[NYTr] Calderon Postpones Mexico Gas Tax to Avoid Backlash

[All the News That Doesn't Fit]

sent by Milt Shapiro (mexnews)

(in light of events in Burma.....)

Bloomberg News - Sep 26, 2007

Calderon Postpones Mexico Gas Tax to Avoid Backlash

by Patrick Harrington in Mexico City

Sept. 26 (Bloomberg) -- Mexican President Felipe Calderon postponed a 
new gasoline tax and halted fuel-price increases for the rest of the 
year, bowing to lawmakers who said his plan to overhaul tax 
legislation would stoke inflation.

The freeze on fuel and electricity prices is needed to ensure 
inflation doesn't hurt poor families, Calderon said today in a speech 
from his Mexico City residence. The president also called on 
manufacturers not to raise prices this year.

Calderon is seeking to quell criticism from lawmakers who say his tax 
overhaul legislation, approved by Congress Sept. 14, hurts low-income 
families. Members of opposition parties, as well as Calderon's 
National Action Party, have said the 5.5 percent tax on gasoline in 
the new legislation unfairly burdens the poor who must drive for work.

``This is really a response to a political issue more than to an 
inflation issue,'' Gray Newman, senior Latin America economist with 
Morgan Stanley in New York said in a telephone interview. ``Inflation 
for this year is largely written.''

The yield on the government's 10-year benchmark bond fell for the 
second day. Yields on the 7.25 percent bonds due in December 2016 
fell 4 basis points, or 0.04 percentage point, to 7.86 percent. The 
price, which moves inversely to the yield, rose 0.26 centavo to 95.99 
centavos per peso, according to Banco Santander SA.

Calderon, during his speech today, also thanked Mexico's association 
of retailers for agreeing to cap the price of a bread roll at 1 peso 
even as wheat prices rise. In August, Mexico extended an agreement 
with retailers to limit the price of a kilogram of corn tortillas to 
8.50 pesos for the rest of the year.

The freeze on fuel-price increases for the rest of the year will cost 
the government-run energy sector as much as 9 billion pesos ($824 
million), Jesus Reyes Heroles, chief executive officer of Petroleos 
Mexicanos, said in a radio interview on Grupo Formula.

Inflation Economists such as JPMorgan Chase & Co.'s Alfredo Thorne 
and Moody's Economy.com's Alfredo Coutino said in notes to clients 
that Calderon's measures are unlikely to change Mexico's inflation 
outlook this year.

Mexico's annual inflation rate has remained above the central bank's 
2-to-4 percent target range in eight of the past 12 months on rising 
costs of fruits, vegetables and grains.

Calderon today said members of the opposition Institutional 
Revolutionary Party and of his own party had asked him not to 
implement the gasoline tax this year.

``The discussion of this measure has unfortunately taken place during 
an adjustment of international prices for different products, among 
them wheat, which has affected the family economy,'' Calderon said. 
``To avoid this, I have decided to postpone the gasoline-price 
increase according to the terms solicited by legislators.''

The Bank of Mexico targets inflation at 3 percent for year- end 2008. 
In their policy statement Sept. 21, central bankers said they will 
evaluate how the government's tax plan will affect inflation and will 
announce new inflation targets for the next two years in October.

The central bank, which has held a ``restrictive bias'' since May, 
said in its last statement that pressure on inflation from foods such 
as milk and wheat had increased.

``Mexico is facing inflationary pressure that puts the central bank 
in a very difficult position,'' said Rafael de la Fuente, chief Latin 
America economist at BNP Paribas in New York.