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Cablegate: Mexico Economic Weekly - October 16

VZCZCXRO2466
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #2996/01 2892241
ZNR UUUUU ZZH
R 162241Z OCT 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 8641
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 06 MEXICO 002996

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 16

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 CONTINUES TO DROP, BUT NOT FOR LOW-INCOME
FAMILIES - Mexico City

BUDGET WOES IMPACT THE PRICE OF STAPLES - Monterrey

OBSTACLES FOR BUSINESSES: REGULATION, MONOPOLIES AND
INSECURITY - Mexico City

JUAREZ: A GOOD PLACE TO DO BUSINESS - Ciudad Juarez

THE NORTHEAST CONTINUES TO LEAD RECOVERY - Monterrey

SECURITY-RELATED COSTS CREATE DRAG ON LOCAL JUAREZ
ECONOMY - Ciudad Juarez

U.S. BUSINESS EXPERT WARNS AGAINST TAX HIKE, RECOMMENDS
ALTERNATIVE STRATEGIES - Monterrey

TOURISM FROM US AND CANADA REBOUND IN YUCATAN BUT
EUROPEANS STAYING AWAY - Merida

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

INTEL DISCUSSING PLAN TO DOUBLE PRESENCE IN GUADALAJARA -
Guadalajara

ENORMOUS METAL AND MINERAL DEPOSITS DISCOVERED IN
ZACATECAS, SAN LUIS POTOSI - Monterrey

USD $55 MILLION WHIRLPOOL INVESTMENT IN NUEVO LEON -
Monterrey

OPERATION TO BE LAUNCHED AGAINST PIRATED SOFTWARE IN
NUEVO LEON - Monterrey

NUEVO LEON EXPORTS REBOUND - Monterrey


TRANSPORTATION AND INFRASTRUCTURE:
----------------------------------

NUEVO LEON'S HIGHWAY INFRASTRUCTURE EXPANDS - Monterrey

AEROMAR RETURNS TO MONTERREY - Monterrey


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

NATIONAL HYDROCARBONS COMMISSION RECOMMENDS PEMEX RETHINK
CHICONTEPEC STRATEGY - Mexico City

CALDERON ANNOUNCES MEXICO TO ENTER IRENA AT GLOBAL
RENEWABLE ENERGY FORUM - Mexico City


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

OCTOBER 5 NORTH AMERICAN INFLUENZA MEETING IN MEXICO CITY
- Mexico City

H1N1 CLAIMS 14TH VICTIM IN NUEVO LEON - Monterrey


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

MEXICO 00002996 002 OF 006


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

3. (U) INFLATION CONTINUES TO DROP, BUT NOT FOR LOW-
INCOME FAMILIES: Annual inflation fell to 4.89% in
September from 5.08% the previous month. However, some
food prices - especially those that have the largest
impact on lower income families - have continued to rise.
Produce prices rose 20.3%, the largest increase in three
years. Tomato prices rose at an annual rate of 103%.
For lower income households, the inflation rate rose from
5.75% in August to 5.84% in September, while inflation
for households earning more than six times the minimum
wage, headline inflation dropped from 4.72% to 4.48%.
(Mexico City)

4. (U) BUDGET WOES IMPACT THE PRICE OF STAPLES: Public
relations officials for HEB and Soriana announced
September 30 that the price of tortillas in metropolitan
Monterrey would increase the first week in October by 15%
due to a reduction in flour and corn subsidies. Porfirio
Garza Rojas, President of the Federation of Dough and
Tortilla Producers, announced that neighborhood tortilla
producers would likely follow suit, contingent upon
approval from the Federal Attorney for Consumers
(PROFECO). (Monterrey)

5. (U) OBSTACLES FOR BUSINESSES: REGULATION, MONOPOLIES
AND INSECURITY: According to the World Economic Forum,
(WEF), Mexico generally has a good business climate, with
an enviable geographical location, cheap labor and a
productive demographic. However, WEF cites some
challenges to overcome in order to improve
competitiveness and attract more investment, such as
reducing regulations and streamlining the time to open
and operate businesses. Other barriers include the lack
of credit especially for small and medium-sized
businesses and the growing informal sector. WEF says
Mexico should improve the efficiency and productivity of
its public institutions, make its labor market more
flexible and improve education. In addition, the
government should eliminate monopolies and continue to
combat the security situation. Mexico also needs to
strengthen the Rule of Law, especially with respect to
land acquisition in order to protect investors from
quarrels with 'ejidatarios'. The private sector
acknowledged the government's efforts in passing and
approving reforms, but it says it is time for 'second
generation reforms'. (Mexico City)

6. (U) JUAREZ: A GOOD PLACE TO DO BUSINESS: Despite
record violence associated with the ongoing drug war,
Ciudad Juarez has one of the most favorable procedural
environments in Mexico to do business. According to the
World Bank report "Doing Business 2009" Ciudad Juarez
ranks 11th among 32 cities in Mexico as far as ease of
doing business. Juarez beat out metropolitan centers
Mexico City and Monterrey, as well as its fellow border-
towns of Tijuana and Matamoros. The report evaluates the
ease of starting a business, dealing with construction
permits, registering property and enforcing contracts.
On average, it takes 17 days to start a business in
Juarez compared to 29 in Tijuana, 28 in Mexico City , 24
in Matamoros and 19 in Monterrey. Juarez is one of the
least expensive cities to register property. In Juarez
the cost of registering a new property averages 2.9% of
the property's value, compared to 4.8% in Mexico City,
3.6% in Tijuana, 3.5% in Monterrey and 3.3% in Matamoros.
Juarez is also cheaper than the aforementioned cities in
terms of the cost to enforce commercial contracts.
Measuring cost as a percentage of the claim, the average
in Juarez is 22.8% compared to 33.4% in Monterrey, 32% in
Mexico City, 30.8% in Matamoros and 27.4% in Tijuana.
Aguascalientes topped the list of Mexican cities. Of the
183 world economies evaluated, Mexico ranked 51st, and of
the 32 countries in Latin America and the Caribbean, it
ranked 6th. (Ciudad Juarez)

7. (U) THE NORTHEAST CONTINUES TO LEAD RECOVERY: The
Northeast of Mexico continues to lead the national
recovery in employment, according to statistics provided
by the Mexican Institute of Social Security (IMSS). From

MEXICO 00002996 003 OF 006


June to September, Coahuila generated 14,122 jobs, second
only to Nuevo Leon, which generated 19,813 jobs over the
same period. According to these statistics, construction
leads in job creation, while agriculture, communications
and transport continue to shrink. While the overall
growth in employment is positive news, Fanny Arellanes,
representative of Nuevo Leon's Secretary of Labor,
affirms that this rate would not be enough to replace the
approximately 80K jobs lost to the economic crisis within
a year. Marcelo Canales, president of Coparmex in Nuevo
Leon, speaking at Monterrey TEC's annual business forum
on October 6, emphasized that simply recovering lost
employment would not be enough: he estimated that Nuevo
Leon would need to generate 100K jobs annually in order
to replace lost jobs and absorb young adults into the
labor pool. (Monterrey)

8. (U) SECURITY-RELATED COSTS CREATE DRAG ON LOCAL
JUAREZ ECONOMY: A recent Inter-American Development Bank
study claims that the cost of security in Mexico could be
as high as 15% of GDP. Recent information suggests this
number could be even higher in Ciudad Juarez. Security-
related costs include wages for security guards, the
installment of iron bars at businesses, extortion,
movement of domestic investment to neighboring El Paso,
or the diversion of funds from public works to pay for
security. In the past year Juarez has experienced a 40%
decrease in restaurant business due in large part to
security concerns, according to the local business
association, CANIRAC. At least 25 bars and 20
restaurants have closed in recent months. Anecdotally,
many of these close to reappear on the other side of the
border in El Paso. The Mexican Construction Industry
Chamber (CMIC) says that around 90% of its members have
faced some form of extortion. The construction industry
estimates its losses at 720 million Mexican pesos (USD
55.3 million), or 60% of the total allotment of public
funds to infrastructure improvements. While the security
situation has had less impact on foreign domestic
investment (FDI) and the maquilas, it has hit domestic
investment and the local retail sector hard. Also,
despite reallocating its budget to respond to security
issues, the recently published "Doing Business 2009"
prepared by the World Bank (SEE JUAREZ A GOOD PLACE TO DO
BUSINESS) found that Juarez municipal authorities have
improved procedural efficiency related to doing business
in the city. These gains somewhat offset the negative
externalities created by the poor security environment.
(Ciudad Juarez)

9. (U) U.S. BUSINESS EXPERT WARNS AGAINST TAX HIKE,
RECOMMENDS ALTERNATIVE STRATEGIES: Speaking to an
audience of approximately 800 business leaders at
Monterrey TEC's annual Business Forum, Professor Michael
Porter, Director of the Harvard Business School's
Institute for Strategy and Competitiveness, suggested
that it would be a mistake for Mexico to increase taxes
during an economic crises, and urged the Mexican
government to instead restructure its tax collection
system, and expand its base. Porter suggested there is
insufficient competition in Mexico, and that current
political realities were stifling innovation: he
suggested the solution lie not simply in government
reform, but in the business community becoming more
involved in the political process and pushing that
reform. Porter emphasized the value of forming clusters
to create synergy and promote innovation, but warned that
clusters established at government initiative rarely
function, and that only those driven by industry have a
track record of success. (Monterrey)

10. (U) TOURISM FROM US AND CANADA REBOUND IN YUCATAN
BUT EUROPEANS STAYING AWAY: Juan Jose Martin
Pacheco(PRI), Yucatan's Secretary of Tourism, told Merida
Principal Officer that tourism from the US and Canada has
rebounded but European tourism is still lagging. He
cited a number of upcoming events and conferences in
Merida in October, as well as a concert by Sarah
Brightman at Chichen Itza on October 31, which he hoped
would attract "cultural tourists." Although Yucatan has
the third-highest number of H1N1 cases among Mexico's
states, Martin Pacheco noted that the state has not seen

MEXICO 00002996 004 OF 006


a new outbreak this fall. He touted plans to expand
services at Chichen Itza Airport, and sees an opportunity
to take business away from the Cancun airport, where wait
times at customs and immigration have recently increased.
He also pointed to new flights from Merida to Chiapas and
Oaxaca as another inducement to tourists interested in
culture, and that the increased frequency of flights to
Mexico City starting at the end of October will increase
domestic tourism as well as providing another easy
connection for tourists with other destinations in
Mexico. Finally, he is in contact with JetBlue and
Spirit Air, and hopes to take advantage of their policy
to allow passengers to buy "open jaw" tickets by
establishing two or three flights weekly from Merida. He
hopes that this will help draw tourists going to Cancun
and the Maya Riviera westward. (MERIDA)

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

11. (U) INTEL DISCUSSING PLAN TO DOUBLE PRESENCE IN
GUADALAJARA: The Director of the Design Center of
technology firm Intel announced that the company is
looking to double its operations in Guadalajara. The
project to create a second design center was originally
conceived prior to the economic crisis, but suspended
until this month. The company will recompile its data to
reflect the current situation over the next few months
and make a final decision in early 2010. The potential
cost of the project has not been announced, but in the
past year Intel invested about USD$7 million in new
laboratories. Intel currently employs just under 400
workers, of which about 90% are electronic and computer
engineers. (Guadalajara)

12. (U) ENORMOUS METAL AND MINERAL DEPOSITS DISCOVERED
IN ZACATECAS, SAN LUIS POTOSI: Mining firm Pietro Sutti
S.A. announced on October 9 the discovery of what may be
the world's largest deposit of lithium in a region that
straddles the border between the states of Zacatecas and
San Luis Potosi. According to Pietro Sutti's owner,
Martin Sutti Courtade, the deposit might not only prove
the largest, but the densest, yielding 700-900 grams of
lithium per ton of excavation, where most deposits
average 200 grams of lithium per ton. The metal has
increased in value by a factor of approximately four over
the last five years, as it has become the metal of choice
in fabricating large scale industrial batteries. Sutti
noted that initial tests indicated that the deposits were
also rich in potassium, a mineral that Mexico currently
imports to produce fertilizer. His firm contemplates an
investment of $1.8 billion to build three plants
dedicated to processing the rich deposits. Jos de Jesus
Parga, a geologist at the Autonomous University of
Zacatecas, predicted that the discovery would be of great
economic significance to Mexico, contributing to the
nation's food security, transforming it into a leading
exporter of lithium, and generating significant
employment in a part of Mexico economically-marginalized.
(Monterrey)

13. (U) USD $55 MILLION WHIRLPOOL INVESTMENT IN NUEVO
LEON: Luis Fernando Reyes Pacheco, President of
Whirlpool, Mexico, announced on October 7 the company's
decision to invest USD$55 million in its Apodaca, Nuevo
Leon, facility, where it produces its Supermatic line of
refrigerators. A production line in Evansville, Indiana
will be shut down and transferred to Nuevo Leon.
According to Reyes, the Apodaca plant will gain
approximately 1,100 jobs and production will increase
from 1.5 to 2.5 million units, the majority destined for
export. According to Michael Todman, president of
Whirlpool North America, the decision to relocate the
production line to Nuevo Leon was motivated by the
facility's advantages in capacity and competitiveness.
Reyes Pacheco notes that domestic sales of Whirlpool
products in Mexico have fallen 12%-15% since the economic
crisis began, but that the company expects to see a
rebound in sales by the third quarter of 2010.
(Monterrey)


MEXICO 00002996 005 OF 006


14. (U) OPERATION TO BE LAUNCHED AGAINST PIRATED
SOFTWARE IN NUEVO LEON: The Business Software Alliance
of Mexico (BSA) announced on October 12 an operation in
conjunction with the Mexican Institute of Industrial
Property (IMPI) to inspect software installations in
Nuevo Leon businesses. This would be the third such
inspection conducted this year. Prior inspections have,
according to IMPI, resulted in proceedings against 35
businesses using software for which they could not
provide licensing. From January to September of this
year, BSA initiated 1,019 proceedings against copyright
violators in Mexico: penalties range from administrative
sanctions to fines and damages equivalent to a 40%
premium over the original cost of the software pirated.
According to an October 6 government report, state and
federal authorities destroyed over 3 million pirated
items in Monterrey, including compact disks, video games,
DVD movies, tennis shoes, dish antennas, various kinds of
clothing, and equipment used to copy genuine articles,
such as disk burners and screen painters. (Monterrey)

15. (U) NUEVO LEON EXPORTS REBOUND: According to
statistics released by the state government of Nuevo Leon
last week, July's exports among the state's top seven
manufacturing sectors, including automotive, electronics,
and appliances, rose 19.4% over the monthly average six
months ago. While this incipient recovery still leaves
exports trailing 19% behind those of July 2008, according
to the Nuevo Leon government, the trend signals a
definite recovery. The lion's share of that recovery
belongs to the automotive sector, which has increased its
exports by 43% in from Jan to July 2009. That growth is
largely credited to the now ended U.S. "cash for
clunkers" stimulus and this recovery is still very
uncertain. (Monterrey)

---------------------------------
TRANSPORTATION AND INFRASTRUCTURE
---------------------------------

16. (U) NUEVO LEON'S HIGHWAY INFRASTRUCTURE EXPANDS:
Without fanfare, the new four-lane highway linking
Monterrey and Saltillo was opened to the public October
1. The project, initiated in March of 2007, is one year
behind schedule; planned lateral roads connecting the
route to Santa Catarina have not yet been completed.
Isolux Corsan, the Spanish contractor awarded the
concession to build the thoroughfare, will charge users
approximately $3.00 during the first two months of
operation and $3.60 thereafter to use the 50 KM highway.
The highway, constructed with hydraulic concrete, is
considered faster and safer than the existing link
between the capitals of Nuevo Leon and Coahuila, but
still offers a few risks to motorists in locations where
dividers and retention barriers to guard against
landslides have not yet been installed. (Monterrey)

17. (U) AEROMAR RETURNS TO MONTERREY: A year and a half
after ceasing operations in Monterrey, regional airline
Aeromar announced on October 5 its intention to return to
the city with twice daily connections to San Luis Potosi.
The company also announced plans to form an alliance with
Mexicana to create other more direct routes that would
avoid the need to pass through Mexico City. Aeromar
hopes to establish five routes out of Monterrey by 2010.
(Monterrey)

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

18. (U) NATIONAL HYDROCARBONS COMMISSION RECOMMENDS
PEMEX RETHINK CHICONTEPEC STRATEGY: Mexico's newly
created oil and gas sector regulator, the National
Hydrocarbons Commission (NHC) wants energy monopoly Pemex
to suspend new contracts at its Chicontepec oil field
until the state-owned company completes a study on how to
improve results. The NHC is in the process of submitting
its recommendations to Pemex but the decision will
ultimately be up to the company. Pemex has spent more
than $3.4 billion so far on Chicontepec, amidst promises
that the field's large reserves would halt declining

MEXICO 00002996 006 OF 006


Mexico's oil output. Production at the Chicontepec field
has lagged far behind its targets. The NHC is
recommending that Pemex halt new contracts and revise
existing ones until it can further study the geology of
the area. Pemex will study the recommendations made by
the NHC, Pemex officials insist that drilling in
Chicontepc will continue in the most profitable areas.
Pemex officials note that oil projects are long term and
cannot be turned off from one day to the next.
Investment in Chicontepec in the 2010 budget was cut from
26 billion pesos to 20 billion pesos. (Mexico City)

19. (U) CALDERON ANNOUNCES MEXICO TO ENTER IRENA AT
GLOBAL RENEWABLE ENERGY FORUM: President Calderon used
his opening remarks at the Global Renewable Energy Forum
(GREF) in Guanajuato to announce that Mexico will become
a member of the International Renewable Energy Agency.
He added that the GOM new investments in the electricity
sector would focus more heavily on renewable, but
provided no details. Over a thousand participants from
forty countries attended the GREF October 7-9 in Leon
Guanajuato. The organization was co-hosted by the
Government of Mexico and UNIDO and well attended by
senior Mexican officials (four cabinet secretaries),
foreign government and private sector representatives.
Participants agreed that to promote renewable energy
technologies, governments needed to establish a price for
carbon; create stable and long term programs to support
renewables; support commercialization of technologies and
follow the market. Participants also agreed that
renewable could be used to support rural electrification,
but noted that electrification would not lead to
development unless electricity is used for productive
activities. (Mexico City)

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

20. (U) OCTOBER 5 NORTH AMERICAN INFLUENZA MEETING IN
MEXICO CITY: The GOM hosted a North American trilateral
meeting to address H1N1 response capabilities on October
5 at the Secretariat of Foreign Relations in Mexico City.
The trilateral focused on improving North American
preparation and cooperation strategies during the 2009-
2010 H1N1 influenza season. Participants pledged to keep
each other informed about vaccination programs and to
exchange scientific and medical influenza experts to
deepen channels of communication between public health
agencies. The Mexican side subsequently put forth a set
of action items that, if they are agreed, are
comprehensive enough to form the basis of a new
trilateral agreement on pandemic influenza. (Mexico
City)

21. (U) H1N1 CLAIMS 14TH VICTIM IN NUEVO LEON: With the
death of a 59 year old woman on October 12, Nuevo Leon
confirmed the 15th fatality caused by the H1N1 virus
since the season began. The state has confirmed 2,081
cases of infection as of October 13. On October 7, Nuevo
Leon Governor Rodrigo Medina announced that his
administration would invest $1.7 million USD in programs
designed to combat the virus. Those funds will purchase
vaccinations, 10K doses of Tamiflu and 10K doses of
Relenza, 40 respirators, 500 oximeters - used to measure
pulse - and other needed equipment. Health Secretary
Villarreal is confident that the state is ready to deal
with this latest wave of infections, which he credits to
students having returned to school in recent months. He
warns that this wave could bring from 75-300 mortalities.
(Monterrey)

PASCUAL

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