Blog entry October 2009

By Jens Erik Gould
and Adriana Lopez Caraveo
Bloomberg

after Mexico's Senate passed the 2010 budget legislation and new fiscal rules late Friday, the lower house of congress was scheduled Saturday to debate legislation aimed at shoring up the country’s credit rating.

Senators approved an increase in sales tax to 16 percent from 15 percent as well as higher income taxes, going along with measures passed last week by the lower house.

The Senate changed a proposal for a 3 percent levy on telecommunications by excluding Internet services.

Mexican President Felipe Calderon has pledged to strengthen public finances as oil production declines.

The Senate’s passage of the sales-tax increase and its decision to keep other portions of the legislation approved by the lower house might be enough for Mexico to avoid a credit rating cut, said Paulo Leme, chief Latin America economist at Goldman Sachs Group Inc.

“The effort warrants not changing the rating and keeping it on negative outlook,” Leme said in a telephone interview.

The legislation still needs final approval by the lower house, which by law must pass the income portion of budget Saturday. The spending portion must be approved by Nov. 15.

Mexico, which in 2000 became the second country in Latin America after Chile to earn an investment-grade rating, has a negative outlook from both Standard & Poor’s and Fitch Ratings, who rate the nation’s debt BBB+.

The rating companies say they might downgrade Mexico should the government fail to contain the deficit. Moody’s Investors Service rates Mexican debt Baa1, also three levels above junk.

www.bloomberg.com/apps/news

By Chris Hawley
USA Today

Dead men might tell no tales, but death itself — well, in Mexico, the subject fills an entire museum.

The National Museum of Death in Aguascalientes, founded two years ago, explores the country's macabre interest in death and dying, from the mass human sacrifices of the Aztecs to modern-day Day of the Dead celebrations, which begin Sunday.

In its galleries, human skulls encrusted with turquoise grimace at visitors. Tiny skeletons gather around miniature banquet tables, toasting their own demise. The Grim Reaper glares across a room at a case full of bloody crucifixes.

"Mexicans have death imprinted all over their art and culture," museum director Jose Antonio Padilla said. "So why not a museum about it?"

The museum came about because a Mexican art collector had a lot of skeletons in his closet: dozens of tiny calaveritas, or skeleton dioramas, along with hundreds of other death-related artworks he had acquired over 50 years.

The owner, Octavio Bajonero Gil, was looking for a museum to take his collection. Meanwhile, the Autonomous University of Aguascalientes, a state college, was looking to found an art museum and wanted something different, Padilla said.

The museum, with Bajonero's donation as its core collection, opened in 2007 in two buildings owned by the university in downtown Aguascalientes. Admission is 20 pesos, about $1.53.

Reaction to the museum among Mexicans has been mixed, Padilla said, partly because the country is grappling with a wave of murders following President Felipe Calderón's military crackdown on drug cartels.

"People from (border cities in) the north say, 'Why do you want to celebrate something that I'm trying to avoid every day?' " Padilla said. "But this is not a museum of drug violence. It's a museum about a certain artistic tradition."

About one-third of the museum's 70,000 annual visitors are from other countries, mainly the United States.

www.usatoday.com/news/offbeat/2009-10-30-mexicomuseum_N.htm

By Tracy Wilkinson
Los Angeles Times

Los Tigres del Norte, Mexico's superstar norteño band, abruptly canceled its participation Wednesday in a major awards show after it was barred from performing a song critical of the government's campaign against drug cartels.

The band, best known for its corridos, or Spanish ballads, chronicling the legendary exploits of drug traffickers, had already traveled to Mexico City from homes in Los Angeles for Wednesday night's event. Organizers of the show insisted the band refrain from playing its latest single, "La Granja" ("The Farm"), the group's record label, Universal Music Group, said in a statement.

"They have to explain to us the reason for this censorship," Tigres leader Jorge Hernandez said, referring to the organizers.

"We always sing what the people want to hear, and what the people are living," added Hernandez, a vocalist who also plays the accordion that gives the Tigres their distinctive sound.

Los Tigres' repertoire spans four decades and includes so-called narcocorridos about drug smugglers.

It is regarded as the first Mexican band to make the illicit business an acceptable topic in popular music. Critics complain that the music glorifies the drug trade, and a number of radio stations over the years have refused to air some cuts.

Los Tigres, whose members come from the state of Sinaloa, have always maintained they are not apologists for traffickers, merely singing about reality.

Although narcocorridos catapulted Los Tigres to fame in the early 1970s, the Grammy-winning group has also built an enormous and loyal following -- especially in Los Angeles -- by writing and singing about poor immigrants and their hard lives.

"La Granja," Hernandez said, is a fable.

"The song speaks of all the problems in Mexico, through a fable with little animals," he said. "We wanted to deal with the problems our government has -- narcotics trafficking, the violence, what we already know about and live. There is nothing to offend anyone, it is simply a representation of what is happening to us."

www.latimes.com/news/nationworld/world/la-fg-mexico-narcos29-2009oct29,0,6889517.story

By Eduardo Garcia
Sentido Comun

In the heated discussions that have arisen in the wake of government proposals to collect new and higher taxes to replace the fall in oil revenues and taxes, one temporary measure is sparking a new controversy.

The item was amended to Article 1 of the Transitional Federal Law and approved by deputies of the lower house last week. It would delay for two years the annual fee that was to have been charged the winner of the upcoming concession for expanded use of the radio spectrum.

For some lawmakers and analysts, the moratorium does not make sense because of the government's effort to gain more revenue. Indeed, for many the measure insults the taxpaying population since it exempts payment for the use of a public entity, the radio spectrum.

"There is no technical reason, either legal or economic, much less ethical or moral, to make an exemption," wrote Javier Corral, National Action Party legislator for the state of Chihuahua, in a letter published in the Diario de Juarez, and who opposed the article when the Federal Voting Rights Act was debated in the House last week.

He estimates that the government would collect about 3 billion pesos ($226.26 million) if the exemption were not granted.

Corral's anger was heightened, he said, because those most likely to benefit from the grace period are among Mexico's most profitable and powerful companies in Mexico, particularly the television company Grupo Televisa.

"Deputies should wonder why a privilege of this size is, in effect, being given to the dominant television operator," Corral told the Camara when the measure was being debated. "Make no mistake this article is for the benefit of Televisa, the only company that has so far shown interest in bidding."

Corral now is urging senators to reject the article.

"I would not call [the waiver] absurd. It is a ridiculous concept that I do not think is right. It is immoral," said Lorenzo Meyer, a political analyst for the In Focus program which airs Monday night at the Channel 11 in Mexico City.

"At a time when officials say there are not enough taxes to maintain government operations, you, gentlemen, want to remove this burden of payment for a large company and allow them to live like kings," he said.

The controversy around the article has become an example of why people oppose the government proposal to charge more and new taxes.

www.sentidocomun.com.mx/

El Economista

Treasury Secretary Agustin Carstens will appear on Wednesday before the committees of Finance and Legislative Studies of the Senate to clarify points various legislators have in analyzing the Calderon administration's 2010 fiscal package.

In an interview, José Isabel Trejo, chairman of the Finance Committee, said that Carstens appearance has been requested to resolve senators' doubts.

The legislator said he expects that the tax package will be approved with modifications by Thursday and will be sent to the Chamber of Deputies to endorse the changes by Oct. 30 or Oct. 31.

Questions will focus specifically on proposed increases in the Value Added Tax (VAT), the Income Tax (ISR), the Tax on Cash Deposits (IDE) and in general on the complete proposed Revenue Act 2010.

Isabel Trejo said most of the discussion with Carstens is expected to deal with a proposed 3 percent tax on telecommunications and the Internet. Critics have warned that the tax will further hinder Mexico's participation in new technologies that are driving economic development.

Members of the Partido Revolucionario Institucional, or PRI, on the committees have proposed removing the 3 percent tax on connecting and using the Internet, he noted, and there is another proposal to lower the tax.

Also to be discussed are seven articles of the Tax Code relating to taxation of the money in the country's sizeable afores retirement funds.

The Senate panels hope to take action on the budget immediately following Carsten's appearance before them, Isabel Trejo said.

eleconomista.com.mx/

By Elisabeth Malkin
The New York Times

The lights have been going out all over Mexico City. Food rots in tepid refrigerators. Computer screens pop and fizzle out.
When President Felipe Calderón dissolved the capital’s money-losing electric company and fired 44,000 workers two weeks ago, he promised efficient, modern service. But across the city and its vast suburbs, the power has gone out for a day or more in neighborhood after neighborhood.

In some cases, switches appear to have been deliberately turned off — evidence, officials say, that a few of the fired workers have taken matters into their own hands.

“This is a deliberate action to bother and affect consumers,” said Estefano Conde, a spokesman for the Federal Electricity Commission, the state-owned company that has taken over the service. “They want to generate pressure, to give the idea that we can’t handle it.”

Whether or not they are driven by sabotage, if the cuts persist, they could turn public opinion against Calderón’s agenda. He won broad approval for acting against the powerful electricity workers’ union, and many Mexicans now want him to move against other entrenched interests in business and labor that experts say stifle the nation’s economic growth.

First, though, he must prove that he can deliver on his promise to get the electricity company working. The government has argued it had no choice but to shut the company: it was spending twice what it earned in revenues, costing the government more than $3 billion a year in operating losses while outraging consumers with dismal service.

So far, consumers have seen little improvement. The skeleton crew of 3,500 people operating the company can barely cope with the usual problems in the ancient network, let alone sabotage.

The disbanded company, Luz y Fuerza del Centro, provided power to about 25 million people in Mexico City and surrounding states. The Federal Electricity Commission, or CFE, served the rest of the country, about 75 million customers, and has now become a national monopoly.

Critics say the decision was really aimed at crushing the company’s powerful union, the Mexican Electricity Workers’ Union, one of the country’s most combative.

www.nytimes.com/2009/10/26/world/americas/26mexico.html

By Ana Campoy
The Wall Street Journal

The buttoned-down city of El Paso, Texas, on the Mexican border feels like a boomtown these days, as entrepreneurs fleeing drug violence in Ciudad Juárez head across the Rio Grande to open hip clubs and hot restaurants.

The violence in Mexico has provided an unexpected economic boost to El Paso, a city of more than 600,000 residents at the westernmost tip of Texas.

El Paso's unemployment rate was 9.8 percent in September, equal to the national average but far lower than in other border towns such as Brownsville and McAllen.

Cindy Ramos-Davidson, chief executive of the El Paso Hispanic Chamber of Commerce, said her staff was swamped with requests from Juárez businesspeople wanting to settle in El Paso. They started more than 200 companies in the 12 months ended July 31, a 40 percent jump from the same period last year.

"It's the largest migration of wealthy Mexican nationals [to El Paso] since the Mexican Revolution," said Beto O'Rourke, an El Paso city councilman, referring to the decade-long rebellion that began in 1910.

Not all newcomers to El Paso are refugees from violence. Other factors helping to boost the city's economy include a multibillion-dollar expansion of Fort Bliss, a military base that is attracting thousands of soldiers and aiding the local building industry, said Bill Gilmer, a senior economist at the El Paso branch of the Federal Reserve Bank of Dallas.

But El Paso is drawing hundreds, perhaps thousands, of Juárez residents looking for a safe place to live.

There is no official estimate of the influx, but real-estate agents report a bump in home sales to Juárez residents. The apartment occupancy rate is about 92 percent, higher than in cities such as Houston and Dallas, where occupancy rates have slipped below 90%, according to MPF Research, which compiles apartment market information.

It isn't hard to understand why: The number of murders in Juárez exploded in the spring of 2008 and grew to more than 300 a month by August and September 2009, the highest monthly levels in a particularly violent year.

online.wsj.com/article/SB125651480451107029.html

From El Economista
and El Financiero reports

Mexican Labor Secretary Javier Lozano Alarcon said the government not only has a clear conscience but also is proud about liquidating the central Mexican utility Luz y Fuerza del Centro.

He said subsidies given to LFC weren't spent on improving service but went to energy theft, abuse, corruption and privileges for the Electricians Union and groups affiliated with it - "today those who are tearing their hair out under the pretext of defending a state enterprise against privatization."

In fact, Lozano said, the company remains state-owned and operated because it has been folded into the Federal Electricity Commission.

So far, according to the the Finance Ministry, 11,744 of Luz y Fuerza's workers have collected their severance packages. The figure is more than 26.5 percent of the utility's 44,000 workforce.

The Ministry, which has established 20 centers around Mexico City and the surrounding states served by LFC, has received 57,631 phone calls and 37,403 e-mails seeking information about the severance program's processes and settlement amounts.

Lozano, speaking at the inauguration of Gerardo Gutierrez Candiani as Coparmex's new president, said Luz y Fuerza's inefficiency and corruption cost 400 pesos (about $30.82) a month to each of the utility's 107 million customers.

A day before he is scheduled to appear before the Chamber of Deputies to discuss the liquidation, he said that intolerance, discrimination,k aggression and violence was rampant in the company's operations.

Those protesting LFC's liquidation aren't looking at the facts or the law, Lozano said.

eleconomista.com.mx/notas-online/negocios/2009/10/23/tenemos-conciencia-tranquila-liquidacion-lfc-stps;http://www.elfinanciero.com.mx/

By Hilary Hylton
Time

The words Medicare savings are a red flag to some and a carrot to others depending on where you stand on the issue of health-care reform, the label is code for cuts or a promise to root out fraud and save billions.

But far away from the debates in Washington, a group of expatriate baby boomers point to one place they believe real Medicare savings could be realized: Mexico.

Paul Crist, the owner of a Puerto Vallarta resort who once worked as an aide to former U.S. Senator Paul Sarbanes, says that paying for medical treatment in Mexico could save Medicare almost a quarter of the average cost for most procedures.

"My research, as well as the research of others, shows that health care in Mexico costs less than a third of that in the U.S.," Crist says.

A doctor's office visit or house call (still a common practice in Mexico) costs only $25 to $40, according to a 2007 study by the University of Texas LBJ School of Public Affairs.

The same study presented information on comparative costs for common procedures: a hip replacement costs between $43,000 and $63,000 in the U.S., compared to $12,000 in Mexico, according to Texas-based hospital chain Christus Muguerza, which also operates in Mexico; a coronary bypass in Mexico costs an average of $21,000 compared to $149,000 in the U.S.

Citing statistics from the U.S. census and State Department, Crist estimates approximately 200,000 of the 1 million U.S. citizens living south of the border are Medicare-eligible.

However, Crist says many Medicare-eligible expats living south of the border are forced to fly back to the U.S. for medical treatment because Medicare will not pay for most coverage outside the U.S., even though they have paid into the system during their working lives.

Medicare will cover only emergency care if it occurs within 60 days of leaving the country. To utilize their benefits, Medicare-eligible American citizens in Mexico have to opt for periodic flights home or else choose to pay out-of-pocket medical expenses.

www.time.com/time/nation/article/0,8599,1931559,00.html

By Eduardo Garcia
Sentido Comun

Upset by the government's proposal to tax telecommunications services at 3 percent, a large number of consumers waged an opposition campaign on the short message system Twitter.

Twitter users sent out thousands of Tweets, short text messages of 140 characters or less, communicating their belief that the tax would raise the cost of mobile phone and Internet use - two of the many tools used today that are considered essential for work, education and the performance of everyday life.

Although some users, many of them consultants and entrepreneurs, say there is only a remote chance that the Senate will eliminate the charge approved this week by the Camara de Diputados, others believe that the Twitter campaign against the tax could push the government to generate real competitive conditions in the telecommunications industry.

Mexico's telecommunications industry already is beginning to see signs of emerging competition in telephone, Internet and television networks. And that is starting to reduce prices and improve service.

But Mexican consumers still pay some of the highest rates in the world for telecommications services, according to studies by the Organization for Economic Cooperation and Development (OECD).

In Mexico, access to digital technologies is under monopoly or duopoly structures.

In telephony, for example, Telefonos de Mexico and America Movil, two companies controlled by Carlos Slim, the world's richest businessman, dominate their respective markets: fixed telephony and mobile telephony. Telmex also is the largest supplier of Internet service.

In the television industry, the country has only two broadcast television companies with national coverage, Grupo Televisa, controlled by businessman Emilio Azcarraga Jean, and TV Azteca, controlled by Ricardo Salinas Pliego.

"The underlying problem is not the tax itself, but we already pay very high costs," said Maria Cristina Capelo, research associate at the Center for Development Research (Cidac) and director of the Mexican Network of Competition and Regulation.

The problem, she said, is:, "Why a call is costing us over here, why the mobile phone service is better in Honduras. ... The underlying problem is the lack of competition in the sector."

www.sentidocomun.com.mx/