Mexico Economic Weekly - July 10

UNCLAS SECTION 01 OF 03 MEXICO 002038 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 - July 10 ¶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 Joe Salazar (salazarje3@state.gov) for questions or comments about this report. ¶2. (U) Table of Contents: ECONOMY AND FINANCE: -------------- IMF PREDICTS MEXICAN ECONOMY WILL CONTRACT 7.3 PERCENT - Mexico City ANTI-TRUST COMMISSION DECLARES TELMEX DOMINANT - Mexico City ECONOMY MINISTRY AND UNIVERSITY LURE MICROENTERPRISES OUT OF THE INFORMAL SECTOR - Tijuana GUADALAJARA PRIVATE SCHOOL INSCRIPTIONS DOWN 20 PERCENT - Guadalajara PACE OF JOB LOSSES SLOWS IN CHIHUAHUA - Ciudad Juarez TRADE AND INVESTMENT: -------------- GRADUAL ECONOMIC IMPROVEMENT IN MAQUILA SECTOR - Matamoros CEMEX STILL SCRAMBLING TO SHORE UP BALANCE SHEETS - Monterrey LG ELECTRONICS SHIFTS OPERATIONS IN MEXICO - Monterrey and Matamoros AILING U.S. AUTO INDUSTRY BLAMED FOR TRADE DECLINE IN EL PASO-JUAREZ CORRIDOR - Ciudad Juarez ENERGY AND ENVIRONMENT: -------------- SENER LAUNCHES A NATIONAL ENERGY TRANSITION AND SUSTAINABLE ENERGY STRATEGY - Mexico City -------------- ECONOMY AND FINANCE: -------------- ¶1. (U) IMF PREDICTS MEXICAN ECONOMY WILL CONTRACT 7.3 PERCENT: The International Monetary Fund stated on July 8 that Mexico will be the country most affected by the global crisis. It revised its downward economic projection to an overall decline of 7.3 percent for Mexico in 2009. The IMF also projects that the Mexican economy will register a modest rebound of 3 percent in 2010. Bank of Mexico Governor Guillermo Ortiz reportedly responded that given the deep decline this year, the economy could have a stronger recovery than the IMF believes. However, he noted that this will depend on the U.S. recovery. He also called for the cooperation of the new PRI-dominated Mexican Congress in approving structural reforms, especially tax reform. He agreed with some lawmakers that now is not the perfect time to implement new taxes, but added that the approval and implementation of a medium-term fiscal plan, aimed at strengthening the country's public finances, is critical to recovery efforts. He also suggested eliminating existing tax loopholes and reducing tax evasion. (Mexico City) ¶2. (U) ANTI-TRUST COMMISSION DECLARES TELMEX DOMINANT: In another bite at the apple, Mexico's anti-monopoly commission (CFC) issued a more definitive resolution confirming the dominance of incumbent Telmex in fixed line, local transit in 191 local services areas and in the wholesale leasing of dedicated lines. Billionaire Carlos Slim's Telmex has been in their sights for more than a decade now, and in 1997 the company had won the first court battles against the anti-monopoly commission. In 2000, Mexican telecom regulator Cofetel issued specific rules based on the ruling issued on 1997, but Telmex filed an injunction and won the case years later. This new ruling does not include sanctions, but is merely a more direct description of the telecommunications market's situation. It is now up to Cofetel to issue special rules in order to ensure a more MEXICO 00002038 002 OF 003 equitable balance in the market. Cofetel's commissioner Gonzalo Martinez Pous commented to the press that the regulator will have to decide whether to issue a general asymmetric regulation or specific rules for Telmex. Such specific rules could be challenged in the courts, which could nullify the entire ruling and its effect on the dominant company. Telmex has 20 days to submit a reconsideration statement. (Mexico City) ¶3. (U) ECONOMY MINISTRY AND UNIVERSITY LURE MICROENTERPRISES OUT OF THE INFORMAL SECTOR: In an effort to encourage small and medium size enterprises (PYMES by their Spanish acronym) to register with the Mexican social security agency (IMSS) and the Finance Secretariat (Hacienda),the Baja California State Ministry of Economic Development (SDE) and the Universidad Autonoma de Baja California (UABC) have launched a program to offer these small, irregular enterprises non-financial technical assistance and the right to apply for a MX$5500 peso loan in exchange for registering with IMSS. The goal of the program is to assist 11,000 PYMES, generate 22,000 jobs, and also to advertise the program in other states. The director of the program says increasing the number of PYMES operating in the formal sector will increase tax revenue and make it easier for the government to provide assistance during economic crises. (Tijuana) ¶4. (U) GUADALAJARA PRIVATE SCHOOL INSCRIPTIONS DOWN 20 PERCENT: Private school inscriptions in metropolitan Guadalajara for the 2009-2010 school year are down as much as 30 percent. In most schools, more 10 percent of the student body already is committed to leaving. According to a survey done by a trusted local paper, the economic crisis has severely impacted the educational sector; roughly one quarter of parents are behind in their payments, with some schools seeing up to 60 percent of families in arrears. Adding insult to injury, many parents are refusing to pay May fees because of the reduced number of classes during the influenza outbreak. Schools are attempting to deal with the shortage of funds by creating new payment plans and extending credit for cash-strapped families while withholding degrees until debts are paid in full. (Guadalajara) ¶5. (U) PACE OF JOB LOSSES SLOWS IN CHIHUAHUA: In a sign that the Chihuahua labor market might be beginning to stabilize, in May the State recorded its lowest month-over-month formal sector job loss total since June 2008. According to the Mexican social security agency (IMSS),Chihuahua lost 3,000 formal sector jobs in May, down from an average of 8,000 monthly job losses over the past 12 months. Statewide, over 94,000 jobs have disappeared since May 2008, with the manufacturing sector in Ciudad Juarez accounting for more than 54,000 of this total. The negative shock in external demand for goods produced in Chihuahua's maquiladora sector- particularly intermediate goods for the U.S. auto sector- largely explains this sharp contraction. As a result of this downturn, in the past year Ciudad Juarez lost one out of every five formal sector jobs. (Ciudad Juarez) -------------- TRADE AND INVESTMENT: -------------- ¶6. (U) GRADUAL ECONOMIC IMPROVEMENT IN MAQUILA SECTOR: The local Secretary for Economic Development and Employment (SEDEEM),Alfredo Gonzalez Fernandez, recently told the local media that the manufacturing sector in Tamaulipas will gradually begin to improve in the second half of this year. He said the impact of the U.S. economic recession was most obvious between March and June of this year, when the economy lost an average of 1,000 jobs per month. (Matamoros) ¶7. (U) CEMEX STILL SCRAMBLING TO SHORE UP BALANCE SHEETS: Cemex, the world's largest building materials supplier and third largest cement producer, came close to default on its corporate bonds and faced forced government intervention late last year. This year, it continues to face liquidity problems. The company's shares have fallen 30 percent in recent weeks after disappointing second quarter results and Strabag SE pulled out of a deal to purchase Cemex assets in Austria and Hungary. On July 8, the company announced it will place up to US$374 million in new debt backed by accounts receivables. However, the company still needs to raise US$4.1 billion by the end of this year and another US$10.4 billion in 2011 to roll over maturing debt. Given the tight worldwide market for credit and the continuing slump in construction, the company faces a very dire financial situation. (Monterrey) MEXICO 00002038 003 OF 003 ¶8. (U) LG ELECTRONICS SHIFTS OPERATIONS IN MEXICO: As part of a national reorganization, electronics and appliance maker LG Electronics is closing its plant in Mexicali and will expand plants in Reynosa and Apodaca (near Monterrey). LG will spend over US$100 million over the next three years at the two plants to increase production, creating 1,200 new jobs in Reynosa and 1,300 in Apodaca. The plant in Reynosa produces LCD televisions and the Apodaca plant manufactures stoves, refrigerators, and microwaves. The manufacturing of cellular phone components currently done at the Mexicali plant will be transferred to plants in China and South Korea. Since January, three other companies announced production expansions in Reynosa - Corning Cable Systems, Rowe International Corporation, and BSN Medical. Additionally, a local economic development contact told the consulate's reporting officer that some corporations have begun moving their headquarters into Reynosa, or nearby on the U.S. side (McAllen, TX),to lower their costs. The latest example is Alps Electronics, which is moving their headquarters from Detroit to McAllen. (Monterrey and Matamoros) ¶9. (U) AILING U.S. AUTO INDUSTRY BLAMED FOR TRADE DECLINE IN EL PASO-JUAREZ CORRIDOR: The total value of trade through El Paso-Ciudad Juarez ports of entry fell by 0.5 percent, to US$41.2 million, from 2007 to 2008. This slight decline contrasts with the 5.5 percent increase in total U.S.-Mexico bilateral trade during this same period, according to U.S. Department of Commerce statistics. Dallas Federal Reserve analyst Roberto Coronado attributes this asymmetry in large part to lower production at maquiladora plants in Ciudad Juarez that service the U.S. auto industry. Despite the decline, El Paso-Ciudad Juarez ports of entry remain second only to Nuevo Laredo in terms of trade volume, accounting for 11 percent of total U.S.-Mexico trade. (Ciudad Juarez) -------------- ENERGY AND ENVIRONMENT: -------------- ¶10. (U) SENER LAUNCHES A NATIONAL ENERGY TRANSITION AND SUSTAINABLE ENERGY STRATEGY: On July 7, the Energy Secretariat (SENER) officially announced its plan to promote energy efficiency, the use of clean energy sources, and the reduction of the country's reliance on hydrocarbons. The federal government will funnel US$1.5 billion to implement more than 50 projects in order to foster the use of new technologies to generate renewable energy, create standards for energy efficiency, and diversify energy sources. The government will also focus on strengthening the regulations for SENER, the Energy Regulatory Commission, and the National Commission for the Efficient Use of Energy. (Mexico City) FEELEY