Mexico Economic Weekly - December 19

UNCLAS MEXICO 003755


STATE FOR WHA/MEX, WHA/EPSC
STATE FOR EEB
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD
TREASURY FOR IA
ENERGY FOR WARD, LOCKWOOD AND DAVIS


E.O. 12958: N/A
TAGS: ECON EFIN ETRD ENRG ELTN EAIR PGOV SENV MX
SUBJECT: Mexico Economic Weekly - December 19


1. (U) The Mexico Economic Weekly supplements individual reporting
from the Consulates and the Embassy Mexico Economic Section to
provide a sense of ongoing trends. Please contact Adam Shub
(shubam@state.gov) or Sigrid Emrich (emrichs@state.gov) for
questions or comments about this report.


2. (U) Table of Contents:


FINANCE/ECONOMY:
--------------

BARCLAYS BANK: U.S. RECESSION HAS STRONG IMPACT ON MEXICO (Mexico
City)

MEXICAN DEPOSITS IN US BANKS CONTINUE TO INCREASE
(Matamoros)

OPORTUNIDADES TO INVEST IN 8,000 LOW-INCOME FAMILIES IN JUAREZ
(Ciudad Juarez)


TRADE AND INVESTMENT:
--------------

RECORD FDI IN 2008, DROP EXPECTED IN 2009 (Monterrey)


LABOR:
--------------

BUYOUTS VS. LAYOFFS (Matamoros)

SEASONAL PAY CUTS (Monterrey)

NOVEMBER JOB LOSSES FOR NUEVO LEON (Monterrey)


ENERGY:
--------------

GOVERNMENT RELEASES ENERGY OUTLOOK FOR 2008-2017 - PRIVATE EXPERTS
QUESTION STATISTICS:
(Mexico City)


ENVIRONMENT:
--------------

KANSAS DONATES TAPIR TO MEXICO CITY ZOO (Mexico City)

INDONESIAN EXPERIENCE WITH AVIAN INFLUENZA RESONATES WITH MEXICAN
OFFICIALS


FINANCE/ECONOMY:
--------------


3. (U) BARCLAYS: U.S. RECESSION HAS STRONG IMPACT HERE:
Mexican economic activity will fall significantly in 2009 despite
the government's efforts to minimize the impact of the global
financial and economic crisis. Mexico's economy will expand 1.8% in
2008 and 0.8% in 2009 according to Barclays. The firm predicts that
the central bank will relax its monetary policy accordingly during
the first half of the year, but assumes Mexico's Congress will
approve more structural reform projects after the mid-term elections
in July. The U.S. economic recession will have a strong impact on
Mexico, according to Barclay's because although the government has
tried to diversify its markets, 80% of its exports still go to the
U.S. Barclays foresees domestic demand falling and consumption
remaining flat, but expects the peso to appreciate.

Recently released figures already indicate that Mexico is
approaching the trough of a recession. On December 17, the National
Institute of Statistics (INEGI) reported Industrial production
contracted 2.7% year-on-year in October. All sectors contracted --
mining fell 5.2% year-on-year, manufacturing 2.2% and construction
2.9%. Industrial production between January and October showed no
growth from the same period last year. Mexican GDP is correlated
closely with U.S. industrial production, which means that the U.S.
economic slowdown has hit the country hard, causing GDP to
decelerate since the start of this year. While jobs were still being
created in the Mexican economy until recently, the latest data from
the Mexican Institute of Social Security (IMSS) show that nearly
50,000 formal sector jobs were lost last month. Comment: Output
will continue to decline, as will tourism and remittances from
Mexicans living in the United States. This means that the IMF growth
forecast of 0.9% next year and Barclay's 0.8% estimate appear overly
optimistic, with the economy entering a recession and rising
unemployment swelling the ranks of the informal sector. (Mexico
City)


4. (U) MEXICAN DEPOSITS IN US BANKS CONTINUE TO INCREASE:
Mexican clients continue to boost their deposits in US banks in the
border region, according to Lupe Zuniga, branch manager of First
National Bank in La Feria, Texas. "We're seeing more Mexican clients
boosting their savings accounts in our banks, and they're telling us
they're withdrawing from Mexican banks to do so," said Zuniga. The
bank is also moving forward with branch expansion efforts in
Monterrey and other Northern Mexico locations, taking advantage of
the growing perception that investments are safer in US banks.
Zuniga also noted that new Banamex locations in the Rio Grande
Valley and other border locations (REFTEL: Matamoros 214) are
expected to be less competitive with existing banks due to the same
perceptions about the security of US banks. (Matamoros)


5. (U) OPORTUNIDADES TO INVEST IN 8,000 LOW-INCOME FAMILIES IN
JUAREZ:
Oportunidades, the Mexican government's principal anti-poverty
program, will invest in 8,000 additional families in Ciudad Juarez
in 2009. This increase in participation will triple the number of
families that currently participate in the program in Juarez
according to Sergio Barraza Pak, the Director of Oportunidades in
Chihuahua. Oportunidades helps low-income families invest in their
children's education, health and nutrition by providing cash
transfers conditioned on the children's school attendance and
regular health assessments. The program's design seeks to break
poverty traps, which are often multi-generational. Many parents
cannot afford to send their children to school, and pull them out to
work at an early age. The program attempts break the cycle by
providing parents an income equivalent to what their children may
earn. Mr. Barraza Pak reported that the new families selected to
participate in the program will receive 230 to 840 pesos a month,
per child. The new participants are primarily migrants from
southern Mexico. The program's increased coverage seeks to
ameliorate the negative impact of the current economic crisis.
(Ciudad Juarez)


6. (U) MONTERREY TECH TO FUND START UPS:
Monterrey's leading University, the Tecnolsgico de Monterrey or
Monterrey Tech, announced a new US $12 million fund to help finance
new companies December 14. Both Mexican and U.S. investors
contributed to the fund which is managed by the university. The
project is also receiving technical guidance from Mexico's national
"Fondo Pyme" (SME Fund). The fund hopes to make its first
investments in January. (Monterrey)

TRADE AND INVESTMENT:
--------------


7. (U) NUEVO LEAN GETS RECORD INVESTMENT IN 2008, DROP EXPECTED IN
2009:
Nuevo Leon received $5.5 billion USD in foreign direct investment
(FDI) in 2008, far more than the $1.8 billion received in 2007,
according to preliminary figures from the Nuevo Leon Secretary of
Economic Development. Nuevo Leon's FDI also generated 210,000 jobs
over 2008, although employers are now cutting employment. The 2008
FDI statistics were inflated by a one time purchase of the IMSA
steel company, but generally FDI was spread between metal mechanics
(32%),automotive (23%),services (16%),and electronics and
domestic appliances (8% each). Despite the rosy results in 2008, a
Nuevo Leon official privately told Econoff that considering the
current condition of the economy, the state will need to work hard
to receive $1 billion in FDI in 2009. (Monterrey)


LABOR:
--------------


8. (U) MAQUILADORAS TURN TO BUYOUTS RATHER THAN LAYOFFS
A number of maquiladora managers are reducing workforces via buyouts
rather than layoffs to reduce costs. Under Mexican labor law,
laying off employees can be an expensive venture. Mike Myers,
manager of Metal Industries, Inc., in Reynosa recently reduced his
workforce of 300 employees 10 percent by offering a buyout. "I made
an offer to the workforce that anyone who was considering leaving
the company could earn a bonus by resigning within a certain
timeframe," said Myers. Financially, the buyout cost Metal
Industries significantly less than formal layoffs due to Mexican
labor laws. Members of the Reynosa Maquiladora Association (RAMMAC)
report that other firms are using similar workforce reduction
tactics. The result of such employee separation policies could be
discrepancies between official layoff and workforce reduction
statistics and total labor force statistics. Employees bought out
will appear to have left via attrition, though their decision to
resign was encouraged by management to reduce payroll expenses.
(Matamoros)


9. (U) U.S. AUTO MAKERS FACE SEASONAL PAY CUTS:
GM and Chrysler announced December 16 that during their regular
season plant shutdown 20,000 employees in Saltillo will receive only
50% of their normal salary. The companies blamed falling sales and
the lack of liquidity as the primary reason for not being able to
offer full compensation. (Monterrey)


10. (U) NOVEMBER JOB LOSSES FOR NUEVO LEON:
The heavily industrial state of Nuevo Leon reported a loss of nearly
8,000 jobs for November compared to a gain of nearly 7,000 jobs in

2007. The hardest hit sectors were manufacturing and construction.
Local economist Abel Hibert cited the economic crisis and especially
the uncertainty in the automotive sector as the primary reason for
the layoffs. (Monterrey)


ENERGY:
--------------


11. (SBU) GOVERNMENT RELEASES ENERGY OUTLOOK FOR 2008-2017 -
PRIVATE EXPERTS QUESTION OPTIMISTIC PRODUCTION FIGURES:
The government expects to increase oil production from the current
2.8 million barrels a day to 3 million barrels a day by 2012
according to the 2008-2027 Energy Outlook presented by Secretary
Kessel December 10. With the construction of two new refineries,
said Kessel, Mexico will be able to reduce its imports of gasoline
and generate more jobs and income. The government will invest US$
24 billion to the energy sector in 2009. Private sector experts
question whether Pemex can raise production to 3 billion barrels a
day by 2012 given a minimal level of deepwater exploration and the
technical challenges involved with the Chicontepec field. (Mexico
City)


ENVIRONMENT:
--------------


12. (U) KANSAS DONATES TAPIR TO MEXICO CITY ZOO:
The Sedgwick County Zoo's December 8 donation of a baird's tapir
(Tapirus bairdii) to the Chapultepec Zoo marks the beginning of the
Mexico City zoo's tapir reproduction program. According to
Chapultepec Zoo Director Dr. Jose Bernal Stoppen only 1,400 to 4,000
baird's tapir's remain in the wild in Mexico due to encroachments on
the tapir's habitat and poaching. Mexico City environment
secretary, Martha Delgado Peralta, said that bringing the tapir to
Mexico City is part of the city's Green Agenda. Chapultepec Zoo has
over 6 million visitors annually, and has been successful with
Mexican wolf and California condor conservation programs. (Mexico
City)


13. (U) INDONESIAN EXPERIENCE WITH AVIAN INFLUENZA RESONATES WITH
MEXICAN OFFICIALS: Lingga Setawian, Economic Counselor, Embassy of
Indonesia shared Indonesia's experience managing the pandemic. The
Mexico City Avian Influenza working group December 17, , established
under the Security and Prosperity Partnership is chaired by the U.S.
Embassy and brings together experts to discuss strategies for
addressing avian influenza. In light of the MOU signed between
Indonesia's and Mexico's agricultural ministers on 17 Nov 2008,
SAGARPA director Dr. Igor Romero extended his organization's offer
of cooperation in the area of chicken vaccinations, use of
surveillance labs and scientific exchanges. Dr. Ietza Bojorquez,
SALUD director of edipemiolgy and Dr. Ethel Palacios, project
director, expressed interest in continuing discussions with
Indonesia around the issue WTO vaccination benefit sharing.
Lingga's story resonated with Mexican government officials who
noted shared challenges with backyard farmers, industry
communication programs, and managing international aid and
perceptions. While Lingga noted that backyard chickens were banned
from Jakarta, the government is concerned the H5N1 virus is
spreading to song birds (Mexico City)

Bassett