SourceMex - Economic News & Analysis on Mexico
November 5, 1997
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L A T I N A M E R I C A D A T A B A S E
SourceMex - Economic News & Analysis on Mexico
ISSN 1054-8890 Volume 8, Number 40 November 5, 1997
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Copyright 1997, Latin America Data Base (LADB), Latin
American Institute, University of New Mexico
Director: Rebecca Reynolds Bannister
Managing editor: Kevin Robinson
Staff writers:
Patricia Hynds, Carlos Navarro, Robert Sandels
LADB ARCHIVES: Back issues are referenced to provide
historical background relevant to the articles in this
newsletter. These can be accessed with a subscription to the
LADB searchable on-line archives at http://ladb.unm.edu/ by
clicking on Search Archive. For subscription information,
e-mail info@ladb.unm.edu or call 1-800-472-0888.
In This Issue:
U.S. GOVERNMENT APPROVES PERMIT FOR TELMEX TO OFFER
LONG-DISTANCE TELEPHONE SERVICE IN U.S. MARKET
* Permit requires TELMEX to cut fees in Mexico for US firms
MEXICO INCURS THIRD CONSECUTIVE MONTHLY
TRADE DEFICIT IN SEPTEMBER
MINING SECTOR REPORTS STEADY PACE OF GROWTH THIS YEAR
* Gold production expected to surpass 1 million ounces
* Copper output expected to grow 33% by year 2000
PRESIDENT ZEDILLO TO FACE STRONG FIGHT FROM
OPPOSITION PARTIES OVER 1998 BUDGET PROPOSAL
* President budget maintains tight fiscal policies
* Opposition bloc seeks lower taxes, more social spending
* Administration staunchly opposes tax cuts
U.S.-MEXICO ENVIRONMENTAL NEWS IN BRIEF
* Binational group launches campaign against
nuclear-waste site
* US Senate approves maritime boundaries agreement
* NAFTA environmental commission to fund 25 projects
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Domestic & foreign private investment
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U.S. GOVERNMENT APPROVES PERMIT FOR TELMEX TO OFFER
LONG-DISTANCE TELEPHONE SERVICE IN U.S. MARKET
In late October, the US Federal Communications Commission
(FCC) granted a conditional permit for Mexican telephone
company Telefonos de Mexico (TELMEX) and US partner Sprint to
offer long-distance telephone service in the US market.
The joint venture is expected to focus its marketing
efforts in the Latino communities in the US, particularly in
Texas and California.
According to a Sprint spokesperson, equal emphasis will
be placed on offering telephone service to residential and
business customers. Sprint and TELMEX already offer long-
distance telephone service in the Mexican market.
Permit requires TELMEX to cut fees in Mexico for US firms
As a condition for approving the permit for TELMEX to
operate in the US, the FCC required the Mexican telephone
company to reduce by one-half the rates charged to other US
carriers for completing calls to Mexico.
Currently, Telmex charges the equivalent of US$0.39 cents
to complete long-distance calls from the US to its network.
Under the FCC ruling, Telmex will have to lower that rate to
US$0.19 cents by Jan. 1, 2000. The reduction in fees would
cost TELMEX an estimated US$450 million in revenues over the
next two years.
Despite the reduction in connection fees, two major US
telephone companies filed formal objections with the FCC
against allowing TELMEX to operate in the US market. AT&T and
MCI argued that TELMEX should not be allowed to operate in the
US because the company engaged in unfair practices in Mexico
by creating strong barriers to foreign competition. AT&T &
MCI both offer long-distance service in Mexico through joint
ventures with Mexican companies.
Responding to the AT&T and MCI objections, the FCC said
there was no evidence that TELMEX had purposely engaged in
unfair practices in the Mexican market.
"The opening of the long-distance market in Mexico has
occurred under just and equitable conditions," said the FCC.
The agency pointed out that new carriers have been able to
obtain 30% of the Mexican long-distance market. (Sources:
Associated Press, 10/30/97; The Dallas Morning News, 10/31/97;
Bloomberg News, 11/03/97; El Economista, 10/31/97, 11/04/97;
The News, 11/04/97)
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Macroeconomic indicators & projections
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MEXICO INCURS THIRD CONSECUTIVE MONTHLY
TRADE DEFICIT IN SEPTEMBER
Mexico incurred its third consecutive monthly trade
deficit during September, but the trade balance for January-
September remained at a surplus.
According to the latest report from the Secretaria de
Hacienda y Credito Publico (SHCP), Mexico exported US$80.6
billion in goods and services during January-September, with
imports totalling US$78.8 billion.
The trade deficit of about US$160 million for September
followed negative trade balances of US$71 million in August
and US$18 million in July. However, the deficits in each of
those three months were too small to affect the overall trade
balance for January-September, which remained at a surplus of
US$1.8 billion.
The manufacturing sector continued to lead the export
growth during January-September, totaling about US$68.814
billion, an increase of 18% relative to a year ago.
The SHCP said an increase in exports of agricultural
products also contributed to a positive trade balance for
January-September. Agricultural exports during the period
increased by almost 3% relative to a year ago.
In a separate but related report from the Comision
Nacional Agropecuaria (CNA), a large portion of the growth in
agricultural products in recent years is attributable to the
North American Free Trade Agreement (NAFTA).
According to the CNA, Mexican agricultural exports to the
US and Canada were expected to reach US$11 billion in 1997.
In contrast, agricultural exports to the two NAFTA partners
only averaged about US$7.5 billion annually before NAFTA went
into effect.
The principal exports from the agricultural sector to the
US and Canada include fresh vegetables, coffee, and tropical
fruit, and processed goods such as refined sugar, beer, and
tequila. (Sources: El Economista, 10/27/97, 10/28/97;
Excelsior, El Nacional, The News, Reuter, Novedades, 10/28/97)
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Oil & other extractive industries
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MINING SECTOR REPORTS STEADY PACE OF GROWTH THIS YEAR
According to recent figures published by the government
statistics agency (Instituto Nacional de Estadisticas,
Geografia e Informatica, INEGI), the mining sector has
continued a steady growth this year following a similar trend
during 1996.
In a report published in late October, INEGI said the
mining sector registered growth of 4.2% in January-August
relative to the same period in 1996. The INEGI report said
the recovery in the mining sector was due in part to higher
output for gold, silver, lead, copper, zinc, coal, and iron.
INEGI said the mining sector's strong performance during
the eight-month period was led by a surge in production of
gold, which increased by 10.7% relative to a year ago.
According to some metals-market experts, Mexican gold
production is expected to continue its pattern of steady
growth over the next several years.
Gold production expected to surpass 1 million ounces
Metals-market consultant Jeffrey Christian of the CPM
Group said the Mexican mining industry has the potential to
produce 1.2 million ounces of gold annually by the year 2000.
Christian said Mexican gold output this year is expected to
reach 750,000 ounces, a huge growth relative to output of only
196,000 ounces as recently as 1980.
In addition, INEGI reported silver production during
January-August increased by 4.5% relative to a year ago.
Industry observers said growth in Mexican silver production--
which is projected at 94.3 million ounces this year and 100.7
million ounces in 1998--should contribute to the continuing
growth of the mining sector. In fact, according to US-based
Silver Institute, Mexico currently accounts for 17% of silver
production at the global level.
Copper output expected to grow 33% by year 2000
Copper production--which increased by a small 1.2% in
January-August--is also expected to contribute to overall
growth in the mining sector in the long term.
Eugenio Osorio, director of the industry promotion group
Procobre, said Mexico is in the process of increasing its
copper production by about 33% during the next three years.
According to Osorio, Mexican copper output could reach 400,000
metric tons by the year 2000, which would make Mexico the
world's eighth largest copper producer.
Copper provides the largest source of foreign exchange
for the Mexican mining sector. In 1996, copper exports
brought the mining industry US$800 million in revenues.
Despite the strong potential for mining production in
coming years, not all individual companies have fared well.
The largest beneficiaries of the recent mining boom appear to
be large companies involved in joint ventures with foreign
mining concerns.
Statistics from the Secretaria de Comercio y Fomento
Industrial (SECOFI) show that 150 foreign companies have
received government concessions to open mining operations in
Mexico. According to SECOFI projections, large investors--
both domestic and foreign companies--are expected to boost
investments in the mining sector by about US$2.6 billion in
coming years.
In early September, SECOFI announced a special program to
rescue financially struggling mining companies. According to
Moises Kolteniuk, director of SECOFI's mining division, the
program helped restructure debts for 17,000 small and medium-
sized mining companies that were delinquent in payments of
mineral rights to the government. The overdue payments
totaled 235 million pesos (US$28.9 million) as of early
September.
[Note: Peso-dollar conversions in this article are based
on the Interbank rate in effect on Nov. 5, reported at 8.13
pesos per US$1.00] (Sources: Novedades, La Jornada, 09/04/97;
El Economista, 09/02/97, 09/04/97, 10/14/97; Reuter, 10/15/97,
10/29/97; The News, 10/16/97, 10/30/97; El Nacional, 10/30/97
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Political developments
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PRESIDENT ZEDILLO TO FACE STRONG FIGHT FROM
OPPOSITION PARTIES OVER 1998 BUDGET PROPOSAL
President Ernesto Zedillo expects a strong fight in the
opposition-dominated Chamber of Deputies when he submits his
budget proposal for 1998. The president, who must submit the
budget to the Chamber of Deputies by Nov. 15, has said the
document will reach the legislature a few days in advance of
the deadline.
Finance Secretary Guillermo Ortiz Martinez and other
deputy secretaries have already presented some of the budget
proposals in public forums with labor and business
organizations and with members of the finance and budget
committees in the Chamber of Deputies.
SHCP spokesperson Alejandro Valenzuela told reporters the
administration is anticipating a fierce battle in the Chamber
of Deputies because of differences with opposition parties
regarding taxes and expenditures for social programs.
President budget maintains tight fiscal policies
According to Valenzuela, Zedillo's budget reflects the
president's commitment to continue the tight fiscal policies
of the past 15 years, which are intended to promote economic
growth through increased savings and low inflation.
Valenzuela said Zedillo's budget proposal is based on
several macroeconomic goals for next year, such as GDP growth
of 5% and annual inflation of 10%.
The president's budget also proposes a modest increase of
3 percentage points in expenditures for social programs, but
critics are quick to point out that this increase is too small
to compensate for inflation.
Zedillo has proposed a budget of 830 billion pesos
(US$102 billion) for 1998, an increase from the 1997 spending
levels of 725 billion pesos (US$89 billion). SHCP sources
said the administration will compensate for the higher budget
in part by placing a higher priority on enforcement of tax
collections and other measures such as the implementation of
a tax structure for street vendors.
Opposition bloc seeks lower taxes, more social spending
In contrast to the president's commitment to stay the
course, the opposition bloc led by the center-left Partido de
la Revolucion Democratica (PRD) and the center-right Partido
Accion Nacional (PAN) has offered its own budget proposals,
which focus primarily on a reduction and restructuring of
taxes and a commitment to increase funding for key social
programs such as housing, education, and health.
The opposition bloc--which also includes representatives
of the Partido del Trabajo (PT) and the Partido Verde
Ecologista Mexicano (PVEM)--formulated its proposal after
reconciling the positions of the PAN and PRD. The PRD
accepted a proposal to limit the budget deficit to 1% of GDP,
while the PAN agreed to go along with the PRD's timetable to
reduce taxes.
The opposition bloc made some attempts to incorporate
legislators from the governing Partido Revolucionario
Institucional (PRI) into the budget discussions. However, PRI
members in the Chamber of Deputies chose to formulate their
own plan, basically supporting Zedillo's blueprint but also
proposing their own modifications, some of which coincide with
recommendations of the opposition bloc.
"We propose an economic policy that seeks to attain an
annual rate of growth of at least 5.5%, which is a viable goal
in light of the dynamic productivity and the high levels of
investment observed in the last few months," said PRI Deputy
Angel Aceves.
The opposition bloc--which is now informally known as the
Grupo de los Cuatro or G-4--is primarily promoting a reduction
in the impuesto al valor agregado (IVA). The PAN had
originally pushed for a reduction to the prevailing 1994 rate
of 10%, but agreed to accept a more gradual reduction.
President Zedillo raised the IVA to 15% in 1995 as one of the
measures to deal with the devaluation of the peso in 1994 and
the ensuing economic crisis (see SourceMex, 03/15/95).
The opposition bloc's proposal also includes a PRD-led
initiative to increase the IVA for luxury items such as
television satellite dishes and yachts to 20%, while at the
same time reducing or eliminating the tax on basic services
such as domestic energy, gas, and telephone service.
The PAN has also proposed a reduction in income taxes
(impuesto sobre la renta, ISR) to stimulate economic
development.
Administration staunchly opposes tax cuts
However, the administration remains adamantly opposed to
any reduction in either the IVA or the ISR. At a forum
sponsored by the business organization Confederacion Patronal
Mexicana (COPARMEX), deputy finance secretary Tomas Ruiz
warned that a reduction in the IVA would result in the loss of
35 billion pesos (US$4.3 billion) in revenues for the
government, while a reduction in the ISR could result in 5
billion pesos (US$615 million) in lost collections.
"We run the danger of returning to an economy that relies
too heavily on revenues from the petroleum sector," said Ruiz.
"This would leave our finances vulnerable to fluctuations in
the global crude-oil market."
According to Ruiz, the government already is too
dependent on oil revenues, since tax collections and royalties
from the state-run oil company PEMEX account for 40% of all
revenues.
The administration's opposition to reductions in the IVA
is supported by the private economic think tank Centro de
Estudios Economicos del Sector Privado (CEESP), which warns
that a reduction in this tax could actually hurt the poorest
segments of the population in the long run.
"Since the majority of poor people in Mexico have access
only to the basket of basic goods, which is not taxed and is
supplied by the government, they will not benefit from the
opposition bloc taxation proposal, but will suffer the
negative effects of rising inflation," the CEESP said.
For its part, the opposition bloc has offered some
measures to counter the increased spending on social programs
and reduction in tax revenues in its budget proposal.
One measure, initiated by the PRD, would eliminate direct
government support for sectoral rescue programs such as the
Fondo Bancario de Proteccion al Ahorro (FOBAPROA), which was
the principal tool used by Zedillo and former president Carlos
Salinas de Gortari to rescue some financially strapped banking
institutions.
According to PRD Deputy Ricardo Garcia Saiz, chair of the
budget committee (Comision de Programacion y Presupuesto), in
recent years the government has spent the equivalent of 5.5%
of Mexico's GDP to rescue the banking sector and the system of
toll highways. Garcia said the opposition bloc does not
necessarily advocate the disappearance of these programs, but
rather the creation of special tax mechanisms to fund them.
The PRD and the PAN also agree on the need for the
federal government to channel more funds to state and
municipal governments. According to PAN president Felipe
Calderon, a number of municipal governments are nearing
bankruptcy because they have been forced to provide increased
services without federal assistance or the structure to impose
their own taxation system.
The potential impasse in the Chamber of Deputies over the
budget has created some concerns in financial markets.
However, PRI legislative leader Arturo Nunez predicts that the
Congress and the administration will eventually reach some
sort of compromise.
"None of the parties can afford the political
consequences of a budget impasse, which could have a profound
impact on the Mexican people," said Nunez.
SHCP spokesperson Valenzuela was optimistic the
disagreements between the opposition bloc and the
administration could be resolved. Still, Valenzuela said the
matter could end up in the Mexican Supreme Court in case the
two sides remain at an impasse.
For his part Deputy Marcelo Ebrard expressed confidence
that the Supreme Court would favor the Congress if the budget
matter ever reached that stage.
"The Constitution says the Chamber of Deputies must
examine, discuss and approve the federal budget," said Ebrard,
who has no party affiliation. (Sources: Reuter, 10/14/97,
10/16/97; Notimex, 10/25/97; La Jornada, 10/01/97, 10/15/97,
10/17/97, 10/22/97, 10/24/97, 10/31/97; Excelsior, 10/01/97,
10/03/97, 10/17/97, 10/24/97, 10/31/97, 11/03/97, 11/05/97; El
Financiero International, 10/20/97, 11/03/97; Bloomberg News,
11/03/97; Novedades, 10/01/97, 10/10/97, 10/17/97, 10/24/97,
10/29/97, 10/31/97, 11/03/97, 11/04/97; El Nacional, 11/04/97;
El Universal, 10/01/97, 10/03/97, 10/13/97, 10/14-16/97,
10/20/97, 10/24/97, 11/05/97; El Economista, 10/09/97,
10/14/97, 10/17/97, 10/24/97, 10/29/97, 11/03-05/97; The News,
10/09/97, 10/15-17/97, 10/31/97, 11/03-05/97)
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Environment
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U.S.-MEXICO ENVIRONMENTAL NEWS IN BRIEF
Binational group launches campaign against nuclear-waste site
In late October, a binational group of US and Mexican
legislators and environmental organizations launched a
campaign to block the construction of a nuclear-waste site in
Texas a few miles north of the Rio Grande.
The coalition--which includes US Rep. Silvestre Reyes (D-
TX), Mexican federal senator Luis Alvarez, Mexican federal
Deputy Clara Torres, and El Paso Mayor Carlos Ramirez--is
putting pressure on the US federal government to stop the
nuclear-waste dump near the community of Sierra Blanca, Texas.
According to Texas state legislator Gilbert Serna, who is
coordinating the campaign, the dump will be located only a few
miles from aquifers that serve the metropolitan area of Ciudad
Juarez-El Paso. The US government intends to use the Sierra
Blanca site to store "low intensity" radioactive waste
generated by nuclear power plants, hospitals, laboratories,
and the US military.
The coalition--which includes environmental groups such
as Greenpeace, Southwest ToxicWatch, and Alianza Ecologista
del Rio Bravo--said the waste contains materials such as
plutonium and iodine, which remain radioactive for thousands
of years.
Representatives of the Alianza Ecologista Rio Bravo also
criticized President Ernesto Zedillo's administration for not
protesting more strongly against the nuclear-waste dump.
"We find it strange that the Mexican government has yet
to make any official statements opposing the facility," said
group spokesman Richard Boren.. "Mexico has vigorously opposed
similar projects in the US-Mexico border region."
US Senate approves maritime boundaries agreement
In late October, the US Senate approved the Maritime
Boundaries Agreement between Mexico and the US, which
establishes the bilateral sea borders.
The Mexican Senate ratified the agreement in 1978, but
the US Senate failed to take similar action until now.
According to a US Senate spokesperson, the agreement will
go into effect once both countries make an official exchange
of ratification instruments.
The agreement sets the exact boundaries separating the US
and Mexican economic zones in the Gulf of Mexico and the
Pacific Ocean. Those boundaries had been defined under
provisional notes signed by the two countries in 1976.
However, the boundaries were not enforceable because of the
lack of a formal treaty.
NAFTA environmental commission to fund 25 projects
In late October, the Environmental Cooperation Committee
(ECC)--an agency created under the North American Free Trade
Agreement (NAFTA)--approved US$1.4 billion to finance 25
projects in the US, Canada, and Mexico.
The financing, which will be allocated through the ECC's
North American Fund for Environmental Cooperation (NAFEC),
will fund 18 projects in Mexico.
According to Julia Carabias Lillo, who head's Mexico's
Secretaria del Medio Ambiente, Recursos Naturales y Pesca
(SEMARNAP), the projects in Mexico include massive
reforestation efforts and support for indigenous communities
that depend on agriculture.
Carabias is also involved in a campaign to convince
multilateral organizations to increase funding for
environmental programs in Latin America.
At a recent meeting of environmental ministers of Latin
America and the Caribbean, Carabias said the US, Canada,
Japan, and Europe have reduced their donations for
environmental programs in Latin America to just US$16 million
this year, compared with previous levels of US$25 million.
According to Aresenio Rodriguez, director of the UN
Environmental Program, the reductions could eliminate programs
to promote regional environmental cooperation and to develop
environmental legislation. (Sources: Novedades, 10/22/97;
Notimex, 10/24/97, 10/26/97; Excelsior, 10/27/97; El Nacional,
10/30/97)
