
according to Mexico's Business Registration Database (SIEM). Over
90 percent of business closures involved small and medium
enterprises, which have been negatively impacted by poor public
security conditions, particularly in Ciudad Juarez, and the economic
slowdown. Local analysts suggest that many former business owners
and employees now work in the informal or illicit economies.
Nationwide, the number of new registered businesses grew by 2
percent during this period (691,835 total businesses to 707,580).
(Ciudad Juarez)


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

6. (U) CONFIRMED H1N1 CASES ON THE RISE IN MEXICO: Mexico's
Secretariat of Health is reporting an increase in the number of
confirmed H1N1 influenza cases. On September 1, the Secretariat
reported 997 confirmed cases and 14 deaths during the previous week.
Mexico reported an average of 179 confirmed cases per day between
August 20 and September 1, an increase from an average of 143 cases
per day in the preceding 16 days. Local newspapers speculate that
the rise in influenza cases coincides with the beginning of the
school year. These latest statistics bring Mexico's overall toll to
21, 857 cases and 193 deaths, figures which are widely believed to
be underestimated. While 90% of severe and fatal cases of seasonal
flu occur in people over the age of 65, H1N1 influenza deaths tend
to occur in younger populations. In Mexico, 72% of fatalities
occurred in patients between 20 and 54 years old. In response to
the long-anticipated return of the flu this fall, the Mexican
government is continuing a its successful public information
campaign urging the public to maintain public health measures such
as frequent hand-washing and sneezing etiquette. Since the initial
outbreak this spring, Mexican officials have stockpiled Tamiflu,
educated health care workers and streamlined a data collection
system to catch trends and analyze cases across the country.
(Mexico City)

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

7. (U) DESPITE DIFFICULT SECURITY CONDITIONS, FDI TO CHIHUAHUA
INCREASES IN SECOND QUARTER: Foreign direct investment (FDI)
statistics released by Mexico's Secretary of Economy reveal FDI to
Chihuahua increased from $US 149 million in the first quarter of
2009 to $US 163 million in the second quarter, ranking the state as
the fourth largest recipient of foreign investment nationwide for
the quarter, behind Mexico City, Coahuila, and Mexico State. U.S.
companies accounted for more than 95 percent of FDI inflows to
Chihuahua, of which 100 percent went to the maquila sector. Despite
the positive quarter-over-quarter data, year-over-year FDI to the
state is down almost $US 240 million (second quarter of 2008 - $US
402.4 million; second quarter 2009 - $US 163 million). The rise in
FDI demonstrates that while security conditions in Ciudad Juarez may
create a drag on foreign investment, US manufacturing and
consumption trends continue to be the primary determinant of
external investment to the city. (Ciudad Juarez)

8. (U) ONE OF INDIA'S LARGEST IT COMPANIES EXPANDING IN MEXICO: In
a visit to their Guadalajara headquarters, Tata Consultancy Services
told Post that they are looking to aggressively expand Mexico-wide
operations by 1,000 employees over the next year. The software and
services firm, established in Mexico in 2003 with offices in
Guadalajara, Mexico City, Monterrey and Quertaro, is using the
country as a base to support Latin American and US customers. With
a reported 96% of its current 1,500 in-country staff being Mexican,
their "near-shoring" business model of bringing few executives to
train and manage young local hires could bring greater Indian FDI to
Guadalajara. The firm sees a strategic advantage in servicing
clients within the same time zone that are short a flight away for
immediate on-site assistance. Indian IT firms view Tata as a market
leader and demonstrated success through their expansion might
encourage trailing firms to bring operations to Mexico's Silicon
Valley. (Guadalajara)

MEXICO 00002666 003 OF 003

9. (U) IMPROVING TIJUANA'S IMAGE TOP PRIORITY FOR SAN DIEGO/TIJUANA
BUSINESS COMMUNITY: On September 2, the San Diego Chamber of
Commerce hosted a welcome roundtable breakfast with the cross-border
business community for recently arrived Tijuana Consul General Steve
Kashkett, and on September 3, Post hosted a breakfast for Tijuana
and Tecate business persons. In both events, the business
community expressed concern about the bad image of Tijuana and the
border region created by both the U.S. and Mexican press, which, in
their views, does not reflect reality. Businessmen noted that both
San Diego and Tijuana are the farthest region from their respective
capitals and, as such, have difficulty lobbying for their needs with
the federal governments. Border wait times was another issue of
serious concern for the business community. (Tijuana)

-----------------------
ENERGY AND ENVIRONMENT:
-----------------------

10. (U) ETHANOL PLANT TO GO ONLINE IN VALLE HERMOSO IN 2010:
Bioenergticos Mexicanos will open an ethanol plant in Valle Hermoso
during the second half of 2010. The plant will produce ethanol from
sorghum. Benito Lopez Martinez, technical advisor for
Bioenergticos Mexicanos, confirmed that the company will
participate in the September 2010 PEMEX tender for ethanol
contracts. Demand for ethanol is expected to rise in 2010 and 2011
when by law gas must be oxygenated with ethanol in three Mexican
cities - Guadalajara in 2010, followed by Monterrey and Mexico City
in 2011. The initial plant investment of approximately ninety
million dollars has been funded by local farmers (40%) and private
U.S. and Mexican investors (60%). Local farmers are committed to
providing sorghum to the plant year round at an estimated
consumption of 400,000 tons per year. Additionally, there are two
ethanol plants in Sinaloa, currently offline because they use corn
to produce ethanol and there are no domestic supplies of corn
available. Mexican law prohibits using domestic corn to produce
ethanol unless there is a national surplus. (Matamoros)

11. (SBU) TAMAULIPAS HAS HIGHEST NUMBER OF REPORTED HAZMAT
(HAZARDOUS MATERIALS) INCIDENTS OF ALL MEXICAN BORDER STATES,
2000-2008: During the recent U.S. and Mexico Inland Joint Response
Team Meeting, PROFEPA (Mexico's Environmental Attorney's Office)
representatives reported the state of Tamaulipas had the highest
number of reported HAZMAT incidents of all Mexican border states
between 2000-2008. Three hundred thirty-six (336) incidents were
reported in Tamaulipas during this 8 year period, 49% of all
incidents reported in the border states. Gas and diesel were the
most frequent substances involved in the incidents, the majority of
them fuel spills. Border states accounted for 31.8% of all reported
HAZMAT incidents in Mexico during the 8 year period. (Matamoros)


PASCUAL

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