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Lloyd Mexico Economic Report June 2002

Table of Contents

WORLD BANK BACKS MEXICO
NEW PETROCHEMICAL COMPLEX
SEVENTH LARGEST EXPORTER AND IMPORTER
MEXICO-ASIA MULTIMODAL CORRIDOR
INTERCONNECTION RATES REDUCED
RELATED NEWS
A GOOD YEAR FOR AVOCADOS
TELEVISA AGREEMENT WITH CLEAR CHANNEL
BOOST TO TOURISM IN MAYA AREA
THE NEXT "TEQUILA"
FREEDOM OF INFORMATION LAW PASSED
2010 WORLD FAIR IN QUERETARO
MONEY TRANSFERS BY ATM
MEXICANA FLIES MORE ROUTES
CHANGES IN THE CONSUMER PRICE INDEX

WORLD BANK BACKS MEXICO

The World Bank supports Mexico's economic policy and believes the economy is on the right track. David de Ferranti, the World Bank?s Vice-President for Latin America and the Caribbean, described the economic outlook as 'very promising', following steady improvement during the first months of 2002. He praised the administration's commitment to 'transparency and accountability'.

Another World Bank official, Richard Newfarmer, was equally upbeat, saying that proposed structural reforms will only strengthen the economic outlook. Private sector analysts agree.

All of the analysts interviewed in the latest central bank (Banxico) survey are convinced that the economy will react very positively during the second half of the year. Their average forecast for GDP growth is 1.63% for 2002 and 4.1% for 2003.


NEW PETROCHEMICAL COMPLEX

Pemex Petroquimica, a subsidiary of the state-owned oil giant, Pemex, is investing 800 million dollars in constructing another petrochemical complex on the Gulf coast. The new complex will have the capacity to produce 1.2 million tons of ethylene annually, beginning in 2005.

According to Pemex, this will reduce imports by enabling the domestic manufacture of certain ethylene derivatives that are currently only available from overseas producers.

Pemex Petroquimica also plans to expand and modernize its existing installations in order to boost its annual production of methane derivatives by 1.7 million tons, and of ethane derivatives by 251,000 tons.


SEVENTH LARGEST EXPORTER AND IMPORTER

In its latest annual report, the World Trade Organization (WTO) puts Mexico in seventh place in the league table (by value) of exporting nations.

Since last year, Mexico has overtaken Korea, but remains behind the European Union, U.S., Japan, China, Canada and Hong Kong. Mexico also occupies seventh place for imports. Between them, the WTO's 144 member countries account for more than 90% of all world trade.

Mexico had a trade deficit in 2001, with imports costing 176.2 billion dollars while exports brought in 158.5 billion dollars.


MEXICO-ASIA MULTIMODAL CORRIDOR

David W. Eaton, an advisor to the APEC (Asia-Pacific Economic Cooperation) Business Consultancy Council, has announced that APEC is considering a proposal for a trans-Pacific multimodal freight corridor linking U.S. cities such as San Antonio, Fort Worth, Oklahoma and Kansas with Asia via the Mexican port of Manzanillo.

All freight containers entering the system would first pass through a gamma rays inspection checkpoint for customs and security purposes. After that, there would be no more customs checks until the final destination. The system would use existing ocean and rail transport links.

In Eaton's view, the system would enable a more efficient use of containers and reduce the times and rates for trans-Pacific shipping. Customs protocols are already being negotiated with the U.S. and Singapore and a pilot project between some of the 21 APEC members is scheduled to begin later this month.

If the pilot program proves successful, the proposal will be discussed at this year's APEC summit to be held in October in Los Cabos, Baja California Sur.


INTERCONNECTION RATES REDUCED

Interconnection rates are levied by one international phone company on another in order to enable the completion of bi-national calls. Over the past five years, the rates for U.S.-Mexico calls have dropped significantly, by some 60%.

Now, Teléfonos de México (Telmex) has agreed to a further reduction in rates with AT&T, bringing them in line with the rates it agreed to earlier this year with MCI WorldComm. For calls originating in the U.S. and made to the three cities with the highest call volume (Mexico City, Guadalajara and Monterrey), the interconnection charge falls from 13.5 U.S. cents (per minute) to 5.5 cents. Calls to 200 other cities will be 8.5 cents a minute and calls to the remainder of the country will be 11.75 cents.

For calls in the reverse direction, terminating in the U.S., Telmex will pay 5.5 cents a minute. According to AT&T, the true cost of providing connections is about 4 cents a minute.

RELATED NEWS

After analyzing 400 telecommunications firms worldwide, Forbes Magazine has named Telmex the world's best telecommunications firm for its financial performance and level of operations in 2001. Telmex operates a network of 13.6 million phone lines nationwide and serves 986,325 Internet accounts. It is currently expanding its broad-band Internet service to reach 2,600 towns and cities.


A GOOD YEAR FOR AVOCADOS

Mexico is the world's leading avocado producer, with about 80,000 hectares devoted to the crop in the main growing region, the state of Michoacán. The avocado 'season' runs from November to April.

In the season just ended, more than 155,000 metric tons of avocados were harvested, with 50% being sold for export. Since the lifting, in 1997, of restrictions first imposed back in 1913, avocado exports to the U.S. have increased very rapidly.

Exports are now allowed to 31 states and to Washington, D.C. According to the Avocado Producers and Exporters Association, the U.S. bought 24,500 metric tons of avocados (worth 45.5 million dollars) this season, 146% more than a year ago.


TELEVISA AGREEMENT WITH CLEAR CHANNEL

Cárdenas-Fernández & Asociados (CFA) is a leading producer of Hispanic events in the U.S. and Caribbean region. In the year 2000, CFA produced and promoted about 200 different events, ranging from soccer matches to concerts, plays, festivals, rodeos and corporate events. Televisa recently acquired a 50% stake in the company from its founders for about 6 million dollars; the remaining 50% is owned by Clear Channel Entertainment.

Televisa and Clear Channel already have a joint venture in Mexico, En Vivo.

The corporation's latest acquisition should result in a considerable increase in the number of Spanish-language broadcasts of 'live' sporting and entertainment events in both the domestic and the U.S. markets.


BOOST TO TOURISM IN MAYA AREA

Representatives of Mexico, Belize, Guatemala, El Salvador and Honduras are seeking ways to promote regional tourism centered on the area's archeological heritage by restoring archeological sites and upgrading highways.

At the First Maya World Congress, the importance of regional cooperation was stressed if more tourists are to be attracted to the Maya World region, which includes the southern Mexican states of Quintana Roo, Chiapas, Tabasco, Campeche and Yucatan. Among the sites scheduled for extensive restoration are two located in Quintana Roo: Chacchoben and Ichkabal.


THE NEXT "TEQUILA"

Demand for tequila continues to outstrip supply, with the major problem being a severe shortage of the blue agave from which all genuine tequila is distilled. Now, according to an article in Mexico City daily El Universal, some tequila producers are turning their attention to a possible alternative and are taking a close look at the commercial prospects of sotol. Sotol is the name for both a plant and a drink.

The plant is an agave, Dasylirion wheeleri, which has a basal rosette of narrow leaves, up to 1 meter long, with toothed margins. Also called 'desert spoon', it is found only in higher semi-arid areas in the states of Coahuila, Chihuahua, Durango and Nuevo Leon in northern Mexico and takes 10 years to mature. The drink, 38% alcohol by volume, is distilled from the 'heart' or 'piña' of the plant, by a similar process to that used for tequila.

At present, the only commercial brand on the market is Vinomex's Sotol Hacienda de Chihuahua, which uses wild sotol plants and is aged in oak barrels. Prospective sotol producers are reported to be seeking a Denomination of Origin status for the drink, similar to that enjoyed by tequila and mezcal.

Before Sotol can make inroads into the international market for agave-derived drinks, a great deal of research is needed to study the relative merits of different species of the plant, together with the best methods of reproduction and cultivation. The history of sotol may be about to enter a whole new phase.


FREEDOM OF INFORMATION LAW PASSED

Congress has passed a Freedom of Information Law which guarantees public access to government information. It is widely believed that the new law will lead to greater administrative transparency. The bill covers all branches of government including autonomous government entities, such as the Federal Electoral Institute, the National Human Rights Commission and the Banco de México.

It requires information such as the federal budget, payroll, internal audits, public debt and contracts for public works to be posted on the Internet. It also establishes a Federal Institute for Access to Public Information, that will oversee citizens' requests for information.

Provided that the information requested does not prejudice national security or judicial proceedings, the Institute has 20 working days to respond to requests, and an additional 10 days to provide the information.


2010 WORLD FAIR IN QUERETARO

Both the city and the state of Querétaro have grown rapidly over the past 20 years and now boast strong and diversified economies. One of the main reasons is that many companies have chosen to locate in Querétaro in preference to Mexico City, taking advantage of the state's excellent railroad and highway infrastructure.

Recently, the city of Querétaro became the first municipality in the country to be granted MXAA rating by Standard & Poor's, the leading U.S.-based rating service, reflecting the city's drive to improve tax collection rates and reduce its debt.

The improved rating provides a fresh boost to the city's hopes of staging the 2010 World's Fair or Expo Universal. Querétaro's bid, entitled 'People First', is now before the Paris-based International Bureau for Exhibitions (IBE) along with bids from five other cities: Moscow (Russian Federation), Shanghai (China), Yeosu (Korea), Wroclaw (Poland) and Buenos Aires (Argentina).

The IBE's final decision should be announced later this year.


MONEY TRANSFERS BY ATM

Bank of America has launched a new system, called SafeSend, which is designed to make it easier for Mexicans resident in the U.S. to send money home to their relatives in Mexico.

SafeSend allows them to remit up to 1,000 dollars a month to a named recipient who is given a special card that enables him or her to withdraw the funds from an ATM anywhere in the country. The latest estimates are that U.S.-Mexico remittances are worth about 9 billion dollars a year.

According to Bank of America, fees for the new system will average around 12 dollars a transaction, much less than the commissions charged by most competitors.


MEXICANA FLIES MORE ROUTES

In terms of passenger numbers, Mexicana is the leading carrier between Mexico and the U.S., accounting for 26% of the total number of seats sold.

The airline is now building on its reputation by adding new routes. In the past few months, these include Mexico City-Santo Domingo (via Cancun or Miami), Mexico City-San Salvador, Mexico City-Laredo (Texas), Guadalajara-Midway (Chicago), Zacatecas-Midway and Morelia-Midway, as well as Mexico City-Denver and Zacatecas-Denver. In July,

Mexicana hopes to inaugurate direct flights between Guadalajara and Sacramento. The carrier has also signed a code-share agreement with ANA (All Nippon Airways) for flights between Mexico City-Tokyo and Guadalajara-Tokyo (via Los Angeles).

Mexicana's fleet of 58 airplanes is one of the 'youngest' in Latin America with an average age of 10 years, but this is being steadily reduced by replacing older Boeing 727s with more modern Airbus models.


CHANGES IN THE CONSUMER PRICE INDEX

In response to the changing habits of Mexican consumers, the central bank, Banxico, is incorporating 36 new products and services in the basic 'consumer basket' it uses to calculate the consumer price index. Among the new items taken into account are computers, cellphones, pizzas, Internet services, movie rentals, bottled water and Premium gasoline.

The relative weighting of different sectors in the overall index is also being modified. The significance of food, beverages, clothes and footwear is being reduced slightly, while increased importance is being attached to the costs of housing, healthcare and education.





The text of this report was not submitted to any Federal Mexican Authorities or approved by them prior to publication. In preparing it, we have done our own research, using sources we believe to be reliable. However, we do not guarantee its accuracy. Neither the information contained herein nor the opinions expressed, constitute a solicitation by us of the purchase of any security.

Mirrored with permission from Lloyd S.A. de C.V.
See their Page on Mexico Connect.

2002 Operadora de Fondos Lloyd, S.A.
© 2002 Allen W. Lloyd, S.A. de C.V.

Published or Updated on: July 20, 2006
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