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Mexican Business Leaders Offer Economic Warning - 2001-10-30

Mexican business leaders are warning that their country's economy could face a deep crisis in the year ahead if the legislature fails to pass a fiscal reform package proposed by President Vicente Fox. Current rosy forecasts for the Mexican economy have been based, in part, on the assumption of fiscal reform.

With the fiscal reform package stuck in Congress and the subject of partisan bickering, Mexico's leading industrial group, known as COPARMEX ( La Confederacion Patronal de la Republica Mexicana) went on the offensive Monday. COPARMEX President Jorge Espina says the business community and ordinary citizens are tired of the debate and want to see action. He says it is time to hold the Congress accountable for not working to move the country forward. He says the public has grown tired of hearing the populist argument that the proposed 15 percent value-added tax on food and medicine would hurt poor people.

The Fox proposal contains mechanisms to compensate the poor for the portion of the tax that applies to food and medicine. Legislators are discussing various counterproposals, some of which would eliminate or reduce the tax on food, medicine and books. Congressional leaders say a compromise could be reached before the end of the session in mid-December, but they express little hope of passing a bill by the end of November.

Mr. Espina says Mexico's poor and the country in general will suffer more if the reform is not approved soon. He says that, if there is no action in Congress before the middle of November, Mexico could lose half of the foreign investment that had been expected in the coming year.

Currently, much of Mexico's economic health and the strength of the peso is based on a strong in-flow of investment from other nations, in particular from the United States. The recession in the United States is already taking a toll in Mexico and the effects of the September 11 terrorist attacks are expected to deepen the impact in the months ahead.

U.S. demand for Mexican goods has fallen and increased security at the border has slowed the delivery of some goods to the U.S. market. A report released Monday shows a 5.6 percent drop in Mexico's manufacturing employment in August and a further drop is expected in the months ahead.