MEXICO ECONOMIC NOTES, MARCH 9 - MARCH 16

UNCLAS SECTION 01 OF 02 MEXICO 001367 SIPDIS SENSITIVE SIPDIS STATE FOR A/S SHANNON STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, INR/B STATE FOR EB/ESC MCMANUS AND IZZO USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD USDOC FOR ITS/TD/ENERGY DIVISION TREASURY FOR IA (ALICE FAIBISHENKO) DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD STATE PASS TO USTR (EISSENSTAT/MELLE) STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) NSC FOR DAN FISK PARIS FOR OECD E.O. 12958: N/A TAGS: ECON EFIN ENRG MX PGOV PINR PREL SUBJECT: MEXICO ECONOMIC NOTES, MARCH 9 - MARCH 16 REF: A. MEXICO 589 ¶B. MEXICO 1256 Summary -------------- ¶1. (SBU) A senior Mexican Treasury (Hacienda) official told emboffs that pension reform introduced this week would pass before a general fiscal reform because it was less contentious. The Mexican Senate nixed Carlos Hurtado as a new Deputy Governor of the Bank of Mexico (Central Bank). A judge released the man considered Mexico's "king of contraband" after declaring that the evidence presented against him by the Prosecutor General's Office, including documents provided by the USG, could not be corroborated. Pemex reported crude production in the fourth quarter of 2006 fell 6 percent quarter on quarter from 2005. The Inter-American Development Bank (IDB) and President Calderon signed a memorandum of understand for a USD 2.5 million credit line to be used for infrastructure projects. Mexican Senators will travel to the OECD in Paris to learn about fiscal policy. End summary. Hacienda Official on Reforms -------------- ¶2. (SBU) Econ Minister Counselor and Econoff on March 2 met with Miguel Messmacher Linartas, the new head of the Economic Planning Unit at the Finance Secretariat (Hacienda). Messmacher said that pension reform is at an advanced stage, and that he sees this reform being passed before fiscal reform because it is less contentious. He noted that the government will discuss pension reform with legislators and did not rule out the possibility of modifying the reform proposal that is already with the Senate. Regarding the Pemex reform being proposed by Senator Labastida (ref A, B), Messmacher said Hacienda wants to make sure the company will spend money efficiently before it allows the company to retain more taxes. That is, Pemex needs internal reforms before Hacienda will decrease its tax burden. Messmacher said that President Calderon and Finance Secretary Carstens work very long hours. (Bionote: Messmacher attended the Instituto Tecnologico Autonomo de Mexico (ITAM) and got his Ph.D. from Harvard. He told Econ Minister Counselor and Econoff that he knows Carstens from his days of working at Hacienda. Before assuming his current position, he was at the IMF for several years. Messmacher speaks English well, but with an accent.) Senate Nixes Bank of Mexico Pick -------------- ¶3. (SBU) Mexico's Senate officially rejected President Calderon's pick to fill a vacant seat on the Bank of Mexico's (BOM) board. In a conversation with Econoff on March 6, a BOM official agreed with local pundits that the opposition's rejection of Hurtado was political payback from days when Hurtado was Under Secretary of Expenditures. Opposition members maintain that Hurtado was an inappropriate candidate for the position. Calderon will have to send another name to Congress. Names being mentioned in the press include: Manuel Ramos Francia, the BOM's Director of Economic Research; Armando Baqueiro, the Director of Strategic Planning; and Lorenza Martinez, the Chief of Insurance, Securities, and Pensions at Hacienda. "King of Contraband" Released -------------- ¶4. (SBU) A judge released the man considered Mexico's "king MEXICO 00001367 002 OF 002 of contraband" after declaring that the evidence presented against him by the Prosecutor General's Office, including documents provided by the USG, could not be corroborated. Asa Barantz had been arrested in 2004 and sentenced to three years and three months in prison for having defrauded the Mexican government of USD 340,000 that he failed to pay on Chinese-origin clothing, much of it counterfeit, that he had imported into the country illegally. He was also charged with trying to bribe federal police after his arrest. Magistrate Carlos Olea Penaflores of the 19th Circuit Tribunal in Matamoros wrote a letter to the Mexican newspaper "Reforma" outlining his reasons for ordering Barantz's release. Among others, he claimed that a prosecution witness provided by the Embassy's DHS office later recanted his testimony against Barantz. Prosecutor General Eduardo Medina Mora told press that, while he respected the judge's ruling, he did not agree with it. Medina Mora said federal prosecutors would continue to investigate Barantz. The head of a business coalition for the protection of trademarks criticized Medina Mora's office for mishandling the case. 4th Quarter Crude Production Down -------------- ¶5. (U) In their 4th quarter conference call March 6, Pemex announced crude production in the fourth quarter of 2006 fell 6% quarter on quarter from 2005 to 3.1 million barrels per day, due both to bad weather which reduced shipments from offshore storage facilities and the decline of the Cantarell field. Also in the fourth quarter 2006, Pemex drilled 41% fewer exploratory wells nationwide quarter on quarter. In 2007 current Pemex plans call for drilling 27 development wells and performing 44 workovers in Cantarell, as well as installing nitrogen separation, dehydration, and desalinization facilities. Pemex will invest USD 13.9 billion in 2007 of which USD 12.3 billion will be in exploration and production. IDB Credit Line for Infrastructure Projects -------------- ¶6. (U) IDB and President Calderon signed a memorandum of understand for a USD 2.5 million credit line to be used for infrastructure projects. This credit line will serve as leverage for an additional amount of USD 7.5 billion from public and private sources. The credit line will be managed by the Mexican development bank, Banobras and channeled through the federal, state, and municipal levels. Legislators Learn Reform in Paris -------------- ¶7. (U) OECD Secretary General Jose Angel Gurria will meet with Mexican legislators, governors, and Hacienda officials in Paris March 26-29. The objective is to get the Mexican officials speaking with OECD experts on simplifying the tax system, expanding the database of taxpayers, and lowering the value added tax. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity GARZA