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Cablegate: Mexico Economic Weekly - October 02

VZCZCXRO2343
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2885/01 2782220
ZNR UUUUU ZZH
R 052220Z OCT 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8489
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 002885

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 - October 02

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 NEEDS A DYNAMIC DOMESTIC MARKET TO CONSOLIDATE ECONOMIC
RECOVERY - Mexico City

GOVERNOR DEFENDS DEBT LEVELS, DESCRIBES CRITICAL ANALYSIS AS
"INADEQUATE" - Monterrey

BAJA CALIFORNIA GOVERNOR URGES SUPPORT FOR CALDERON BUDGET
PROPOSAL - Tijuana

REMITTANCE PAYMENTS BECOME MOST STABLE SOURCE OF FOREIGN
EXCHANGE IN CHIHUAHUA - Ciudad Juarez


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

TEMPEL STEEL SET TO INVEST IN NUEVO LEON ONCE AGAIN -
Monterrey

ALFA BREAKS PROFIT EXPECTATIONS - Monterrey

MEXICAN DAIRY PRODUCTS FIRM ACQUIRES HOLDINGS IN THE U.S. -
Monterrey


ENERGY:
-------

PEMEX TO HOLD 'MEET THE BUYER' SESSION - Matamoros

ENERGY CONSUMPTION ON THE RISE - Monterrey


ENVIRONMENT, SCIENCE, TECHNOLOGY AND HEALTH
-------------------------------------------

SECOND MAJOR WAVE OF H1N1 INFLUENZA HITS MEXICO - Mexico City

FEMSA LAUNCHES ENERGY EFFICIENT REFRIGERATORS - Monterrey


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

3. (U) MEXICO NEEDS A DYNAMIC DOMESTIC MARKET TO CONSOLIDATE
ECONOMIC RECOVERY: The economic recovery in Mexico will not
consolidate until the domestic market -particularly private
consumption - which contributes with 50% of the economic
activity, strengthens. For economists, such as Alfredo
Coutio from Moody's and Jorge Smeke from Universidad
Iberoamericana, the government should continue working on
structural reforms in order to eliminate the existing bottle
necks, which delays a larger and more rapid economic growth.
For them, an important factor for the economic recovery is the
improvement in labor markets and workers conditions in
combination with strong finances and social policies that
strengthen private consumption. Both believe that Mexico
needs a change in the economic growth drivers. Coutio and
Smeke agreed that unfortunately the countercyclical programs
implemented by the government during the economic recession
were insufficient because of the limited available resources
as a result of the decline in oil and tax revenues. (Mexico
City)

4. (U) GOVERNOR DEFENDS DEBT LEVELS, DESCRIBES CRITICAL
ANALYSIS AS "INADEQUATE": Responding to criticisms that he
has left Nuevo Leon the most indebted of all Mexican states,
outgoing Nuevo Leon Governor Jose Natividad Gonzalez Paras

MEXICO 00002885 002 OF 003


claimed that, if debt levels have increased, so has the
state's ability to generate income. According to Gonzalez
Paras, the debt contracted has been invested in infrastructure
that has made Nuevo Leon a leader in the nation, as evidenced
by a more rapid economic recovery in the state than in other
parts of Mexico. This debt has been measured as 51% of the
state's 2008 budget; the national average of states' debt as a
percentage of budget is 17%. (Monterrey)

5. (U) BAJA CALIFORNIA GOVERNOR URGES SUPPORT FOR CALDERON
BUDGET PROPOSAL: Governor Osuna Millan (PAN) has spoken out
twice in the last week urging legislators to pass the
administration's budget. According to Osuna Millan, failure
to pass the budget will result in less money for the state to
pursue infrastructure projects and less money for municipal
governments. Business groups in Baja, however, have
publically come out against the tax increases included in the
budget. (Tijuana)

6. (U) REMITTANCE PAYMENTS BECOME MOST STABLE SOURCE OF
FOREIGN EXCHANGE IN CHIHUAHUA: Second quarter remittance
payments from the U.S. to Chihuahua fell at a year-over-year
rate of almost 20%, according to recent statistics published
by the Mexican Central Bank (Banxico). In the second quarter
of 2009, Chihuahua received $US 107.6 million in remittances,
compared to $US 131.6 million during the same quarter last
year. Despite the decline, remittances have become a more
stable source of foreign exchange for Chihuahua than foreign
direct investment (FDI), which fell by almost 60% during this
same period. In 2008, remittances were equivalent to 43% of
total state foreign direct investment (FDI); this year to the
second quarter they were equivalent to 67%. Many economists
argue that remittances are more counter-cyclical than other
capital flows due to the personal relationship between the
sender and receiver of these income transfers. In Chihuahua,
this appears to be the case. Even though remittances have
fallen, they remain an important source of income for low-
income families to meet their consumption needs as the economy
slows. (Ciudad Juarez)

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

7. (U) TEMPEL STEEL SET TO INVEST IN NUEVO LEON ONCE AGAIN:
Timothy Tyler, President of U.S. multinational Tempel Steel, a
manufacturer of magnetic steel laminates for the electrical
and electronics industry, recently announced that his company
will move forward with a planned investment of $25 million in
its plant in Apodaca, Nuevo Leon. This investment will bring
the plant up to 89% of its designed capacity. Tyler indicated
that the company plans to close one of its plants in the state
of Illinois, and relocate $2.5 million of equipment to its
Apodaca facility. These plans had been put on hold in 2008,
after company sales dropped 45%. The company is currently
registering a 4%-5% growth in sales, and hopes to reduce
production costs by expanding operations in Mexico.
(Monterrey)

8. (U) ALFA BREAKS PROFIT EXPECTATIONS: Exceeding analysts'
expectations, Monterrey based conglomerate Alfa reported a 23%
increase in earnings at the conclusion of the third quarter,
slightly higher than analysts had predicted. Alfa's divisions
operate in various manufacturing sectors: Alpek manufactures
petrochemicals, Nemak auto parts, Sigma food products, and
Alestra provides telecommunications services. According to
Mario Paez, Alfa's Director of Finances, sales were
particularly strong in the auto parts sector, where the U.S.
"Cash for Clunkers" stimulus package increased sales of
aluminum heads for automobile engines. (Monterrey)

9. (U) MEXICAN DAIRY PRODUCTS FIRM ACQUIRES HOLDINGS IN THE
U.S.: Durango based dairy conglomerate Grupo Industrial Lala
S.A. announced on September 28 the purchase of two U.S. dairy
firms: Farmland Dairies of New York and New Jersey, and
Promised Land of San Antonio, TX. While Lala did not
publicize the purchase price, independent analysts estimate
the purchase at $500 million. This purchase follows closely
Lala's $435 million acquisition last May of National Dairy,
the second largest dairy processor in the U.S. Lala's product
line in the North American market will include not only milk
and derivative products, such as butters, creams, and cheeses,

MEXICO 00002885 003 OF 003


but fruit juices as well. (Monterrey)

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

10. (U) PEMEX TO HOLD 'MEET THE BUYER' SESSION: PEMEX will
hold a Meet the Buyer session for a targeted group of 30 small
to medium U.S. natural gas service and supplier firms on
October 16, 2009 in Edinburg, Texas. The gathering will be
held at the University of Texas Pan American's Small Business
Development Center. PEMEX sought assistance in locating small
to medium size firms to assist them with their Burgos Basin
natural gas project. PEMEX states the goal of the project is
to increase the number of natural gas wells in the Burgos
basin from the 6,500 currently in operation. [Note: The U.S.
side of the basin has more than 70,000 natural gas wells
currently in operation.] According to PEMEX, the Mexican side
of the Burgos basin has a potential capacity of 52 million
square meters of natural gas. Sessions for invited business
include: How to do business with PEMEX, a presentation by
PEMEX's procurement division, and a presentation by PEMEX's
commercial and customs agents. The session is being organized
through the joint efforts of the U.S. Consulate General,
Matamoros; the Mexican Consulate, McAllen, Texas; U.S.
Commercial Service, U.S. Export Assistance Center, San
Antonio, Texas; and the University of Texas, Pan American,
Small Business Development Center. (Matamoros)

11. (U) ENERGY CONSUMPTION ON THE RISE: After having fallen
to the lowest levels seen in years, national energy
consumption statistics could indicate an increase in Nuevo
Leon's industrial production. According to Federal
Electricity Commission (CFE) and Secretariat of Energy data,
national consumption of electricity has almost recovered to
levels typical before the economic crisis: in August 2009
electrical usage was 1001 gigawatts/hour, a 54% increase over
January of 2009. This rate is only 3% below August 2008
figures. The consumption of natural gas is also growing, up
to 714.7 million cubic feet/day in July 2009 from a low of 600
million cubic feet/day in January 2009, but 25% less than that
of July 2008. According to Fernando Turner, President of the
Nation Association of Independent Businessmen, much of Nuevo
Leon's recovery stems from its auto parts industry as a result
of the U.S. "cash for clunkers" stimulus plan. Inventories
remain low and manufacturers are hopeful that demand for auto
parts will continue to rise absent the U.S. stimulus plan.
(Monterrey)

-------------------------------------------
ENVIRONMENT, SCIENCE, TECHNOLOGY AND HEALTH
-------------------------------------------

12. (U) SECOND MAJOR WAVE OF H1N1 INFLUENZA HITS MEXICO:
H1N1 influenza cases are peaking again in Mexico following the
August 24 start of the school year. GOM ability to cope with
the illness has improved greatly since the initial outbreak.
Nationwide, numbers of reported flu cases are equal or close
to those of April, when the outbreak was at its peak.
However, unlike last spring, when lab capacity and lack of
familiarity with the disease presented serious challenges to
the Mexican health care system, public and medical
practitioner awareness of the disease is high. The GOM is
conducting its own public health campaign and is working
closely with the Centers for Disease Control on presenting an
accurate and unified message to the press and public. (Mexico
City)

13. (U) FEMSA LAUNCHES ENERGY EFFICIENT REFRIGERATORS:
Monterrey based beverage giant Fomento Econ"mco Mexicano
(FEMSA), in cooperation with commercial refrigerator
manufacturer Ibera, recently announced the introduction of a
new line of energy savings coolers and refrigerators, which
are advertised as consuming 3.6 kilowatt hours/day, an
electricity consumption reduction of 43% in comparison with
conventional units. Alfonso Garza, Director General of
Strategy for FEMSA, estimated that mini groceries and
convenience stores could save approximately $300/year
utilizing the new units and significantly reduce their carbon
footprints. (Monterrey)

PASCUAL

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