NUEVO LEON BUSINESS LEADERS SHARE DIVERSE PERSPECTIVES ON

UNCLAS SECTION 01 OF 02 MONTERREY 000351

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV ECIN EFIN EINV MX
SUBJECT: NUEVO LEON BUSINESS LEADERS SHARE DIVERSE PERSPECTIVES ON
THE ECONOMY

REF: A) MONTERREY 219 B) MONTERREY 278 C) MONTERREY 297 D) MONTERREY 292 E) MONTERREY 304

MONTERREY 00000351 001.2 OF 002



1. (SBU) Summary. The Ambassador's September 2 - 4 trip to
Monterrey offered him opportunities to receive varied
perspectives on the state of the economy in Nuevo Leon, during
sessions with the Group of Ten (leaders representing some of
Mexico's largest industrial and financial conglomerates),the
American Chamber of Commerce's Monterrey branch, and a woman's
microfinance borrowers support group. All expressed hope that
the economy would recover soon, but worried that it would not.
In general, our interlocutors foresaw modest growth prospects in

2010. The Ambassador urged contacts to work with the USG to
promote increased national and hemispheric competitiveness. End
Summary.



Industrial Elite Criticizes Economic Policy

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2. (SBU) During a luncheon discussion with the Group of Ten,
member CEO's took the Calderon administration to task for
failing to sufficiently promote economic growth and reacting
slowly to eliminate microeconomic barriers. The automotive
industry, both assembly and parts manufacturers, had stagnated,
we were told, because companies were unable to get credit.
Meanwhile, one executive complained that Calderon's efforts to
stimulate the economy were woefully lacking, especially when
compared with the steps other OECD countries had taken. A
number of luncheon participants queried the Ambassador about the
USG's plans for intensifying NAFTA cooperation and approving
much needed border infrastructure projects such as the planned
Laredo Colombia International Railway Bridge. For his part, the
Ambassador emphasized the need to heighten competitiveness so
that the U.S. and Mexico could better compete in the global
economy.



Business Leaders Cautiously Optimistic

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3. (SBU) On September 4, the Ambassador met with members of
Monterrey's American Chamber of Commerce (AMCHAM) and other
leading local business leaders. Although all admitted to having
had a very rough year, most predicted a return to modest growth
of 2-3% in the coming year. Many voiced reservations about
increasing taxes at a time when they were already struggling to
meet expenses. David Eaton of Kansas City Southern amplified
that while tax increases are always a challenge, it was the
uncertainty of Mexico's tax regime that was most problematic,
particularly for a capital-intensive businesses. He added that
the rules regarding concessions in Mexico were also subject to
unpredictable change, making planning difficult.




5. (SBU) Security continued to be a great concern for all
present. Although participants were unanimous in their
perception that security had continued to deteriorate over the
past year, none stated that their company had actually curtailed
operations due to current conditions.



Opportunities for Increased Demand

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6. (SBU) Javier Trevino, Vice President of CEMEX and Chairperson
of the Nuevo Leon Governor-elect's transition team, voiced
optimism that stabilization in housing start statistics and
ongoing public housing initiatives would increase demand for his
firm's products. Others noted that the US "Clunkers for Cash"
initiative would likely stimulate demand in the Mexican auto
sector and that the Mexican government needed to embark upon
similar stimulus initiatives.



Skepticism about the Long Run


MONTERREY 00000351 002.2 OF 002


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7. (SBU) Robert Chandler, Managing Partner of the law firm and
consultancy Sanchez DeVanny, noted that, while there were
positive economic signs among current difficult conditions,
Mexico urgently needed fiscal reform. Serious structural
reform, in his view was necessary to broaden the tax base,
increase education and formal employment, and ensure that Mexico
remains competitive in the future. He believed the political
will to implement such reform was lacking, and this would
inevitably put Mexico even farther behind on the path to
development than other Latin American countries, such as Chile
and Brazil. Chandler observed that Mexico - the second largest
economy in Latin America by GDP - was responsible for less than
15% of the public equity issued over the last year.



Optimism at the Other End of the Scale

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8. (SBU) Compartamos Banco Chairman Alcaro Rodriguez Arregui and
Executive Vice President Carlos Danel spoke to the Ambassador at
a weekly Women's Credit Group meeting for borrowers managing
micro enterprises in a low-income Monterrey neighborhood. VP
Danel emphasized that to best understand the business model of
Compartamos Banco - a microcredit bank with a capitalization of
approximately $1.563 billion - one had to attend such a meeting
and witness firsthand the culture of mutual support, timely
repayment of debt, and responsible savings nurtured among the
bank's clientele. He also credited the success of his
institution to an astute screening process for borrowers, and a
willingness to write off non-performing loans early. Bank
customers told the Ambassador that loans provided by Compartamos
Banco had helped stabilize their families and given them
opportunities unavailable in the formal employment sector.
(Note: Compartamos Banco was founded in 1990 in Mexico City, and
made its first public offering in 2007. It currently has
branches throughout the nation, and has grown to be Latin
America's largest microcredit lender, serving more than 1.3
million clients, and employing over 7,000 people. The bank
continues to grow, even during the current economic crisis: its
net income increased by 31.3% from 2Q08 to 2Q09. End note.)




9. (SBU) Comment: Common to all conversations was an
acknowledgement of the real difficulties that Mexicans and
Mexican enterprises face in today's tough economic environment,
and their modest hopes for the coming year. Those representing
Mexico's largest enterprises emphasized most strongly the need
for stimulus, while others focused more on the need for clear,
rational fiscal reform that would benefit, not handicap, the
business community. All lamented the lack of a clear GOM
strategy to deal with the current downturn and hoped that both a
short range plan of assistance and a long range plan of reform
would be forthcoming from their government.
MGRANDFIELD