Identifier
Created
Classification
Origin
06MEXICO1470
2006-03-17 21:20:00
UNCLASSIFIED
Embassy Mexico
Cable title:  

THE COMPETITIVENESS FORUM: A FRANK LOOK AT

Tags:  EFIN EINV ECON EPET 
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UNCLAS SECTION 01 OF 02 MEXICO 001470 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EFIN EINV ECON EPET
SUBJECT: THE COMPETITIVENESS FORUM: A FRANK LOOK AT
MEXICO'S CHALLENGES AND OPPORTUNITIES

REF: MEX 06086

UNCLAS SECTION 01 OF 02 MEXICO 001470

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: EFIN EINV ECON EPET
SUBJECT: THE COMPETITIVENESS FORUM: A FRANK LOOK AT
MEXICO'S CHALLENGES AND OPPORTUNITIES

REF: MEX 06086


1. SUMMARY. The Special Commission for Competitiveness and
Regional Development for the Mexican Chamber of Deputies held
a forum to discuss the "Agenda to Promote the Competitiveness
of the Nation" on March 7-9 in Mexico City. Attendees heard
a wide range of viewpoints regarding the challenges the next
administration will confront in order to raise the
competitiveness of the Mexican economy, especially in light
of international competition. Most of the speakers agreed
that there is no panacea for enabling the Mexican economy to
compete more effectively in the global marketplace, but
instead positive change will depend upon durable political
leadership with the ability and will to enact difficult
reforms, foster a new openness to foreign investment, and
expand educational and social opportunities to all. The
attendees heard from representatives of the three leading
presidential candidates, business leaders, government
officials, and political analysts. END SUMMARY.

MORE COMPETITION NEEDED
--------------


2. Most of the representatives agreed that "crony
capitalism" and the lack of competition in many sectors of
the Mexican marketplace had resulted in higher prices, little
innovation, and a generally weaker Mexican economy versus the
economies of global competitors. Guillermo Ortiz Martinez,
Governor of the Bank of Mexico, flatly stated that Mexico's
ability to compete has been hurt by sectors of the economy
controlled by monopolies. Mr. Ortiz pointed out the
telecommunications sector, in which 94 percent of fixed
telephone lines, and 80 percent of cellular services are
controlled by one company (TelMex),thereby ensuring high
prices and poor service. Political scientist Denise Dresser
said that policymakers needed to ensure economic and
educational opportunities for all instead of the few "at the
top of the pyramid". She also demanded that policymakers
enact real reform, instead of superficial agreements such as
the Chapultpec Accord (reftel),an understanding between
business and political leaders to support a climate of
economic growth and increased investment which Dresser
claimed was good for appearances but lacked substance.

According to Dresser, "we cannot allow the wealth to be
concentrated in the hands of the Azcarragas (owner of
Televisa)...the Slims (owner of TelMex),at the expense of
the Sanchez (ordinary Mexican)."

SLIM RESPONDS
--------------


3. Responding to criticism from Ortiz, Dresser, and others,
Carlos Slim, the owner of TelMex and Mexico's richest man,
rejected the notion that his company stifles competition and
is to blame for the low competitiveness of the Mexican
economy. Slim stated that Ortiz was responsible for the
problem, by instituting high interest rates which inflate the
value of the peso. Slim also charged that Ortiz was a member
of a group of policymakers who protect the electricity
monopoly's high rates, in order to obtain revenue for public
funding.

ENERGY SECTOR REFORM
--------------


4. Reform of the energy sector was an important feature of
all three presidential candidates' plans. Nearly every
speaker at the conference noted how high energy prices,
coupled with fraud, waste, and abuse, were negatively
affecting the Mexican economy. Mr. Ortiz illustrated how
Mexico is currently wasting 16.2 percent of its energy, while
the world average is 9.6 percent. He also claimed that 30
percent of electricity production is stolen. In addition,
energy costs in Mexico are twice the average in the US, three
times the average in China. Both Jorge Chavez Presa,
spokesman for Roberto Madrazo (PRI),and Jorge Hinojosa
Moreno, spokesman for Filipe Calderon (PAN),emphasized that
substantial restructuring and reorganization of PEMEX may be
necessary. Both also called for modernization of the energy
sector infrastructure, with Hinojosa suggesting that private
sector investment and cooperation with state-owned
enterprises would be desirable. Rogelio Ramirez de la O, an
advisor to Andres Manuel Lopez Obrador (PRD),did not
emphasize internal reorganization of the sector, but stated
that additional resources should be allocated in order to
build at least two additional refineries, and to increase
production of crude oil and natural gas. Saying "energy is
an indispensable resource, reminding us how vulnerable we
are", Ramirez argued that the increased production should be
used internally, to cut imports and lower energy costs,
rather than to increase tax revenues.

MEXICO 00001470 002 OF 002



MORE RESEARCH AND DEVELOPMENT, PLEASE
--------------


5. Another central theme of the conference was the
importance of creating policies which increased the level of
research and development in the Mexican economy. According
to Jesus de la Rosa Ibarra, a leader in the industrial
sector, Mexico only spends 0.3 percent of GDP on R and D,
while the world average is 4.8 percent. He claimed that "the
speed and innovation isn't there (in Mexico). We need to
forget about what was and look to the future." De la Rosa
also pointed out that a higher percentage of Mexico's
workforce is in the service sector of the economy (compared
to the world average),and a greater emphasis should be put
on encouraging the growth of value-added, high-skilled
positions. Rene Villarreal, Undersecretary of Urban
Development, illustrated that the world economy was
transitioning from manufacturing to "mindfacturing," and that
Mexico "couldn't just focus on cheap labor as a motor for
growth." While there was consensus regarding the need for
increased R and D and the sharing of ideas on a global basis,
the speakers expressed doubt that the necessary reforms would
be enacted.

POLITICAL WILL
--------------


6. Most speakers emphasized the need for the Mexican
government to deregulate, open the economy to foreign
investment, and increase the competitiveness and dynamism of
the Mexican economy. However, there was also a general
realization of the challenging nature of the task. According
to Eduardo Perez Motta, President of the Federal Competition
Commission, "we have to face the interest groups first."
Isabel Guerrero, Director of the World Bank office in Mexico,
stated that "there is no discipline or political will to
confront interest groups." Some of the speakers blamed
Mexico's divided govenment and term limits for providing a
disincentive for Deputies and the President to take
accountability for difficult issues. Other speakers blamed
malfeasance by governmental leaders, suggesting that in
Mexico, politicians normally "bought the vote (through
wasteful expenditures) instead of winning it."

COMMENT
--------------


7. There was nearly universal agreement by Mexico's
political and economic leaders that, in order to face the
global economic threats posed by China, India, and others,
new strategies will need to be adopted. Despite being in a
period when the US economic growth has been steady, inflation
and interest rates low, and crude oil prices high, Mexican
economic growth and export position versus China has been
disappointing. The challenge for the new administration will
be enacting difficult reforms in the face of extreme pressure
from all-powerful interest groups, a task even optimistic
observers doubt may be possible in the near term. However,
the competitiveness conference demonstrated that there is
broad consensus across most of the political spectrum
regarding many of the solutions, which may be a first step.








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