Identifier
Created
Classification
Origin
06MEXICO3494
2006-06-23 23:34:00
CONFIDENTIAL
Embassy Mexico
Cable title:  

SUBJECT: A CONVERSATION WITH AMLO,S INFRASTRUCTURE

Tags:  ECON EFIN EINV ENRG EAIR ELTM ETRD PREL MX 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 03 MEXICO 003494 

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E.O. 12958: DECL: 06/12/2016
TAGS: ECON EFIN EINV ENRG EAIR ELTM ETRD PREL MX
SUBJECT: SUBJECT: A CONVERSATION WITH AMLO,S INFRASTRUCTURE
ADVISOR


Classified By: ACTING ECON CHIEF JONATHAN KESSLER FOR REASONS 1.4(B) AN
D (D)

C O N F I D E N T I A L SECTION 01 OF 03 MEXICO 003494

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STATE PLEASE PASS TO USTR FOR JMELLE

E.O. 12958: DECL: 06/12/2016
TAGS: ECON EFIN EINV ENRG EAIR ELTM ETRD PREL MX
SUBJECT: SUBJECT: A CONVERSATION WITH AMLO,S INFRASTRUCTURE
ADVISOR


Classified By: ACTING ECON CHIEF JONATHAN KESSLER FOR REASONS 1.4(B) AN
D (D)


1. (C) Summary: Carlos Robles-Gil, a key infrastructure
advisor to PRD presidential candidate Andres Manuel Lopez
Obrador (AMLO),discussed AMLO's economic team and proposals
related to budget and finance, infrastructure, energy, and
trade policy. Robles-Gil said the PRD campaign expects AMLO
to win the presidency by at least six percentage points.
Nevertheless, he characterized the economic team as
uncoordinated and said the focus remains on winning the
election rather than flushing out policy proposals. End
summary.


2. (C) Econoff met June 22 with Carlos Robles-Gil, a former
director general at Mexico's airport authority (ASA) and
recent graduate of Harvard's Kennedy School of Government,
following Mexico's loss in the World Cup to Portugal.
Robles-Gil lamented Mexico's performance but said this was
good for the PRD (since the PAN is perceived to benefit from
Mexico's success in the games). Robles-Gil reiterated the
centrality of Rogelio Ramirez de la O to AMLO's economic
program, and named Gerardo Esquivel, a Harvard-trained PhD
economist, Eugenio Robles Aguayo, Mexico City's lead fiscal
attorney, and Carlos Urzua, Dean of Tec de Monterrey, as
other influential voices on financial matters. Robles-Gil
predicted that most of the senior people currently working
under Francisco Gil Diaz, Minister of Finance, would be
tossed out of Hacienda under an AMLO government.


3. (C) Robles-Gil recognized that it would be useful for AMLO
to name a finance minister immediately following a possible
victory in order to avoid pressure from vested interests, but
did not know how long AMLO would in fact take. He thought
that AMLO, if elected, would dispatch an economic team very

quickly to New York and London to reassure markets. (Note:
At a January breakfast with the Ambassador, AMLO stated he
would create his teams quickly and not wait until December to
start developing policy initiatives. End note.) Robles-Gil
also predicted that if AMLO wins the presidency the PRD would
negotiate successfully with the PRI to get legislation pushed
through the next congress. He added there would likely be a
quick "witch hunt" against AMLO's enemies following the
elections to "send a signal of strength." He named Arturo
Montiel Rojas (former governor of the State of Mexico),
Roberto Hernandez Ramirez (former director of Banamex),and
President Fox's step-children as examples.

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Budget and finance proposals
--------------


4. (C) Robles-Gil discussed three key problems that AMLO's
team believe have undermined Mexico's economy under President
Fox: an explosion in government spending and continued tax
evasion, the lack of investment in infrastructure, and high
domestic energy prices. AMLO's agenda for improving Mexico's
competitiveness addresses these issues by reducing the
highest official salaries, limiting perks such as
government-provided chauffeurs, eliminating wasteful or ghost
positions, and reducing bureaucratic structures to avoid
redundancies. AMLO's team believes Mexico can save at least
one percent of GDP by reducing federal spending and another
percent through synergies. The reduction in government
spending would be used to free resources for investment.


5. (C) Robles-Gil said tax revenues would be increased by
closing corporate tax loopholes and reducing tax evasion.
Savings could equal one percent of GDP. He noted that Arturo
Herrera Gutierrez, Mexico City's Secretary of Finance,
substantially increased the capital's tax revenues while AMLO
was mayor, and he could be tapped to head the Servicio de
Administracion Tributaria (SAT--Mexico's equivalent of the
IRS) in an AMLO administration. Under AMLO's plan, existing
tax rates would be preserved.

--------------
High speed trains to the border?
--------------


6. (C) AMLO views infrastructure development as key to
maintaining market share and investment momentum. His
short-term strategy for growth would focus on housing and
infrastructure development, including a framework for
public-private partnerships. Robles-Gil said AMLO's team is
looking at trains and airports, including building an isthmus

MEXICO 00003494 002 OF 003


railway corridor and lines from Mexico City to both Monterrey
and Guadalajara. He approximated initial railway development
costs at USD 32 billion and said AMLO has already sent a
delegation to Spain to discuss railcar purchases. Ramirez de
la O has said the first stage of transportation development
would be a railway from Mexico City to Queretaro.

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Cheaper gas, please
--------------


7. (C) AMLO views a reduction in domestic energy costs as
crucial to Mexico's competitiveness. Robles-Gil said gas is
not a fungible market and AMLO's advisors believe Mexico
should link domestic gas prices more closely to costs of
production rather than to high U.S. prices. Lower energy
costs will boost the competitiveness of Mexican industry,
attract investment, and increase jobs.


8. (C) Robles-Gil said AMLO recognizes that Pemex cannot
continue under its present condition. Pemex requires greater
autonomy and efficiency, but AMLO will not open it up to
privatization. His economic team believes that deep water
exploration is unnecessary; rather, Pemex should exploit
shallow water reserves in front of Veracruz and Tamalipas.
Robles-Gil acknowledged that the next finance minister would
face a dilemma as he searches for funds to pay for
infrastructure development and social programs before
government savings and funds from increased tax collection
are generated. Pemex will remain the government's cash cow
for the foreseeable future.

--------------
Don't bug me with trade
--------------


9. (C) Robles-Gil gave the impression that trade issues do
not make the list of campaign priorities. "I doubt whether
AMLO knows what the Doha Development Agenda is," he remarked.
He offered his understanding that AMLO would seek a
pragmatic relationship with the U.S. while seeking ways to
balance Mexico's international relations and reduce Mexico's
dependence on the U.S. economy. Perhaps AMLO would be
interested in Mercosur, but for now he is distancing himself
from Venezuelan President Hugo Chavez and would not discuss
Mercosur during the campaign. Robles Gil did not know how
AMLO intended to approach NAFTA, commenting only that the
presidential candidate believes the trade agreement "could be
enhanced." He added that key advisors like Ramirez de la O
and Manuel Camacho--who would likely receive a cabinet or
chief of staff position in an AMLO government--are
pragmatists and strong supporters of robust economic ties
with the U.S. "But the big question for AMLO is going to be
how to deal with the U.S.
immediately after he wins," Robles-Gil remarked.

--------------
Willing to go after special interests?
--------------


10. (C) Responding to a question about which monopolies AMLO
believes most damage the Mexican economy, Robles-Gil named
only Televisa. He then stated AMLO would focus on the
banking sector, which he views as vastly underused and making
enormous profits while doing little to promote Mexico's
growth. AMLO supports a truth and reconciliation commission
to uncover malfeasance that stemmed out of the GOM's massive
bailout of local banks following its 1995 currency collapse
and would seek to get money back from the banks. He would go
after two to three people, including Roberto Hernandez
Ramirez. "Mexicans are still paying for crooked bankers,"
Robles-Gil commented. When asked whether AMLO would
challenge Mexican billionaire Carlos Slim, he surmised that
AMLO's personal relationship with Slim would seem to preclude
this.

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We're ahead, now what?
--------------


11. (C) Comment: Robles-Gil presented an image of a confident
but chaotic campaign team, where little time is available for
working through difficult policy questions. Success for
AMLO's economic program relies on the continuation of
positive trends that are largely out of Mexico's control, as
well as investor confidence. AMLO's team continues to

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disregard the warnings of energy interests that characterize
AMLO's calls to divorce Mexico from world oil and gas markets
as "unrealistic". It is also not clear what effect AMLO's
aggressive stance towards local bankers would have on
international investors. Still, AMLO's economic advisors do
appear to recognize that Mexico will face difficult times
ahead if oil prices fall, interest rates continue to rise,
remittances slow, or the U.S. economy stumbles. AMLO's team
understands that maintaining investor confidence will require
reassuring the markets in the days immediately following a
potential victory, but it is not clear that the candidate has
yet formulated a plan for doing so.


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