CANDIDATES AND THEIR OWN REFORMS

UNCLAS SECTION 01 OF 03 MEXICO 000953

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: CANDIDATES AND THEIR OWN REFORMS

REF: MEXICO 806

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SUMMARY
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1. On the campaign trail the week of February 14, Felipe
Calderon and Roberto Madrazo spoke on their reform
priorities while Andres Manuel Lopez Obrador (AMLO)
announced his "new" agenda, which centers around the idea
that no "so-called structural reforms" are needed. Calderon
continued promoting private investment in energy, fiscal
reform, Qbor reform, rule of law, and public safety, while
Madrazo promoted more limited private investment in energy,
and gave generic promises of improved security, and more
jobs. On February 20, Felipe Calderon presented his new
foreign affairs advisor, Arturo Sarukhan, a well-respected
career diplomat. End summary.

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AMLO SAYS NO TO REFORMS NEEDED
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2. (SBU) The three main presidential candidates continued
touring the country on their campaigns the week of February

12. AMLO made the biggest headlines by claiming that "so-
called structural reforms" to the Mexican economy - reforms
that nearly every major economist and analyst believe needed
to spur growth - are unnecessary. AMLO also instructed
Party of the Democratic Revolution (PRD),Workers' Party
(PT),and Convergencia party lawmakers to vote against
proposed reforms to the Fiscal Administration System (SAT,
Mexico's equivalent of the IRS) and other financial
institutions, as well as any proposed reforms to the Customs
agency, or to the stagnant energy sector. AMLO claims the
proposal to make the SAT an independent body would only help
tax evaders and protect those who, according to him, have
been privileged with tax benefits by previous
administrations. He alleged that greater autonomy for
Customs would only help hide corruption inside the
organization. For AMLO, fiscal reform merely represents a
tax increase on the poor by taxing food and medicine, and
the energy reform means "privatization" of the treasured oil
and electricity industries. He warned that that reforms to
public pension systems (ISSSTE and IMSS) would not pass
should he become president.

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AMLO'S "NEW" AGENDA
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3. (SBU) AMLO called for a new agenda that would "leave
behind the so-called structural reforms." He said such
reforms "are not structural, but rather regressive reforms;
a recipe dictated by international financial organizations
to countries." The new agenda includes vague promises of
economic growth, job creation, welfare for everybody, a
fight against corruption, sanctions against white-collar
executives, and fiscal austerity. AMLO plans to save
government money by reducing the salaries of the President,
Ministers, Senators, Deputies, judges of the Supreme Court
of Justice, and on the elimination of pensions to former
presidents (amounts that are trivial in an overall budget
approaching USD 200 billion).

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AMLO'S PROPOSALS
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4. (SBU) At a speech in the state of Coahuila, AMLO
summarized some of his major campaign proposals. He
promised to increase the minimum wage above the inflation
rate (apparently without considering the effects this might
have on inflation itself). He also promised to renegotiate
NAFTA provisions on beans and corn, apparently ignoring the
need for agreement by the U.S. and Canada. He said that
free trade in basic grains would not be effective in 2008.
Pandering to his audience, AMLO promised to set guaranteed
prices for beans and corn, and offered his support to apple
and meat producers as well. AMLO's plan to bring financing
to rural areas involves allowing local cooperatives to
operate regional banks. On fiscal reform, AMLO would like
to simplify the tax system through self-declarations of
income and by taxing only those who have "sufficient" money

MEXICO 00000953 002 OF 003


to pay. In the industrial state of Nuevo Leon, AMLO told
businessmen that he was not against them, and that he would
support them by reducing energy prices to turn Monterrey
into the industrial capital it "once was."

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RAMIREZ DE LA O DEFENDS AMLO
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5. (SBU) AMLO's economic advisor, Rogelio Ramirez de la O,
suggested that the private sector is indulging its
prejudices in believing negative publicity painting as a
radical socialist and an irresponsible spender. Defending
AMLO, Ramirez explained that AMLO's program to provide
pensions to certain groups would only represent an
additional 1% of GDP, while the candidate proposed to cut
government spending by 2% of GDP. Ramirez de la O said that
AMLO's economic plan proposes to re-channel savings derived
from cutting government operating expenses to public
investment while at the same time seeking the participation
of the private sector in such investments.

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MADRAZO'S THREE MAIN REFORMS
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6. (SBU) Institutional Revolutionary Party (PRI) candidate
Roberto Madrazo laid out his priorities for Mexico: energy,
security, and employment. Providing a few more details than
previously, Madrazo said he would revamp the energy sector
by establishing strategic alliances with private partners,
but always under the government control; eliminating
unnecessary positions at Pemex; increasing public resources
through amendments to tax laws; and by training managers and
technical workers. Madrazo said he would propose to
Congress a new fiscal regime for Pemex and the Federal
Electricity Commission without reducing transfers to the
states. He offered to promote autonomy and corporate
governance for both state-run companies.


7. (SBU) Focusing on rule of law, Madrazo offered to
increase the capabilities of federal police, create a
national intelligence system, establish a civil career
system for police forces, and modernize state and
municipalities police forces. Madrazo would put all federal
police forces would come under a single command. Madrazo
proposes to strengthen prosecutors' capabilities with new
technologies, but he would also make them liable/accountable
for the correct preparation of cases and the successful
conclusion of criminal cases. Madrazo promised to promote
oral trials, a development with tremendous potential improve
the judicial system's efficiency.


8. (SBU) Madrazo offered to analyze and modify the country's
labor framework to promote productivity and competitiveness.
To improve employment opportunities, he proposed the
creation of a national system that would advise the young
population on feasible work sources in coordination with
local government, businesses and other organizations. To
stem migration, the PRI candidate offered to create regional
businesses to strengthen regional economies and proposed the
creation of productive chains to guarantee the consumption
of local products. He would support business incubators for
students in conjunction with universities and businesses.
To gain the support of Congress, Madrazo said he would keep
legislators informed through reports on the current economic
situation and explain to them the benefits expected from his
proposed reforms.

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CALDERON'S COALITION GOVERNMENT
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9. (SBU) National Action Party candidate Felipe Calderon
continued to promote private investment in the energy
sector, a reduced and flat tax rate, greater interaction
with the global economy, government transparency, and a
continuation of Fox's social programs. Calderon also
addressed the issue of how he would achieve consensus if he
faced a divided Congress (as is nearly certain) after the
July elections. Citing the example of Germany's Angela
Merkel, Calderon said that he would create a coalition
government to gain the congressional support he needs to
pass his reform agenda.

MEXICO 00000953 003 OF 003



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CALDERON'S FOREIGN AFFAIRS ADVISOR
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10. (SBU) In a press conference, Calderon presented his new
foreign affairs advisor, Arturo Sarukhan, a career diplomat,
albeit with only twelve years of service. Sarukhan holds a
degree in history from UNAM, an MBA from the Colegio de
Mexico, and a Master's in international affairs from the
Johns Hopkins School of Advanced International Studies
(SAIS). During the current administration, Sarukhan served
as chief of staff for former Secretary of Foreign Affairs
Jorge Castaeda and, until recently, as consul in New York.

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COMMENT
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11. (SBU) Perhaps satisfied that the markets will not react
negatively should he win, AMLO seems to be turning up the
populist rhetoric. His rejection of structural reforms and
promises of government protections and handouts plays well
to his target audience. This could be the "real" AMLO, or
it could simply be a campaign tactic to solidify his base
and secure his lead. Madrazo, meanwhile continues to
struggle with PRI scandals, a lukewarm (at best) reception
by voters, and a desire to avoid alienting leftist elements
of his party who are opposed to needed reforms to the status
quo. Calderon offers more of what the Mexican economy needs
and acknowledges his need for congressional support to pass
is reforms. However, he is failing to attract voters beyond
his base which is currently not sufficient to win him the
presidency. End Comment.
GARZA