MEXICO ECONOMIC NOTES, FEBRUARY 29 - MARCH 7, 2008

UNCLAS SECTION 01 OF 03 MEXICO 000691 SIPDIS SENSITIVE SIPDIS 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/ARUDMAN USDOC FOR ITS/TD/ENERGY DIVISION TREASURY FOR IA (ANA JEWEL/LUYEN TRAN) DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD STATE PASS TO USTR (EISSENSTAT/MELLE) STATE PASS TO FEDERAL RESERVE (ANDREA RAFFO) NSC FOR DAN FISK E.O. 12958: N/A TAGS: ECON ECPS EFIN ELAB MX PGOV PREL SUBJECT: MEXICO ECONOMIC NOTES, FEBRUARY 29 - MARCH 7, 2008 -------------- Summary -------------- ¶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. -------------- Government Unveils Economic Support Package -------------- ¶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 MEXICO 00000691 002 OF 003 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.) -------------- Inflation Rose Slightly More Than Expected -------------- ¶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. -------------- The PRI Turns 79 -------------- ¶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. -------------- Marked Up Antitrust Bill Delayed -------------- ¶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 MEXICO 00000691 003 OF 003 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. SIPDIS Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity and the North American Partnership Blog at http://www.intelink.gov/communities/state/nap / GARZA