MEXICO ECONOMIC NOTES, MAY 19 - MAY 25

UNCLAS SECTION 01 OF 02 MEXICO 002748

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SENSITIVE
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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/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

E.O. 12958: N/A
TAGS: ECON EFIN ELAB ENRG MX PGOV PREL
SUBJECT: MEXICO ECONOMIC NOTES, MAY 19 - MAY 25

Summary
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1. (SBU) Mexican inflation, though relatively high, fell in
the first half of May. PRI unions stood behind victorious
Yucatan gubernatorial candidate Ivonne Ortega, contributing
to her victory, despite unions' recent, less-than-active
support for PRI candidates. The U.S. and Mexican government
began discussing opportunities for cooperation on research on
Methane Hydrates, a potential future energy source. Economy
Secretary Sojo spoke enthusiastically about Mexico's

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potential for improving infrastructure. End Summary.

Inflation Slows
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2. (U) Consumer price inflation fell 0.51% in the first half
of May, exceeding the expectations of market analysts who had
forecasted a drop of only 0.16%. A Bank of Mexico (BOM)
report said that the prices of electricity, onions, and limes
dropped and thus resulted in overall lower consumer prices.
According to BOM Governor Guillermo Ortiz, inflation
expectations are well anchored despite the fact that
inflation is at the upper end of the Bank's comfort range.
Core inflation rose from 3.72% in April to 3.77%. While
analysts are split on whether the BOM will leave borrowing
rates at 7.25% or hike rates by a quarter-percentage point on
May 25, the new inflation figures will lessen expectations
for the latter decision.

PRI Unions Turn Out in Yucatan Elections
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3. (U) The winning PRI candidate in the May 20,
gubernatorial elections in Yucatan, Ivonne Ortega, received
considerable support from organized labor unions affiliated
with the party in her campaign. Approximately one week
before the election, post's Labor Counselor traveled to
Merida, Yucatan to attend an event organized by the National
Union of Railway Workers (STFRM). The PRI candidate briefly
attended the event and was escorted throughout by the
national leader of the STFRM. Also at the event and publicly
supporting the PRI candidate was the Chief of Staff of the
CROC, perhaps the third largest national union in Mexico.
The day before the election Labor Counselor spoke with
several senior officials of the Confederation of Mexican
Workers (CTM - roughly equivalent to the AFL-CIO) and they
indicated that their union was also putting all of their
efforts into supporting the PRI candidate. This united labor
front on behalf of a PRI candidate may well have contributed
to that party's victory. For the past year or so this type of
labor unity in support of the PRI has been the exception and
not the rule in Mexico's organized labor movement.

U.S. and Mexico Discuss Methane Hydrates
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4. (SBU) Representatives from the Department of Energy and
the U.S. Geological Survey met with their Mexican Energy
Secretariat and Pemex counterparts to discuss Mexico's

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participation in a combined U.S. and international, public
and private research effort to commercialize production of
Methane Hydrates, a potential large source of additional
natural gas. The group decided that Mexico would seek to
host a conference on the topic in the fall of 2007 under the
auspices of the North American Energy Working Group (NAEWG)
and the SPP to determine how Mexican researchers could best
participate. While Mexican institutions have done work in
this new field, the GOM is considering whether it can
participate fully in the international research project given
national sensitivity to working with private firms and
foreigners on energy projects, as well as legal restrictions

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on sharing data in the field.

Secretary Sojo Optimistic on

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Infrastructure Development
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5. (U) Secretary of Economy Eduardo Sojo, speaking at a
round table on the future of North American border
infrastructure, said that with current economic stability and
recent steps toward fiscal responsibility, Mexico is poised
to develop its infrastructure and foster further economic
growth. Conference participants agreed that continued lack
of sufficient infrastructure development will hurt
competitiveness in Mexico and the region as a whole. The
conference, which included public and private sector
representatives from the U.S., Mexico, and Canada centered on
the need for improved border infrastructure and solutions to
insure increased regional competitiveness.


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