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Identifier
Created
Classification
Origin
06MEXICO1884
2006-04-10 17:37:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Mexico
Cable title:  

MADRAZO'S ECONOMIC POLICIES: TWO VIEWS

Tags:   ECON  EFIN  PGOV  MX 
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RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1884/01 1001737
ZNR UUUUU ZZH
R 101737Z APR 06
FM AMEMBASSY MEXICO
TO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/SECSTATE WASHDC 0154
RUEATRS/DEPT OF TREASURY WASHDC
						UNCLAS SECTION 01 OF 02 MEXICO 001884 

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE PASS USAID FOR ROBERT KAHN
TREASURY FOR IA MEXICO DESK - JASPER HOEK
COMMERCE FOR ITA/MAC/NAFTA ANDREW RUDMAN

E.O. 12958: N/A
TAGS: ECON EFIN PGOV MX
SUBJECT: MADRAZO'S ECONOMIC POLICIES: TWO VIEWS


Sensitive but Unclassified, entire text.



1. (SBU) SUMMARY. In separate meetings, two factions of
the PRI's economic brain trust offered competing economic
visions of the GOM's likely economic policy should PRI
candidate Roberto Madrazo win the presidency. Jorge Chavez
Presa, Madrazo's chief economic advisor, described Madrazo's
platform as based on large structural reforms. According to
Chavez Presa, public finance reform, pension reform, labor
reform, and competitiveness reforms (including reforms in the
energy sector) are crucial to spur economic growth and
development in Mexico. However, two members of the PRI's
more traditional statist wing argued that economic growth is
attainable without structural reforms. Several names have
been floated for key economic positions in a Madrazo
administration, including Chavez Presa as Secretary of
Energy. END SUMMARY.



2. (SBU) Chavez Presa met with Econoff and Poloff March 10
to discuss the economic plan of PRI presidential candidate
Robert Madrazo. According to Chavez Presa, increasing public
and private saving will spur national private investment and
increase foreign direct investment (FDI). Government
investment in infrastructure will increase living standards
and improve public security. He also suggested that clusters
of development should be created, perhaps in
telecommunications and energy to encourage regional
development and promote small business.

PUBLIC FINANCE REFORM


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





3. (SBU) Chavez Presa identified public finance reform to
Econoff as the single most important reform. If elected,
Madrazo would simplify the tax system in order to increase
the tax base by fostering a "culture of contribution." He
noted that the PRI-supported lower corporate tax rate did not
result in lower tax revenues. Chavez Presa told Econoff that
an overhaul of the financial system is needed at all three
levels of government. Currently, 98 percent of all taxes are
collected by the federal government, leaving few resources
for state and local initiatives. Chavez Presa said that
Madrazo feels there is too much distance between the federal
government that obtains the tax and the state and local
governments that know what their populations need. There is
little transparency in the government's accounting and
decision making Chavez Presa noted that as more individuals
see their tax dollars being spent on projects that their
community needs, they will be more inclined to pay. He did
note to Emboffs that an effective enforcement system is
needed and that it may take a few years before witnessing
results provides an impetus to pay.

MODERNIZE LABOR INSTITUTIONS AND PENSIONS



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





4. (SBU) Chavez Presa stressed that labor institutions must
be modernized to be transparent and accountable. Pay
increases, he feels, should be tied to increases in
productivity. Chavez Presa went on to tell Emboffs that
Mexico should analyze other countries where workers move
between companies and between the private and public sector.
Portability is needed in order to permit workers to easily
transition between jobs, with their pension. Chavez Presa
stated that pension reform is an issue that state governments
must be involved with noting that the state of Nuevo Laredo
is the only state who has already revised its laws. COMMENT.
The National Governors Conference, CONAGO, came up with an
integral fiscal reform package that covered many of these
issues. The proposal was defeated in Congress by the PRI and
PRD. END COMMENT.

COMPETITIVENESS NEEDED - PARTICULARLY IN ENERGY


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

--



5. (SBU) Reforms to increase competitiveness are needed to
attract and keep FDI while lowering costs to avoid FDI flight
according to Chavez Presa. He identified the energy and
telecommunications sectors as areas where competitiveness is
key. The most forceful comment Chavez Presa made to Emboffs
was that reform in the energy sector does not/not imply
privatization. Chavez Presa suggested that regional economic
policy in Mexico is not controlled by the government but by
CFE and Pemex when they choose where to develop their
facilities. The effect of this, he claims, is migration from

MEXICO 00001884 002 OF 002


areas where the energy giants have not developed. Madrazo,
he feels, had firsthand experience with this as Governor and
will be prepared to deal with it. Chavez Presa explained
that Pemex uses a "Soviet style" plan that is not compatible
with the market economy of Mexico. Mexico's fiscal system is
determined by cyclical gas prices and the government creates
energy policy in order to compensate for a weak tax system.
Chavez Presa stated that Madrazo will permit competition in
the energy sector where alliances will be permitted to form
with the private sector where it is not efficient for Pemex
to complete a project alone.

SOME PRIISTAS DO NOT AGREE


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





6. (SBU) On March 8 Emboffs met with Ricardo Carrillo
Arronte and Jesus Alberto Cano Velez of the public finance
consulting firm "Aregional." Both are economic advisors to
the PRI. Carrillo and Cano are both also affiliated with the
PRI's more traditional, statist wing, and are not as close to
Madrazo as Chavez Presa. Both discounted Chavez Presa's view
that structural reforms are necessary in order to stimulate
growth. According to Carillo and Cano, a Madrazo government
could save three to four percent of GDP by reducing
expenditures on a variety of government programs. This money
could then be invested on infrastructure, creating new jobs
and providing an impetus to the private sector to invest in
infrastructure. COMMENT. This alternative for
infrastructure investment was presented to Chavez Presa, who
responded that any PRIista who felt that structural reform
was not necessary understood neither Madrazo's platform nor
what the country needs. END COMMENT.

POTENTIAL CANDIDATES


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





7. (SBU) Carillo and Cano suggested several possible
candidates for cabinet positions in a Madrazo government.
Former Ambassador and Deputy Foreign Secretary Andres
Rozental was mentioned for Foreign Relations with former
Ambassador to Cuba and Austria Roberta Lajous, Senator Silvia
Hernandez and Deputy Jose Alberto Aguilar all being mentioned
as Foreign Relations Undersecretaries. Chavez Presa, who is
very close to Madrazo, was mentioned as a candidate for
Secretary of Energy due to the success he had as

SIPDIS
Undersecretary for Energy Policy in the Zedillo
administration. Guillermo Ortiz (current head of the Bank of
Mexico), Francisco Suarez Davila (past Mexican Ambassador to
the OECD and PRI deputy who advanced fiscal reform), Santiago
Levy (former director of Mexico's Social Security Institute),
Agustin Carstens (former U/S of finance and current IMF
Deputy Director) and Pedro Aspe (former finance Secretary)
were all mentioned as potential candidates for Finance
Secretary.

SIPDIS

COMMENT


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





8. While many of Madrazo's proposals target areas of the
economy that have been identified by many individuals,
including some of the other candidates, as in need of
improvement, it is unclear how easily Madrazo would be able
to implement his new policies, particularly if Chavez Presa
is appointed as Energy Secretary as some have speculated.
There is clearly some dissension in the PRI party itself on
the correct manner to implement economic reforms. Chavez
Presa himself openly admitted that some of the key proposals
such as tax reform will take several years to develop.



Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity

GARZA