MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT

UNCLAS SECTION 01 OF 02 MADRID 003093 SIPDIS SENSITIVE SIPDIS EUR/WE E.O. 12958: N/A TAGS: ECON ETRD EAID EAGR TBIO SP EINV EWWT PREL EAIR, UK, KIPR SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT REF: A. MADRID 2362 ¶B. LONDON 7429 MADRID 00003093 001.2 OF 002 ¶1. ECON: Spanish economic growth ¶2. EAGR: Ethanol production ¶3. EAID: Spain sends aid to Phillippines ¶4. ECON: Spain to stop subsidizing energy prices ¶5. EAIR: New direct flight to Gibraltar ¶6. EAID: 700 million USD to UNDP ¶7. KIPR: Anti-pirating campaign Spanish Economic Growth in 2006 Higher than Forecast - 2007 Growth will also be Strong: ¶1. (U) The Spanish Cabinet released numbers on December 22 estimating 2006 growth will be 3.8% instead of 3.4% as predicted earlier. Higher growth will translate into sharply higher revenues in 2006, amounting to 1.4% of GDP instead of the 0.9% of GDP forecast earlier. Next year, the Spanish government estimates the economy will grow by 3.4% instead of the 3.2% predicted last July. (Comment: The government argues that growth is becoming more "balanced". This is a politically important assertion because many observers believe that Spain cannot rely indefinitely on construction and consumer spending to prop up growth, particularly given Spain's current account deficit. The government points out that the growth in internal demand is tapering off somewhat. It also says that investment in capital goods is up (important because such investment should increase productivity). There are some numbers to back up these assertions. The government also forecasts increases in exports, probably the hardest thing for Spain to achieve given current strength of the euro. The bottom line though for now is that Spain continues to enjoy higher than average Eurozone economic growth and is the only big EU economy with a budget surplus. The latest numbers released by the government suggest that the economy will be in good shape in time for the March 2008 parliamentary elections so other issues will probably overshadow the electoral contest.) Spanish Ethanol Production - U.S. Wheat Export Prospects ¶2. (U) The prospects for additional U.S. high-quality wheat shipments to Spain may be further dampened as a result of Abengoa's, Spain's largest producer of ethanol, recently-announced decision to switch from wheat-to-barley as its primary raw-material source for ethanol production. This decision will mean an additional 50 thousand tons of wheat per month available within the Spanish market. While the wheat in question is very likely to have been of the poorest quality available on the Spanish market, it may free-up better-quality Spanish wheat to be milled, which, in turn, may require less high-protein, high quality Hard Red Spring wheat (available for the United States) as a compliment to produce the required flour quality. ¶3. (U) U.S. high-quality wheat exports to Spain this year have been languishing because; Spanish importers and flour millers have been resisting the very high world prices. The Abengoa decision may play into importers/millers favor with additional wheat in the market place. AECI sends emergency assistance to the Philippines Typhoon Victims: ¶4. (U) On December 3, the Spanish Agency for International Cooperation (AECI) dispatched a Defense Ministry Hercules transport aircraft with humanitarian aid for the people affected by Typhoon Durian. The assistance consisted of a water treatment plant, a water distribution unit, 600 cans to transport 10 liters of water each, two pallets of waterproof tarps, tents, two electric generators, blankets, a field hospital, medical supplies, and three pallets of medicines. The pharmaceutical shipment included emergency supplies for 10,000 people for three months, as well as specialized pediatrics, obstetrics, and traumatology medicines. In addition, a five-person sanitary team from a Spanish NGO, an expert in water purification, and one other expert from AECI's Humanitarian Aid office traveled to the zone on December 4. AECI also made an initial donation of 200,000 USD to help cover the cost of basic necessities - water and food - for thousands of Philippine families in the affected provinces. Spain to eliminate tariff deficit in electricity supply market ¶5. (U) The GOS announced on December 13 that it will eliminate the tariff deficit in its electricity supply market MADRID 00003093 002.2 OF 002 by 2010-2011. The tariff deficit stood at 3.8 trillion euro (5.05 trillion USD at 1.33 euro/dollar) in 2005. Speaking to Parliament, Spain's Minister of Industry, Tourism, and Trade, Joan Clos, stated that the average electricity tariff for domestic consumers will increase by 2.8 percent in 2007, a rate in line with the forecast rate of inflation. On December 14, Clos submitted draft legislation to CNE, Spain's energy regulator, with the aim to promote reduced energy consumption. Clos has previously been vocal in his view that the GOS can no longer continue to subsidize energy prices, noting that it is important to change "consumption habits in favor of energy savings." Clos also stated that this change "should be taken alongside the development of renewable energy." First direct flight between Madrid and Gibraltar lands on December 16 ¶6. (U) As a result of the historic September 18 Tripartite Accord on Gibraltar, the first direct flight from Madrid to Gibraltar took place on December 16. An Iberia A-319 Airbus departed from Madrid Barajas airport to complete the one hour flight. On board were representatives from Spain's Ministry of Foreign Affairs, including Deputy Foreign Minister Bernardino Leon and Director General for North America and Europe Jose Maria "Pepe" Pons. Representatives from the UK Embassy in Madrid were also on board. The passengers were met by Chief Minister of Gibraltar, Peter Caruana, upon arrival at North Front airport. The flight represents one of the most visible successes of the accord, and also marks the first time in 50 years that two GOS officials have publicly set foot on the isthmus between Gibraltar and Spain. Spain has always claimed that the isthmus, where the airport is located, was never ceded under the Treaty of Utrecht. See REFTEL A and B for background on the Gibraltar Tripartite Accord. Spain gives USD 700 million to UNDP to finance UN Millenium development goals ¶7. (U) Prime Minister Zapatero announced in New York December 18 that Spain had donated USD 700 million to UNDP to finance projects designated to advance the UN's Millenium Development Goals (MDG) agenda. The agreement was signed that same day by Spanish Agency for International Cooperation (AECI) head Leire Pajin and UNDP Administrator Kemal Dervis. The Spanish funds will be used to stand up a "UN Fund for the Accomplishment of the MDGs" that will be jointly administered by Spain and the UN. The new fund, which will disburse the Spanish monies over the next four years (2007-10),will finance programs in seven areas: (1) good governance; (2) gender equality; (3) basic social needs, including youth employment; (4) economic development (including private sector development); (5) environment and climate change; (6) conflict prevention and peacekeeping; and, (7) cultural diversity and development. In her remarks, Pajin said that Spain had already increased its funding of UN organizations (beyond normal dues assessments) from 93 million euros in 2005 to 481 million euros in 2006 and that this additional contribution of 528 million euros (700 million USD) further demonstrated Spain's commitment to the UN and the MDGs. Ministry of Culture initiates second antipirating campaign ¶8. (U) In a December 14 ceremony chaired by the Culture Ministry's Technical Secretary General, Concepcon Becerra, the Ministry of Culture presented the second part of its campaign entitled "Defend your Culture Against Pirating." The campaign, a continuance of measures programmed on April 8, 2005 under the Intellectual Property Rights Integral Plan for the Elimination of Violating Activities (better known as the Anti-pirating Plan),is programmed to spend 2.8 million euros. The campaign's message rejects the tolerance of piracy and underscores the need to protect the work and cultural investment of both creators and producers. It is also designed to defend the social and economical riches generated by culture and its community. The focal point of the campaign is to utilize the media, radio, television, internet, movie theaters and magazines to broadcast anti-pirating images and ads throughout the months of December and early January. AGUIRRE