MORE HELP FOR MEXICO'S SME'S HIT HARD BY H1N1

UNCLAS SECTION 01 OF 02 MEXICO 001298 SENSITIVE, SIPDIS FED FOR DURDU TREAS FOR JARPE USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD E.O. 12958: N/A TAGS: ECON EFIN ETRD KFLU TBIO PINR PGOV PREL MX SUBJECT: MORE HELP FOR MEXICO'S SME'S HIT HARD BY H1N1 REF: Mexico 1260 ¶1. This is the second in a series of cables reporting on the economic impact of the influenza outbreak in Mexico. ¶2. (SBU) Summary: In response to criticism of last week's economic rescue package (see reftel) for businesses hurt by the influenza outbreak was met with mixed reviews, with many businesses and analysts saying that it was insufficient. In response to this criticism, Finance Secretary Carstens announced May 11 an additional 11 billion pesos (USD 837 million) program to finance SMEs hurt by the influenza outbreak. The program, the biggest emergency financing this decade, will target businesses in the tourism, airline and pork industries. Private sector response has been positive. End Summary. ¶3. (U) So far, Mexico has confirmed a total of 2,059 cases of H1N1 influenza, including 56 deaths, Health Secretary Cordova told the press on May 11. While Mexico has been praised domestically and internationally for its shutdown of commercial activity to slow the spread of the H1N1 virus, Finance Secretary Carstens admitted that the outbreak has had a significant impact on Mexico's already weakened economy, and that it will shave as much as 0.5 percent from Mexico's GDP this year (although recently he has retreated from this dire prediction to a more palatable 0.3 percent negative impact). To help the economy recover, last week Carstens unveiled a stimulus package of 18.8 billion pesos (USD 1.4 billion),including 2.2 billion pesos (USD 167 million) in loans and loan guarantees for SMEs in the tourism, airline and pork industries. ¶4. (U) Facing increasing criticism that this rescue program was insufficient, on May 11 Carstens announced a second financial package to extend liquidity further for these hard-hit SMEs. Two funds will be established through Mexico's public development lenders Nacional Financiera (Nafinsa) and Bancomext, which will guarantee: -- 5 billion pesos (USD 380 million) of financing to SMEs; -- 2 billion pesos (USD 152 million) of financing to tourism, dining, and entertainment providers; -- 3 billion pesos (USD 228 million) of financing to the domestic airline industry; and, -- 1 billion pesos (USD 76 million) to Mexico's pork producers. ¶5. (U) At least 11 banks will participate in these funds and �00A;finance the loans. According to Carstens, in most cases the loans will not require real collateral. The loans, which will be available starting May 15, will range from USD 11,406 to USD 152,000, and will carry a fixed annual rate of 12 percent with a grace period of three months to begin repayment. The government may also postpone or extend the payment due dates should the business be unable to comply. Development banks will also make available 4 billion pesos to restructure existing loans. Ignacio Deschamps Gonzlez, president of the Mexican Banking Association, believes the program "could benefit about 12,000 micro-companies and almost 5,000 small and medium-size businesses." Most of these businesses, said Deschamps, are in Mexico City, the State of Mexico and San Luis Potosi, the states which had the most influenza cases and consequently the states whose businesses suffered the most. ¶6. (U) In a separate press conference, Tourism Secretary Elizondo announced a series of measures to revitalize tourism in Mexico. Through an interagency effort involving the Secretariats of Tourism, Finance, Economy, Labor, Social Development and Foreign Affairs, the Mexican government will work to keep the AIR connectivity to tourist destinations, provide additional liquidity to tourist businesses, protect employment, and revitalize Mexico's image as a popular tourist destination. On the last point, the Tourism Secretariat will create a 1 billion peso (USD 760 million) fund to promote domestic and international tourism in Mexico. Additionally, the Tax Administration Service will expedite tax returns for businesses in the tourism sector. PRIVATE SECTOR RESPONSE POSITIVE -------------- ¶7. (U) Unlike the first package, businesses and analysts have responded positively. Arturo Mendicuti, Chairman of the National Commerce Chamber (Canaco) in Mexico City, called the initiative "encouraging." Andres Conesa, the Director General of Aeromexico, told the press that the government's support for the airline sector MEXICO 00001298 002 OF 002 was "positive." However, Miguel Torruco, Chairman of Mexico's National Tourist Confederation, opined that the government should analyze the long-term impact of the program. While the loans give badly-needed liquidity to businesses now, he said, they also mean more debt. ¶8. (U) Comment: These additional measures will be welcome news for Mexico's SMEs in the hard-hit tourism, airline and pork industries, many of whom incurred such losses because of the mandated closure that they have been unable to reopen their doors. The government appears to be doing as much as possible to implement public policies conducive to a vigorous economic recovery. There are also some potential positive externalities to consider. This program may help stimulate credit in Mexico, where businesses usually obtain financing from their suppliers rather than from Mexico's financial institutions. Banks have historically been very demanding when extending loans to SMEs, but perhaps with government-backed guarantees, banks will be more flexible and less usurious. In addition, this may FORCE Mexico's financial institutions to restructure some of its past due loans, which despite the recession many have not done. End Comment. BASSETT