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Identifier
Created
Classification
Origin
06MEXICO1797
2006-04-06 15:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Mexico
Cable title:  

AMLO ADVISOR TALKS "FISCAL DISCIPLINE" WHILE

Tags:   ECON  EFIN  EINV  PGOV  PINR  MX 
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VZCZCXRO4726
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1797/01 0961505
ZNR UUUUU ZZH
R 061505Z APR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0039
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
						UNCLAS SECTION 01 OF 02 MEXICO 001797 

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE PASS USAID FOR LAC:MARK CARRATO
TREASURY FOR IA MEXICO DESK: JASPER HOEK
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV PINR MX
SUBJECT: AMLO ADVISOR TALKS "FISCAL DISCIPLINE" WHILE
MADRAZO AND CALDERON TURN TO POPULISM

Ref:

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SUMMARY
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1. (SBU) While economist Rogelio Ramirez de la O tried to
soothe concerns about Andres Manuel Lopez Obrador's (PRD)
intentions for the country's fiscal and monetary policies;
Felipe Calderon (PAN) and Roberto Madrazo (PRI) adopt
populist tints in their own speeches. Ramirez de la O said
AMLO will maintain fiscal discipline and inflation control;
Calderon said he will modify the monetary policy by
eliminating the "corto" to promote competitiveness; and
Roberto Madrazo outlined proposals to improve the country's
competitiveness, stressing the importance of structural
reforms. End summary.



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AMLO WILL ASSURE FISCAL RESPONSIBILITY


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





2. (SBU) In press interviews the first week of April, AMLO's
economic advisor, Rogelio Ramirez de la O, tried to calm
concerns about the PRD candidate's plans for inflation
control and fiscal discipline. He emphasized that fiscal
prudence and inflation control will be their priority and
that they would not increase the government's indebtedness
significantly. Ramirez de la O's comments came after Lopez
Obrador stated that the well-respected Bank of Mexico's
governor, Guillermo Ortiz, should resign. AMLO has also
expressed the need to modify the Bank of Mexico's objective
to include economic and employment growth. Ramirez de la O
said that AMLO's rhetoric was just a campaign strategy, and
he didn't foresee any changes to the way the central bank
operates. The next step in AMLO's campaign is to try to
sooth private sector groups that have expressed deep
concerns about his proposals. Ramirez de la O explained
that AMLO's contribution to competitiveness will be to
reduce energy prices through cuts of Pemex's bureaucracy
costs, jobs and benefits - such as travel expenses. A
vigorous Pemex restructuring, he said, would allow savings
for up to USD 2 billion annually and finance the planned
reduction in domestic energy prices.



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


MADRAZO TALKS ABOUT COMPETITIVENESS


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





3. (SBU) At the annual convention of the National
Telecommunications Chamber held in Veracruz March 30,
Roberto Madrazo took a page out of AMLO's populist book,
complaining about the failure of the current "neo-liberal"
model and spoke of his plans to improve the country's
competitiveness. As on previous occasions, Madrazo spoke of
the country's lag in competitiveness, without providing much
detail on his proposals. His project includes achieving a
"systemic competitiveness," in which each productive chain
has to become more competitive. He said, for example, that

he will strengthen the agricultural sector through more
infrastructure and new distribution channels. To make the
manufacturing sector more competitive, Madrazo proposed
reducing energy prices, improving access to new
technologies, reducing transportation costs and a making
labor markets more flexible. His fiscal "reform" includes a
more independent Tax Administration Agency, a lower income
tax to increase the taxpayer base, and a simplification of
the tax system. Madrazo said he would support a reform to
the pension systems to guarantee its financial viability.
He concluded that, "without reforms, there is no
competitiveness."



4. (SBU) Madrazo also spoke on competitiveness in the
telecommunications sector and technological convergence. On
the so-called Convergence Agreement being drafted by the
Ministry of Communications and Transportation (SCT), which
would allow cable TV companies to provide direct telephone
services and Telmex to provide video, Madrazo said he was
concerned about the sector's rush in having it passed 90
days before the elections. Madrazo fears that a bad
agreement would injure the whole sector if it failed to
promote a fair competition. When asked what he would do to
eliminate monopolies such as Telmex, Madrazo avoided the
question - answering that he would promote fair competition,

MEXICO 00001797 002 OF 002


a public telecommunications policy, and a stronger Federal
Communications Commission independent from SCT, capable of
sanctioning and regulating the sector more effectively.



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


CALDERON SAYS "CORTO" INJURES COMPETITIVENESS


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





5. (SBU) Motivated by a technical tie with AMLO in recent
PAN internal polls, Felipe Calderon criticized the use of
the corto by the Bank of Mexico. Calderon alleges that the
corto, as a monetary policy tool, distorts the exchange rate
and thus, the country's competitiveness. Although Calderon
said he firmly believed in the central bank's independence
and in a flexible exchange rate, he proposed the creation of
public policies to promote competitiveness and stimulate
exports with lower interest rates and a weaker peso.
Calderon said he would "request" through the Ministry of
Finance that the Bank of Mexico apply a neutral monetary
policy and that the corto be used only in exceptional cases.
(Comment: the Bank of Mexico has been gradually transiting
to the use of a reference rate as a tool to control
inflation. End comment)



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


COMMENT


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





8. (SBU) Following front-runner AMLO's strategy, Madrazo and
Calderon have begun adding populist tints to their recent
speeches: Madrazo's criticism of "neo-liberalism" is
something we have heard frequently in AMLO's speeches.
Likewise, Calderon casting blame on the central bank's
monetary policy for the lack of competitiveness. Perhaps
they have concluded that such rhetoric is useful for their
political campaigns. But - as Ramirez de la O pointed out
when defending AMLO - it doesn't mean they will act as they
preach when they come to power. In any event, their tactic
is not succeeding in soothing investors, who no doubt aren't
sure how much is rhetoric and how much is real.
GARZA