INDEPENDENT NEWS

Cablegate: Mexico Economic Notes, December 21 - December 28,

Published: Thu 28 Dec 2006 10:48 PM
VZCZCXRO6036
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #7111/01 3622248
ZNR UUUUU ZZH
P 282248Z DEC 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 4754
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 02 MEXICO 007111
SIPDIS
SIPDIS
STATE FOR A/S SHANNON
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA
STATE FOR EB/ESC MCMANUS AND IZZO
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN
USDOC FOR ITS/TD/ENERGY DIVISION
TREASURY FOR IA (ALICE FAIBISHENKO)
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND SLADISLAW
STATE PASS TO USTR (EISSENSTAT/MELLE)
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA)
NSC FOR DAN FISK, CINDY PENDLETON
E.O. 12958: N/A
TAGS: ECON ECPS ELAB EFIN PGOV PREL MX
SUBJECT: MEXICO ECONOMIC NOTES, DECEMBER 21 - DECEMBER 28,
2006
REF: A. MEXICO 7064
B. MEXICO 7049
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Summary
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1. (U) Mexico's 2007 federal budget has been approved by the
Mexican Congress and published in the Official Gazette. The
US$208-billion budget largely reflects President Felipe
Calderon's initial proposal, but Congress edged up funding
for education, highways, and pensions in rural areas, while
cutting funding for the judiciary, Congress, and several
government-owned companies. A local research center says
that the Senate's refusal to approve a 5-percent tax on soft
drinks shows that it will be difficult to reach consensus on
fiscal reform. On the positive side, opposition lawmakers
praised Finance Secretary Agustin Carstens' willingness to
listen and negotiate effectively during the budget process.
As part of the budget approval process, Mexico has now
complied with a WTO ruling and eliminated a discriminatory
20-percent tax on beverages sweetened with anything other
than sugar cane. Despite the show of political unity in
Congress' approval of the budget, peso bonds declined due to
expectations that the Bank of Mexico may hold off cutting
interest rates next quarter as it waits for further signs
inflation is slowing. Mexico's trade deficit widened in
November to its highest level in almost two years (US$1.57
billion) as strong economic growth spurred imports ahead of
the Christmas holiday. In a sign of continuing growth in the
banking sector, the Secretariat of Finance gave final
authorization to UBS Bank Mexico to operate in Mexico.
Finally, despite complaints from at least one U.S. airline,
Mexican airport authorities told the Embassy that Mexico City
airport's new baggage handling system is not causing delays.
End Summary.
Mexico's 2007 Federal Budget is Approved
2. (U) As reported in Ref A, the Chamber of Deputies gave
final approval to Mexico's US$208-billion budget package on
December 23. President Felipe Calderon's initial budget
proposal passed largely intact, though lawmakers scrapped a
new 5-percent tax the administration wanted to impose on soft
drinks, and it edged up funding for education, highways, and
pensions in rural areas. To help offset these plus ups,
Congress dipped into Mexico's Oil Stabilization Fund and
decreased funding to the judiciary, the state oil company,
Congress, the Federal Electricity Commission, and the Federal
Electoral Institute. As reported in Ref B, when Congress
passed the revenue component of the budget on December 21, it
eliminated the discriminatory 20-percent tax on beverages
sweetened with anything other than sugar cane. The budget
package has been signed by Calderon and published in the
Official Gazette. On December 27, Calderon praised lawmakers
for the responsibility they showed during the budget process.
Local Research Center Sees Difficult Future for Fiscal Reform
3. (U) The Private Sector Economic Studies Center (CEESP)
said publicly that it believes reaching agreement on fiscal
reform will be difficult, noting that the Senate's refusal to
approve the 5-percent tax on soft drinks shows that lawmakers
are still unwilling to tax consumption instead of income.
CEESP's analysts criticized how the government relies on
crude oil revenues to increase social spending, rather than
finding alternate revenue sources. On the positive side,
opposition lawmakers publicly praised Finance Secretary
Agustin Carstens' willingness to listen and negotiate
effectively during the budget process. The government's
ability to work with Congress will undoubtedly be key to
securing passage of much-needed economic reforms.
MEXICO 00007111 002 OF 002
Finance Secretariat Authorizes a New Bank
4. (U) The Secretariat of Finance gave final authorization to
UBS Bank Mexico to operate in Mexico. The bank has
subsidiaries in more than 40 countries, including the U.S.
Bonds Fall, Trade Gap Widens to Two-year High
5. (U) Peso bonds declined on expectations that the Bank of
Mexico (BOM) may hold off cutting interest rates next quarter
as it waits for further signs inflation is slowing.
Speculation that the BOM will wait until the second quarter
of 2007 to cut its benchmark rate picked up after a report
last week showed consumer prices in the first half of
December rose more than economists expected. Policymakers in
May stopped nine straight months of reductions that brought
the benchmark lending rate down to 7 percent from 9.75
percent in 2005. The yield on Mexico's benchmark 8-percent
bond due in December 2015 rose 3 basis points, or 0.03
percentage points, to 7.50 percent.
6. (U) Mexico's trade deficit widened in November to its
highest level in almost two years as strong economic growth
spurred imports ahead of the Christmas holiday. Mexico
posted a trade deficit of US$1.57 billion, the Finance
Secretariat said in a public trade report, compared with a
SIPDIS
deficit of US$1.23 billion in November. Economists had
expected a trade deficit of US$1.83 billion, according to
estimates in a recent Bloomberg survey.
Mexico City Airport's Baggage Handling System Functioning
7. (U) In response to urgent queries from the State
Department Economic and Business Bureau (EB) about reports
from U.S.-based airlines of chaotic baggage handling
conditions at Mexico City's airport, Post contacted Mexican
airport authorities. Airport officials quickly responded to
Post's inquiries, saying that the baggage belt had
malfunctioned in the high volume week before Christmas but
that the problem had been resolved the same day. Regarding
airline complaints that a new baggage screening system at the
airport was causing massive delays, Mexican airport officials
said that while there have been some delays, in general the
system (which has been operating at 100% since November) is
working. The system, they say, is the same used by the
Transportation Security Administration (TSA) in the United
States. Airport officials requested more information about
the problems airlines have had. Mexican airport authorities
invited Econoff and a TSA representative for a tour of the
new system, while welcoming ideas from the USG on how to make
the system more efficient. The Embassy has requested more
information from EB regarding the specifics of the
complaints. There has been no media coverage of delays at
the airport due to the new baggage system or other problems.
Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity
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