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Cablegate: Mexico Economic Weekly - September 25

VZCZCXRO4467
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2784/01 2681314
ZNR UUUUU ZZH
R 251314Z SEP 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8359
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 002784

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 25

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:
-------

NEW REGULATIONS OPEN DOOR TO SOME PRIVATE SECTOR INVESTMENT IN
DOWNSTREAM ACTIVITIES - Mexico City

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

TECHINT TO INVEST $800 MILLION U.S. IN NUEVO LEON - Monterrey

EMBASSY SPONSORS IPR TRAINING FOR MEXICAN JUDGES - Mexico City

MERCHANTS IN MCALLEN FEEL THE PINCH - Monterrey


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

BAJA CALIFORNIA MUNICIPALITIES FACE FISCAL CRISES - Tijuana

DEMAND TO OUTSTRIP FINANCING OPTIONS IN JALISCO - Guadalajara

EMPLOYMENT INCREASING IN NUEVO LEON'S CONSTRUCTION SECTOR -
Monterrey

DEPARTING GOVERNOR INCREASES DEBT - Monterrey


INFRASTUCTURE
-------------

PUNTA COLONET AND MAYAN RIVIERA PROJECTS BACK ON - Mexico City


------
ENERGY
------

3. (U) NEW REGULATIONS OPEN DOOR TO SOME PRIVATE SECTOR INVESTMENT
IN DOWNSTREAM ACTIVITIES: As part of the implementation of the
2008 Energy Reform, the Secretariat of Energy on September 22
published new regulations to update the legal framework governing
Mexico's oil industry. Under the new regulations, the private
sector (domestic and international) may invest in the storage,
distribution, and pipeline transportation of oil and fuels (i.e.,
gasoline, diesel, etc.) with the prior authorization of the Comisisn
Reguladora de Energia (Energy Regulatory Commission). The
Regulations also eliminate reference to "refining activities" being
limited only to PEMEX, therefore arguably opening the door to the
possible participation of private investors in certain refining
activities not specifically reserved by law to PEMEX. Once the
terms of this opening are defined by the Ministry of Energy, the
degree to which the new regulations allow private investment in
refining will be more clear. (Mexico City)


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

4. (U) TECHINT TO INVEST $800 MILLION U.S. IN NUEVO LEON:
Attending a signing ceremony in recognition of his multinational's
$3 million U.S. endowment to the Tecnological Institute of Monterrey
(ITESM), President of Italo-Argentine conglomerate Techint Paolo
Rocco announced plans to invest $800 million U.S. in subsidiary
Ternium's flat steel plant in Pesqueria, Neuvo Leon. This
investment will double the plant's capacity. Rocco also announced
plans to construct a steel tube plant for subsidiary Tenaris in
Veracruz by the end of 2010. Both investments are part of a five
year investment plan of approximately $5 billion U.S. world-wide.
According to Rocca, the decision to invest despite a loss in
Techint's income reaching 67% in the third quarter, was made based

MEXICO 00002784 002 OF 003


on the prediction that oil would stabilize at $60-$70 U.S. per
barrel, and that steel inventories in the U.S. would be very low by
2010, stimulating significant demand for Techint products.
(Monterrey)

5. (U) EMBASSY SPONSORS IPR TRAINING FOR MEXICAN JUDGES: Embassy
Mexico, together with the U.S. Patent and Trademark Office and El
Colegio Nacional de Magistrados de Circuito y Jueces de Distrito del
Poder Judicial de la Federacisn, is holding a four-day workshop on
how to adjudicate IPR cases in Mexico City from September 21-24,
2009. The seminar is financed by USPTO grant money from State/INL.
26 Mexican civil and criminal judges and magistrates are
participating with U.S. District Court Judges Ronald Lew, Bernice
Donald, and James Rosenbaum directing discussions. The workshop
focuses on promoting greater judicial enforcement of intellectual
property law in Mexico as well as providing the participants with
the necessary understanding and tools to do so. Over four days
participants will discuss copyright, patent, and trademark case
studies, and will gain fresh insights as to how to handle their IPR
caseload. The workshop is part of a holistic approach to train
Mexico's customs officials, public officials, prosecutors, and
judicial officials, thereby fostering greater IP protection and
enforcement in Mexico. (Mexico City)

6. (U) MERCHANTS IN MCALLEN FEEL THE PINCH: According to Luis
Cantu, Vice President of International Relations of the McAllen
Chamber of Commerce, merchants in McAllen have seen a fall in sales
of 10% since January of this year. Cantu attributed this fall to a
decrease in demand from Mexican clients who cross the border to shop
McAllen. Cantu predicted an improvement, though not a full recovery
in sales, within the next three months. (Monterrey)

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

7. (U) BAJA CALIFORNIA MUNICIPALITIES FACE FISCAL CRISES: All
five municipalities in the state are running severe fiscal deficits,
according to the Baja California chapter of the Colegio de
Economistas. Like most municipalities in Mexico, the city
administrations are dependent on the federal government for 20-30%
of their revenue and have seen these transfers fall in the last six
months. Efforts to cut payrolls have been stymied, particularly
in Tijuana, by public sector unions. However, Baja city
administrations have made efforts to look for alternative funding.
For example the North American Development Bank is financing
Tijuana's street re-paving program. According to Jose Contreras,
Vice President of the Colegio, municipal governments have been more
adept at dealing with the global economic crisis than the federal
government, spending more of their limited resources on
infrastructure projects that bring long term economic growth on the
one hand while attempting to cut administrative costs on the other.
(Tijuana)

8. (U) DEMAND TO OUTSTRIP FINANCING IN JALISCO: The president of
the National Chamber of Housing Development and Promotion (Canadevi)
announced that the demand for housing in Jalisco will not be met in
2009. The shortage is not the result of increased home-buying, but
rather a credit shortage and a lack of affordable housing.
Government agencies are financing over 75% of mortgages, with the
National Fund for Workers' Housing (Infonovit) covering most of
those. Private financial institutions have only doled out 31% of
their expected demand for the year and are likely to end the year
having issued only half of the mortgages dispersed in 2008. In
addition, almost 70% of Infonavit borrowers require affordable
housing from government tracts of land that the housing agency
authorizes. However, the housing Infonavit offers frequently lacks
basic services that the buyer is expected to develop and is located
in areas with poor infrastructure. Once those services are
developed the housing prices shoot up out of the borrowers' approved
price range and the authorized credit cannot be utilized. Adding to
the problem, the construction sector is down almost 9% on the year.
The shortage highlights a market failure and an inability of the
government institutions to fill the gap. With the budget of the
state government's housing subsidy program "Esta es tu casa" likely
to decrease next year prospects are dimming for working class
homebuyers in Jalisco. (Guadalajara)

9. (U) EMPLOYMENT INCREASING IN NUEVO LEON'S CONSTRUCTION SECTOR:
According to statistics provided by IMSS, while formal employment in
Nuevo Leon's construction industry has not recovered to last year's
level, it has grown by 4.5% over the last quarter, registering 99,

MEXICO 00002784 003 OF 003


679 workers at the end of August. Economist Abel Hibert credits
this growth to an average increase of 30% spending among federal,
state, and municipal governments. Hibert noted growing deficits and
falling oil revenues, and expressed skepticism that such spending
could be maintained over the next year. (Monterrey)

10. (U) DEPARTING GOVERNOR INCREASES DEBT: With less than two
weeks remaining in his term, Governor of Nuevo Leon Jose Natividad
Gonzalez Paras contracted another $373.5 million USD of public debt,
bringing Nuevo Leon's total - attributed directly to the State, and
to decentralized entities such as Water and Drainage, and the
Institute of Vehicular Control - to $1.6 billion USD. This
represents a 74.2% increase in the public debt since Governor
Gonzalez took office in 2003. According to Nuevo Leon's Treasurer
Ruben Martinez, this new debt will be paid back over the course of
20 years, and the resulting funds will be used to stabilize state
finances and refinance approximately $156.9 million USD of
outstanding debt. Nuevo Leon state revenues have fallen, Ruben
explained, by $44.85 million USD this year alone, and the central
government had provided the state $186.9 million USD less in
disbursements than it had the previous year. The new debt
represents half of Neuvo Leon's annual budgeted revenues, the
highest debt levels as a percentage of revenues among all Mexican
states and the Federal District as well. (Monterrey)

-------------
INFRASTUCTURE
-------------

11. (U) PUNTA COLONET AND MAYAN RIVIERA BACK ON: The Under
Secretary of Transportation Humberto Trevino said September 20 that
the government's large infrastructure projects, Punta Colonet Port
and the Riviera Maya airport will not be postponed again and added
that the bidding process will move forward. According to Trevino,
bidding for the Mayan Riviera project will be launched in November.
Secretary Molinar's team will meet with him to discuss the results
of conversations held with the interested companies for Punta
Colonet, and that project could be re-launched within weeks.
Trevino explained that Punta Colonet will be exclusively a private
project. Thus, the government will provide neither financing nor
guarantees. (Mexico City)

Williard

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