MEXICO Economic Notes, November 30-December 6,

UNCLAS SECTION 01 OF 03 MEXICO 006810

SIPDIS

SIPDIS

STATE FOR A/S SHANNON
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (Alice Faibishenko)
DOE FOR INTERNATIOANL AFFAIRS KDEUTSCH AND SLADISLAW
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)
NSC FOR DAN FISK

E.O. 12958: N/A
TAGS: ECON ENRG ELAB EFIN PGOV PREL MX
SUBJECT: MEXICO Economic Notes, November 30-December 6,
2006

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Summary
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1. (U) President Felipe Calderon Hinojosa followed his
short, but successful inauguration with a speech at the
National Auditorium detailing key goals of his
administration. CalderonQs Secretaries of Finance,
Economics and Labor have named their respective
undersecretaries. The new Director General of Pemex said
his goal is to promote reform, but not privatization. On a
separate note, inflation expectations improve slightly. End
Summary.

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CalderonQs three commitments
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2. (U) After the December 1 swearing-in ceremony, Calderon
addressed supporters and the civil society representatives
at the National Auditorium. There, the new President
committed to work hard to resolve existing political
differences and said he will always be willing to dialogue,
but that he wonQt wait for this dialogue to happen in order
to start working. Calderon instructed his Security Cabinet
to prepare a proposal to combat organized and other crime,
to strengthen the police, and to create a unique national,
criminal information database in no more than 90 days.
Calderon acknowledged that fighting poverty and social
inequality were among his main challenges. He promised to
allocate more resources and use public resources more
efficiently to alleviate poverty. Calderon said he would
improve health services and education as well. He
instructed his Social Cabinet to maintain and improve
existing programs.


3. (U) Calderon instructed the Economic Cabinet to present
in December a program to reallocate public expenditures
and, during the first quarter of 2007, to prepare measures
to make the productive sector more efficient. In this
context, his cabinet will also have to incorporate
resources for the QFirst Employment ProgramQ (in which
employers will be exempted from social security fees if
they hire young people that are looking for their first
job). In summary, as stated by Calderon, his three main
priorities will be: security, extreme poverty reduction,
and creation of jobs. Calderon also announced that he
would reduce top officialsQ salaries by 10 percent and also
reduce government administrative costs. Finally, he
promised to send to Congress an electoral reform to
regulate expenses and duration of campaigns.
Official designations in Hacienda


4. (U) The top three aides to Finance Secretary Agustin
Carstens will be Alejandro Werner as Under Secretary of
Finance; Ernesto Cordero (key Calderon transition staffer)
as Under Secretary of Expenditures; and Fernando Sanchez
Ugarte (former consul in Oregon) as Under Secretary of
Revenue The Secretariat of Finance also announced the
following designations: Eugenia Casar as treasurer; Jose
Antonio Gonzalez Anaya as Chief of the Coordination Unit
with State Governments; Alberto Real Benitez as SATQs
General Administrator; and Luis Roberto Patron as Customs
General Administrator (SAT). Jose Antonio Meade will be
CarstenQs coordinator of advisors. Roberto del Cueto will
be chairman of the National Banking and Securities
Commission; and Agustin Acosta will be chief of the
Financial Intelligence Unit.

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Continuity in Economia with SojoQs team
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5. (U) Eduardo SojoQs team is expected to give continuity
to EconomiaQs projects and more support to small and medium
sized enterprises (SMEs). Beatriz Leycegui was designated
Under Secretary of International Trade Negotiations;
Heriberto Felix was designated Under Secretary of Small and
Medium-Size Businesses; Carlos Arce (former head of the
Regulatory Improvement Commission and the ConsumerQs
Protection Office) was designated Under Secretary of
Foreign Investment and International Trade Practices; and
Rocio Ruiz was ratified in the Under Secretariat of
Industry and Commerce. Some applauded RuizQ ratification
because of her experience and knowledge, but some disagreed
because of her part in orchestrating the reduction of
several tariffs. Felix, former PAN candidate for Governor
of Sinaloa in 2004 and former PAN Senator will have to
implement new programs to support SMEs. Leycegui, who was
one of NAFTAQs negotiators and Jaime Serra PucheQs partner
in the private consulting group SAI, is seen as a technical
person that will continue with the trade opening policy.
Leycegui, who also collaborated in the Secretariat of
Foreign Affairs, will also have the task of taking
advantage of MexicoQs 12 foreign trade agreements with 42
countries. Alberto Ortega will be SojoQs Coordinator of
Advisors.

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Recycling at the Secretariat of Labor
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6. (U) The new Secretary of Labor, Javier Lozano,
designated the team that will accompany him during his
tenure. In the Under Secretariat of Labor, Security and
Social Prevision, he designated Alvaro Castro (former
Director of Religious Affairs in the Secretariat of the
Interior); as Under Secretary of Employment and Labor
Policy, Lozano named Javier Prieto de la Fuente, who is
former director of Institutional Affairs of Cemex and led
Concamin from 2001-2003, and is former advisor to Secretary
Carlos Abascal). Patricia Espinosa Torres will be the
Under Secretary for Human Development. Espinosa was a PAN
Deputy and Chief of the WomenQs National Institute.
Reyes Heroles on Energy Reform


7. (U) Jesus Reyes Heroles, new Pemex DG, said that his
goal is to have a business capable of guaranteeing an
abundant supply at competitive prices. However, he said
that this target does not mean that Pemex is going to be
privatized, or sold, nor does it mean an expansion of the
private sectorQs participation. Reyes Heroles said that in
order to accomplish his goal he would look into what is
needed to run Pemex better and more efficiently.
Separately, the chairman of the Energy Committee of the
Chamber of Deputies, David Maldonado (PAN),announced that
lawmakers are working to reform the Energy Regulatory
Commission (CRE). The reform will seek to grant powers
currently held by Hacienda to the Commission so that the
CRE establishes electricity and natural gas prices. The
goal is to eliminate subsidies and provide support only to
those who need it. Maldonado also stated that the
committeeQs challenge is to reach consensus in order to
pass Pemex corporate governance reforms, such as changes to
its tax regime and diluting the strength of the union on
PemexQs board of directors. Maldonado said that the
Mexican oil industry requires both public and private
investment.

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Inflation expectations improve
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8. (U) Inflation expectations improved slightly in late
November, but the growth expectations for 2007 worsened to
3.5 percent according to the latest survey from the Mexican

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central bank. The market expects annual inflation to end
2006 at 3.9 percent compared to the previous forecast of
4.0 last month. Inflation expectations for 2007 continue at
3.5 percent.

BASSETT