Mexico Economic Weekly - May 12

UNCLAS SECTION 01 OF 04 MEXICO 001306 SIPDIS SENSITIVE 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 - May 12 ¶1. (U) The Mexico Economic Weekly supplements reporting from Mission Mexico 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: ECONOMY AND FINANCE: -------------- SECOND FINANCIAL PACKAGE FOR SMES AND TOURISM AFFECTED BY THE H1N1 FLU - Mexico City SUPPORT FOR TOURISM SECTOR - Mexico City FORMAL SECTOR BUSINESS REGISTRATION FALLS BY 4.7% IN FIRST FOUR MONTHS OF 2009 - Ciudad Juarez STATE TAX REVENUE DECLINES 19 PERCENT IN FIRST QUARTER - Ciudad Juarez BANCO COMPARTAMOS EXPANDS LENDING TO THE POOR AMIDST ECONOMIC DOWNTURN IN CHIHUAHUA - Ciudad Juarez COMPANIES THAT DECLARED TECHNICAL UNEMPLOYMENT HAVE CLOSED - Tijuana TRADE AND INVESTMENT: -------------- CISCO TO LAUNCH MEXICO TRAINING ACADEMY IN MAY - Mexico City MAQUILADORA ASSOCIATION SEES IMPROVEMENT IN BAJA CALIFORNIA - Tijuana FUEL SALES PLUMMET - Tijuana MAQUILADORAS INCREASING SECURITY BRIEFINGS FOR MANAGERS - Matamoros MAQUILADORAS ADDRESS H1N1 INFLUENZA EFFECTS ON INDUSTRY - Matamoros TRANSPORTATION AND INFRASTRUCTURE: -------------- 1Q RESULTS AT CONTINENTAL AND AMERICAN PORTEND WEAKNESS IN MEXICAN AIR TRAVEL - Mexico City -------------- ECONOMY AND FINANCE: -------------- ¶3. (U) SECOND FINANCIAL PACKAGE FOR SMES AND TOURISM AFFECTED BY THE H1N1 FLU: Finance Secretary Agustin Carstens announced May 11 a second set of measures aimed at supporting SMEs negatively impacted by the H1N1 flu outbreak. The financial package includes guarantees provided by both development banks, as well as by FIRA and Financiera Rural (development banks for the agricultural sector),and loans given through commercial banks for 15 billion pesos (USD 1.1 billion -USD 837 million in new loans and USD 304 million for restructuring debts) during the second and third quarters of the year which will be directed to SMEs in the most affected sectors, such as: restaurants, hotels, airlines, transportation, entertainment businesses, and pork breeders. The 11 billion peso (USD 837 million) package will be distributed as follows: 5 billion pesos (USD 380 million) to SMEs; 2 billion (USD 152 million) pesos to the tourism, entertainment and restaurant sectors; 3 billion pesos (USD 228 million) to airlines; and 1 billion pesos (USD 76 million) to the pork sector. Most of these resources will be channeled to Mexico City, the State of Mexico and San Luis Potosi, the states which had the largest number of H1N1 cases and suffered the gravest economic consequences. This package represents the largest program to address an emergency implemented by the government in a decade. (Mexico City) ¶4. (U) SUPPORT FOR TOURISM SECTOR: Secretary of Tourism Rodolfo MEXICO 00001306 002 OF 004 Elizondo announced a separate series of measures to reactivate tourism in Mexico. An inter-agency effort, which involves the Secretariats of Tourism, Finance, Economy, Labor, Social Development, and Foreign Affairs, will maintain current air connectivity to tourist destinations, give liquidity to tourist businesses, protect employment, and reposition Mexico as a tourist destination domestically and abroad. Some of the measures were already announced by Carstens last week, such as reduced payroll, lodging and social security taxes for the tourism sector and a 50% discount on cruise lines and migration fees. The Tourism Secretariat also created a USD 15 million state/federal fund to promote tourism. The Finance and Tourism Secretariats, along with the Council for Tourism Promotion of Mexico (CPTM) created another one billion peso fund (USD 76 million) to promote tourism in Mexico and abroad. The Office of the President, the Mexican Embassy in Washington, PROMexico, the Secretariat of Tourism and the CPTM will participate in the campaign. To protect employment in the eleven most affected states, the Labor Secretariat and the Economic Development Secretariat implemented a temporary support program for employees in the tourism sector for the coming three months. (Mexico City) ¶5. (SBU) FORMAL SECTOR BUSINESS REGISTRATION FALLS BY 4.7% IN FIRST FOUR MONTHS OF 2009: The downward trend in business creation in Chihuahua continued during the first four months of 2009. According to the Mexican Business Information Database (SIEM),the total number of formal businesses registered in Chihuahua fell from 33,174 on January 1 to 31,602 on April 1. For the past three years, Chihuahua has ranked fourth in Mexico for total number of registered businesses. As a result of the recent closures, the state now ranks fifth behind the Federal District (117,356),Jalisco (90,373),State of Mexico (83,071) and Veracruz (33,397). Oscar Marquez Vega, President of the Chihuahua chapter of the National Chamber of Commerce (CANACO),commented that many businesses in Chihuahua have closed due to the economic slowdown, lack of credit availability, and extortion fees levied by organized crime. (Ciudad Juarez) ¶6. (U) STATE TAX REVENUE DECLINES 19 PERCENT IN FIRST QUARTER: The Chihuahua State Finance Secretary, Cristian Rodalegas, reported in late April that state tax revenue fell 19 percent during the first quarter of this year compared with the same period in 2008. Rodalegas cited lower revenue from income taxes, highway tolls and new vehicle registration as the principal source of the decline. He added that Governor Baeza (PRI) requested additional resources from Mexico's Treasury Department (Secretaria de Hacienda) to ensure that infrastructure and social programs slated for the remainder of the fiscal year will not be impacted. In 2008, Chihuahua federal transfers accounted for 83 percent of Chihuahua's budget. State fiscal deficits could place a further drag on federal coffers, which have been hit by the H1N1 influenza outbreak, falling oil revenue and increased infrastructure spending. For 2009, the Mexican Congress passed an economic stimulus measure permitting the federal budget deficit to reach 1.8%. (See also reftel Mexico 1260 on stimulus package) (Ciudad Juarez) ¶7. (U) BANCO COMPARTAMOS EXPANDS LENDING TO THE POOR AMIDST ECONOMIC DOWNTURN IN CHIHUAHUA: At a time when most sectors of Chihuahua's economy are contracting, Banco Compartamos - a micro-lending institution - is expanding credit as demand holds up from self-employed workers in the state. "Our customer base increased in 2008 as laid off workers increasingly turned to self employment for income," Regional Manager for Chihuahua and Sonora, Pablo Bodegas said. The Mexico City-based bank targets the country's large unbanked population, by offering short maturity loans ranging from $US 100 to $US 2,500. Compartamos advertises interest rates from 3.5 to 4.5 percent, but due to the short-term structure of the loans the annual percentage rate (APR) often exceeds 70 percent. Through mid-April, the bank's stock rose 41 percent, making it Mexico's second-best performing stock. In Chihuahua, Compartamos offers credit primarily to indigenous communities and women's groups to purchase raw materials and goods for micro-enterprises. Bodegas commented that since loans are made to groups, as opposed to individuals, borrowers rarely default. The bank's second quarter non-performing loan ratio stood at 1.9 percent, well below the industry average in Mexico. The success of Compartamos demonstrates the potential of "trapped" capital in the informal economy and that the rising mass of unemployed workers in Chihuahua is increasingly resorting to self-employment as they shift out of the formal sector. (Ciudad Juarez) -------------- TRADE AND INVESTMENT: MEXICO 00001306 003 OF 004 -------------- ¶8. (U) CISCO TO INVEST UP TO 5 BILLION IN MEXICO AND LAUNCH MEXICO TRAINING ACADEMY IN MAY: Cisco Systems has selected Mexico City as the site for its fifth Global Talent Acceleration Program (GTAP) Academy. GTAP schools help Cisco staff its emerging market offices and partner fiQ with qualified personnel. Of broader public benefit, GTAP is a step toward filling a gap in technical/network education provision and toward expansion of the local IT skill pool. Cisco's selection of Mexico coincides with the company's joint announcement with President Calderon that it will invest as much as USD 5 billion in Mexico over the next five years. Cisco is placing a large bet on long-term growth in Mexico. GTAP seeks to reduce the bet's downside as a down payment on reduced structural barriers to growth. Courses are scheduled to begin in late May. The initial investment (through month six) in the program is USD 1 million. (Mexico City) ¶9. (U) MAQUILADORA ASSOCIATION SEE AND IMPROVEMENT IN BAJA CALIFORNIA: Javier Martinez Luna, president of the Manufacturing Industry and Export Association of Tijuana (AIM),commented that there are various companies that have increased production lines and sales. This upturn has been seen especially in companies involved in the electronic industry. According to Martinez Luna Baja California will be the first one to emerge from the crisis. (Tijuana) ¶10. (U) TIJUANA FUEL SALES PLUMMET. As a result of the economic decline, sales of magna gasoline (i.e. basic gasoline) fell thirty percent and for diesel, fifty percent. Ramiro Zuiga Salazar, President of the association of owners of gas stations Onexpo Baja announced that this trend is expected to worsen because diesel is now more expensive than the magna gasoline. (Tijuana) ¶11. (U) MAQUILADORAS INCREASING SECURITY BRIEFINGS FOR MANAGERS: According to Clayton Consultants's statistics, Mexico has become the number one country in the world for kidnapping for ransom cases. Dale Bulkley, a senior consultant with Clayton, said corporate requests for security seminars in Mexico have increased significantly in the past 6 to 12 months. On April 22, Delphi Electronics and Safety hosted Dale Bulkley, addressing over 100 managers in both Matamoros and Reynosa on security practices, with a specific emphasis on anti-kidnapping measures. According to Damaso Rodriguez, human resources director for Mexican operations for Delphi, concerns from managers prompted the decision to hire the outside consultant firm to help prepare them for increasing threats of violence and kidnappings. . Bulkley said his organization had recently been employed in kidnapping recovery operations involving two mid-level managers in Reynosa. Aside from his presentation, Bulkley informed EconOff that his organization has also been very cognizant of threats to its consultants and tried to avoid publicity of seminars, particularly following the December kidnapping of fellow anti-kidnapping and security consultant Felix Batista in Saltillo, Coahuila. (Matamoros) ¶12. (U) MAQUILADORAS ADDRESS H1N1 INFLUENZA EFFECTS ON INDUSTRY: On April 28, members associations of CNIMME, the national maquiladora association, participated in a conference call to discuss the effects of the H1N1 Influenza outbreak (i.e. "Swine Flu") on the maquiladora industry. According to Roberto Mattus, director of the Matamoros Maquiladora Association (AMMAC),semantics over Secretary of Labor regulations regarding pregnant employees was a primary topic. According to Secretary of Labor rules, pregnant employees must be sent home with full pay when risky conditions exist in the workplace. However, managers in areas such as Matamoros that are relatively untouched by H1N1 influenza cases question whether claims are valid that such conditions exist in their plants, requiring them to give pregnant employees paid time off. Delphi Electronics and Safety, for example, currently has more than 200 pregnant employees in the region, according to Mattus, and their absence from the workforce could have a significant impact on productivity and finances, particularly in light of the recent economic downturn. Additionally, Mattus noted that an alleged increase in "red lights" stopping southbound commercial traffic at Mexican points of entry as a result of the outbreak has become a point of contention for regional maquiladora managers. Regarding specific H1N1 influenza cases among maquiladora workers, Mattus noted that the only mention during the national conference call was of two managers in Tijuana who allegedly showed symptoms and were forced to wait 24 hours to confirm that they did not have the virus before being allowed to cross the Mexico-US border. (Matamoros) MEXICO 00001306 004 OF 004 -------------- TRANSPORTATION AND INFRASTRUCTURE: -------------- ¶13. (U) 1Q RESULTS AT CONTINENTAL AND AMERICAN PORTEND WEAKNESS IN MEXICAN AIR TRAVEL: First quarter numbers from Continental and American Airlines, the largest U.S. air carriers in Mexico and Latin America, presage problems in Mexico. Where Latin American air travel avoided the worldwide fall in passenger numbers last autumn, at least in Mexico the downturn is now kicking in. American reported revenue-per-available-seat-mile (RASM) down 8% year-on-year and load factors down 6.1% for Latin America traffic. Continental saw RASM down 10.3% in Latin America. Locally-based airline executives noted results for Mexico track with those for the region as a whole. Such figures no longer outperform company-wide numbers. Business travel to/from Mexico has suffered most, but tourist travel is also off. To cope, the two carriers told econoff they are reducing capacity by slashing frequency of flights on many routes. They are also cutting fares and running promotions. Nonetheless, the drop in demand is significantly outpacing capacity cuts. For now, eliminating destinations altogether is not on the table. Continental currently has 29 stations in Mexico; American has 14. Continental flies late-model 737s and 50-passenger Embraers on Mexico routes. American draws on a more diverse, and older fleet. (Mexico City) BASSETT