Mexico Economic Weekly - March 13

UNCLAS MEXICO 000771


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 - March 13


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:


TRADE AND INVESTMENT:
--------------

NEW POLICE FORCE TO SUPPORT TOURISM IN TAMAULIPAS -
Matamoros

BRITISH AMBASSADOR VISITS TAMAULIPAS - Matamoros

CNIMME PRESIDENT VISITS RAMMAC - Matamoros

IVA TAX REFUNDS FRUSTRATING MAQUILADORA MANAGERS -
Matamoros

CEMEX CONTINUES TO FACE DEBT PROBEMS - Monterrey

AGRICULTURE EXPORTS - Monterrey

WILL SECURITY CONCERNS IMPACT INVESTMENT IN CHIHUAHUA?
Ciudad Juarez

STATE POLICE INCREASES SECURITY FOR MAQUILA SECTOR; CRIME
RATES DECLINE 60 PERCENT Q Ciudad Juarez

U.S COMPANY WILL INVEST IN BAJA CALIFORNIA - Tijuana

IN EARLY MARCH, MEXICAN PRESIDENT FELIPE CALDERON CAME TO
BAJA CALIFORNIA, VISITING TWO OF THE STATE'S MOST
IMPORTANT CITIES Q Tijuana


TRANSPORTATION AND INFRASTRUCTURE:
--------------

CANACAR PLANNING PROTESTS ON MARCH 23 - Matamoros


LABOR:
--------------

HIRING CONCERNS ABOUT PUBLIC SAFETY OVERHAUL - Matamoros

REDUCED WORKING CONDITIONS REMAIN HIGH - Matamoros


ECONOMY AND FINANCE:
--------------

JOB LOSSES SLOW - Monterrey


--------------
TRADE AND INVESTMENT:
--------------


3. (U) NEW POLICE FORCE TO SUPPORT TOURISM IN
TAMAULIPAS: Tamaulipas Secretary of Tourism, Javier
Villarreal, revealed plans this week for a new state
police force specifically aimed at protecting and helping
tourists. The force will consist of bilingual officers
specifically trained to serve in tourist destinations.
Villarreal also noted that a pilot program has already
been successfully implemented in the southern Tamaulipas
port city of Tampico. (Matamoros)


4. (U) BRITISH AMBASSADOR VISITS TAMAULIPAS: England's
ambassador to Mexico, Giles Paxman, was invited by Gov.
Eugenio Hernandez Flores to visit the state of Tamaulipas
during the week of March 2. According to Eduardo Manzur
Manzur, the state Secretary of Economy's general director
of industrial and commercial support, the Governor is
reaching out to foreign embassies in Mexico City to seek
direct promotion and support in attracting new
investments by "showing them the advantages of the region
and to take advantage of the businesses already operating
here." After visiting the southern port region of
Tampico, Altamira and Madero with Manzur Manzur, the
British ambassador met with the governor in Ciudad
Victoria before traveling with the state Secretary of
Economy's general director of investment promotion, Zonia
Torres, to the border town of Matamoros. In Matamoros,
Amb. Paxman met with Matamoros Mayor Erick Silva Santos
before visiting the Matamoros Maquiladora Association
(AMMAC). While public press reports noted that the visit
was geared toward general familiarization with the
regional economic conditions, as least part of the trip
was tied to security concerns in regard to current and
potential future British investments along the US/Mexico
border. According to AMMAC director Roberto Mattus,
"Ambassador Paxman is a smart man and he knows that we
are not like Juarez and Tijuana in regard to security
concerns." Mattus further noted that Q after meeting the
Ambassador last week Q he believed the visit was, in
part, to verify that Matamoros and the northeastern
Mexico border, while not devoid of security issues, is
not operating under the same security threats as other
industrial cities along the border. (Matamoros)


5. (U) CNIMME PRESIDENT VISITS RAMMAC: Cesar Castro,
president of the National Maquiladora Association
(CNIMME) visited Reynosa this week to meet Reynosa
Maquiladora Association (RAMMAC) managers regarding the
national organization's 2009 agenda. Castro told
managers that security concerns are the number one issue
for the national organization, assuring RAMMAC members at
its monthly meeting that the national organization is
working closely with federal entities to help create a
more secure operating environment for manufacturers.
Castro also noted efforts to assist managers with tax
concerns. RAMMAC President Dan McGrew commented on
managers' fears that decreasing oil revenues will put
added pressure on industry, particularly in regard to the
IETU tax, to fill the revenue gap for the federal
government. (Matamoros)


6. (U) IVA TAX REFUNDS FRUSTRATING MAQUILADORA MANAGERS:
Processes surrounding IVA tax refunds were prominent
topics of discussion at both the Matamoros Maquiladora
Association (AMMAC) and Reynosa Maquiladora Association
(RAMMAC) monthly meetings this week. Inconsistencies and
unclear deadlines of "opening and closing and opening and
closing windows" with the filing process Q according to
Vicente Dardenas, plant manager of Mervis in Lucio
Blanco, Tamaulipas Q have many managers upset about the
process. According to AMMAC President Monica Gonzalez
Greer, there is a great deal of frustration with the
process; so much so that AMMAC's guest speaker this month
was a representative of the Secretary of Hacienda who was
berated with questions about the process. AMMAC also
planned two working sessions in the upcoming week to help
managers work through the process. "ItQs not a local
problem . . . ItQs national," said AMMAC Director Roberto
Mattus. (Matamoros)


7. (U) CEMEX CONTINUES TO FACE DEBT PROBLEMS:
International building materials supplier and cement
producer Cemex is facing nearly US$17 billion of expiring
debt in the next five years and a possibility of default
because of the economic slowdown. On March 9, Cemex
announced that it has temporarily shelved plans to issue
US$500 million of new debt. According to press reports,
potential investors were asking for an interest rate of
near 20% for the company's bond issue to reflect the
increased risk based on falling domestic and
international demand -- even though Cemex had a 'BB' bond
rating from Standard & Poor's. About 25% of Cemex's
revenues come from the United States, 33% from Mexico and
the rest from other parts of the world. Cemex stock is
down over 80% compared to the same time last year. Now
that a bond issue has, for the time being, been ruled
out, Cemex must negotiate a line of credit with its
creditors. A Deutsche Bank analyst suspects the Mexican
government will be forced to intervene by providing loan
guarantees if Cemex cannot renegotiate its debt soon.
After the failed bond offering, Standard & Poor's further
downgraded Cemex's rating to 'B'. (Monterrey)


8. (U) AGRICULTURE EXPORTS: According to recently
published USDA figures, the United States agriculture
exports to Mexico totaled nearly US$16.1 billion in 2008,
a 26% increase over 2007, and nearly beat out exports to
Canada for the first time ever. Overall, agriculture
trade with Mexico represents a US$5.2 billion trade
surplus for the United States. The largest gains came
from bulk agriculture products such as wheat, coarse
grains, rice and soybeans. Trade exports from the United
States to Mexico have increased every year since the
implementation of NAFTA but exports are expected to
decline this year due to the economic crisis and the
possibility of retaliatory tariffs against the United
States for halting the Cross Border Trucking Program.
The FAS attache met with companies exporting near the
border the week of March 2; they reported that US food
exports already appear to be off 20% due to the
depreciation of the peso. (Monterrey)


9. (U) WILL SECURITY CONCERNS IMPACT INVESTMENT IN
CHIHUAHUA?: This past year, economic and security
conditions in Chihuahua deteriorated considerably. Total
foreign direct investment in 2008 fell by almost 40
percent compared to 2007, while homicides in Ciudad
Juarez increased by more than 500 percent. Still,
business organizations continue to insist that no
investors have decided against doing business in
Chihuahua because of the security environment. Rather,
they say, and other indicators seem to confirm, that the
fall in FDI has been principally driven by the economic
downturn in the US, especially in the US manufacturing
sector. According to the spokesperson for Grupo
Chihuahua de Cementos (GCC),Mexico's second largest
cement company after CEMEX, "the collapse in U.S. demand
has impacted sales more than the rising costs associated
with security." He explained that "security costs are
only one percent higher for the firm's operations in
Chihuahua than in the United States." Nonetheless, a
U.S. private equity investor with exposure in EPIC
Technologies, a U.S. electronic manufacturing firm with
two plants in Juarez, told Post that many of the firm's
current and potential customers refuse to visit their
plants in Juarez due to security concerns. These visits,
he stated, "are an essential step to winning business and
important to retaining it." Similar concerns are also
reflected by the rising number of requests by U.S.
investors for security briefings from Post's Regional
Security Officer (RSO). Many potential investors told
the RSO that they will delay investment until security
conditions improve. Yet for other firms, investment in
Chihuahua continues to make financial sense despite the
high crime rates, due to its proximity to US markets, low
labor costs and the declining value of the peso. (Ciudad
Juarez)


10. (U) STATE POLICE INCREASES SECURITY FOR MAQUILA
SECTOR; CRIME RATES DECLINE 60 PERCENT: In recent
months, Maquila employees have been the victims of
numerous armed assaults, kidnappings and extortion in
Ciudad Juarez. In response, on January 20, Chihuahua's
Industrial Police Division (CIPOL Industrial) increased
patrols and personnel dedicated to providing security for
the city's 19 industrial parks. Preliminary results
announced on March 6 by the President of the Maquila
Association in Ciudad Juarez (AMAC),Soledad Maynez
Bribiesca, show that the increased security presence has
led to a 60 percent decline in crime on Maquila
employees. She added, however, that crime rates remain
too high. Beginning this week, the number of police
assigned to protect the Maquila industry will increase
even further when 40 additional police join the 60
existing "CIPOL Industrial" officers currently
responsible for patrolling industrial parks. (Ciudad
Juarez)


11. (U) U.S COMPANY WILL INVEST IN BAJA CALIFORNIA: On
March 4, the Governor Osuna Millan of Baja California had
an appointment with the Company Kristal Enterprises, one
of the largest (OIM) manufacturers of stretch limousines
and luxury vehicles in the Unites States. This company
will establish a new plant in Mexicali, investing US$ 40
million and creating an estimated 500 jobs. (Tijuana)


12. (U) IN EARLY MARCH, MEXICAN PRESIDENT FELIPE
CALDERON CAME TO BAJA CALIFORNIA, VISITING TWO OF THE
STATE'S MOST IMPORTANT CITIES: On March 5, the President
toured the 'Punta Brava' real estate project in Ensenada,
where construction of a world-class golf course with
Tiger Woods' backing will soon begin. The following day,
the President visited Japanese enterprise "Kyocera
Mexicana" in Tijuana, where he made a commitment to build
an energy plant with solar panels. The President
emphasized that local companies enjoy a great advantage
due to their Baja California location. He took the
opportunity of his visit to also talk about Tijuana's
security issues. (Tijuana)

--------------
TRANSPORTATION AND INFRASTRUCTURE:
--------------


13. (U) CANACAR PLANNING PROTESTS ON MARCH 23:
Transportation union CANACAR notified the Reynosa
Maquiladora Association (RAMMAC) that it is planning a
protest against rising diesel fuel costs on March 23.
The local arm of the union plans to block commercial
traffic at the Reynosa-Pharr International Bridge, though
does not plan to disrupt passenger vehicle traffic.
While RAMMAC members are concerned about the potential
effects on their processes Q especially those employing
"just in time" manufacturing Q RAMMAC President Dan
McGrew said: "To their credit, they gave us two week's
notice." Both the mayor of Reynosa and the governor of
Tamaulipas have publicly stated that they were determined
to keep the bridges open following a rash of other
bridge-blocking protests in January and February.
According to Reynosa's Secretary of Economy Armando
Zertuche Zuani, the governor and the mayor are raising
the issue of the threatened CANACAR protest at the
highest levels Q with President Calderon Q in efforts to
help manufacturers keep goods flowing across the border.
(Matamoros)

--------------
LABOR:
--------------


14. (U) HIRING CONCERNS ABOUT PUBLIC SAFETY OVERHAUL:
The federal Secretary of Public Safety Genaro Garcia Luna
was in Tamaulipas this week in regard to a federal
program to overhaul corrupt and ineffective public safety
systems. Reynosa Secretary of Economic Development and
Employment Armando Zertuche Zuani met with Garcia Luna on
March 10 to discuss hiring needs in the region.
According to Zertuche Zuani, the federal plan calls for
6,000 new hires in Tamaulipas as entire public security
sectors Q including public security forces in Reynosa
are overhauled up to 100 percent, from police on the
street to administrative positions. While optimistic,
Zertuche Zuani said he recognizes a large challenge in
identifying enough qualified candidates. He even spoke
with South Texas economic development leaders about the
possibility of advertising available positions in Texas,
hoping to attract potentially eligible workers
especially dual nationals living in South Texas Q to work
in Reynosa. (Matamoros)


15. (U) REDUCED WORKING CONDITIONS REMAIN HIGH: Working
conditions in Matamoros maquiladoras remain strained as
the number of workers affected by reduce working
conditions remain roughly three times those affected in
November and December 2008 Q themselves the months with
the highest number of effected workers for 2008.
Matamoros Maquiladora Association (AMMAC) members
reported 4,511 and 5,156 workers affected by reduced
working conditions in the last two months of 2008,
respectively, but 22,982 and 15,057 in the first two
months of 2009, respectively. "There are still a lot of
people Q though they still have jobs Q who are working
fewer hours and making less money," said Angelica Gomez,
director of AMMAC's labor committee. However, AMMAC
President Monica Gonzalez Greer commented that "at least
the trend is in the right direction" as February saw a
marked improvement versus January, though still
significantly higher than any other month in recent
history. (Matamoros)

--------------
ECONOMY AND FINANCE:
--------------


16. (U) JOB LOSSES SLOW: Nuevo Leon lost 9,057 jobs in
February compared to losses of 15,859 in January and
32,391 in December. The employment report by the
Instituto Mexicano del Seguro Social (IMSS) also showed a
small increase of 500 part time employees. This uptick
in part time employment is the first increase since
September 2008 and was seen by an analyst as a sign that
job losses may be near its peak. A quarter of Nuevo
Leon's economy depends on manufacturing exports so the
state remains at risk of a further weakening of the U.S.
economy. Final trade numbers are not available for the
first two months of the year but exports fell over 20%
the last three months of 2008. (Monterrey)

BASSETT