MEXICO ECONOMIC NOTES, FEBRUARY 29 - MARCH 7, 2008

UNCLAS SECTION 01 OF 03 MEXICO 000691

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TAGS: ECON ECPS EFIN ELAB MX PGOV PREL
SUBJECT: MEXICO ECONOMIC NOTES, FEBRUARY 29 - MARCH 7, 2008

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Summary
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1. (SBU) President Calderon on March 3 announced a series of
measures aimed at helping the Mexican economy weather the
U.S. economic slowdown. The package includes reductions in
provisional income tax payments between March and June 2008,
reductions in corporate payments to the social security
institute, and the lowering of electricity tariffs.
Separately, consumer prices rose slightly more than expected
in February to an annual rate of 3.72%. Two key themes
emerging from the Institutional Revolutionary Party,s (PRI)
79th anniversary celebration on March 4 were improved party
unification and continued electoral gains. Legislatures are
supposed to meet early next week discuss a watered down
antitrust bill that was taken off the agenda this week. End
Summary.

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Government Unveils Economic Support Package
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2. (U) President Calderon on March 3 announced a series of
measures aimed at helping the Mexican economy weather the
U.S. economic slowdown. Finance Secretary Carstens said
publicly that the government is in a strong fiscal position
following the approval of tax reform last year, so it has
decided to approve ten initiatives worth USD 5.6 billion to
support economic growth. Calderon remarked that the measures
will not affect the government's plans to maintain a balanced
budget this year. The support package includes the following
measures:

-- A 3% corporate tax break for the next five months

-- A 10% discount on commercial electricity fees and a 20%
discount on peak electricity rates (on top of cuts announced
last year)

-- A 5% reduction in company contributions to the Mexican
Social Security Institute this year

-- A USD 935-million increase in Pemex expenditures to
upgrade and expand its pipeline network

-- A USD 93 credit to individuals with entrepreneurial
activities who file their taxes online

-- Tax incentives and financing for companies that decide to
operate in the poorest parts of the country

-- Simplification of administrative requirements for
exporters and importers

-- Approximately USD 60 million of additional funds for the
National Employment System

-- The acceleration of Fiscal Year 2008 funding to
development banks in order to promote economic activity and
extend more credit to small- and medium-sized companies (SMEs)

-- The establishment of a government-run webpage to
consolidate all job openings in the country.


3. (SBU) Calderon used a speech to the National Chamber of
Manufacturers (CANACINTRA) on March 4 to highlight the new
initiatives, and received applause for the measures reducing
social security taxes and electricity rates. He remarked
that the program includes concrete measures that will help
boost the productive sector and benefit SMEs. Business
leaders and market analysts viewed the program as a positive

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step, but underscored the need for the plan to be implemented
quickly and efficiently and for additional measures to
improve Mexico's competitiveness. (Comment: These measures,
which can be expected to provide only a limited boost to the
economy, are largely political in nature. Calderon needs to
be seen as doing something to protect Mexico from a potential
U.S. recession. That said, it is noteworthy that the
government is giving money back to the private sector to
stimulate growth rather than simply boosting public spending
as it has often done in the past. End Comment.)

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Inflation Rose Slightly More Than Expected
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4. (U) Consumer price inflation climbed 0.3% to an annual
rate of 3.72% in February -- up slightly from 3.70% at the
end of January. The increase exceeded the 0.24% median
estimate of 23 economists surveyed by Bloomberg. Core
inflation, which excludes food and energy costs, rose 0.47%
to an annual 4.14% on higher costs for processed foods and
housing. While inflation figures have been slightly better
than expected this year, these numbers show that inflationary
pressures persist. The reading also may dampen expectations
that the Bank of Mexico will trim rates in the first half of
the year.

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The PRI Turns 79
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5. (SBU) On March 4, Labor Counselor attended the 79th
Anniversary celebration of the PRI, Mexico's former ruling
political party. The event played to a packed house at the
National Auditorium, and repeatedly stressed the theme that
the party was becoming more unified and would continue to
gain electoral victories ultimately culminating in the PRI
retaking the presidency in 2012. Most of Mexico's larger
national labor federations are officially affiliated with the
PRI and most of the heads of these organizations were invited
to the event. However, the top leaders of these national
federations were the only ones invited. According to one of
Labor Counselor's contacts, union officials below the level
of the number one spot were specifically not invited and
those who called the party asking for invitations were told
the event was already full. The event was full, but there
appeared to be an inordinate amount of people there whose
only function was to cheer on cue for Enrique Pena Nieto, the
governor of Mexico State. Pena Nieto is one of the PRI
hopefuls who is trying to become his party's next
presidential nominee. He has been working to establish a
close relationship with the party's national leader Beatriz
Paredes. Reportedly Paredes' office directly supervised the
list of invitees for this event and it appears that a
decision was made to admit Pena Nieto's cheering section at
the expense of a large number of important labor officials
from a broad variety of union organizations.

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Marked Up Antitrust Bill Delayed
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6. (U) A watered down antitrust bill was taken off the
legislative agenda this week. Legislators had proposed
changes to a bill that the Economy Committee in the Chamber
of Deputies approved last October. The modifications, which
include changing the way fines are imposed on offending
companies, clearly favor monopolies. This marked up bill was
pulled from the agenda after the head of Mexico's Federal
Competition Commission complained that the "counter proposal"
would have made it impossible for authorities to impose any
fines and reverse a lack of competition that has hurt the

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economy. The Economy Committee is supposed to meet with
officials from the antitrust commission and the Finance
Secretariat on March 10 to discuss the future of the bill.

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