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C O N F I D E N T I A L GUATEMALA 000045

SIPDIS

E.O. 12958: DECL: 2020/02/17
TAGS: PGOV ECON SOCI PREL PINR ASEC EAID GT
SUBJECT: 2009 in Review; What to Watch for in 2010

REF: A. 09 GUATEMALA 919; B. 09 GUATEMALA 969; C. GUATEMALA 07 D. 09 GUATEMALA 106; E. 09 GUATEMALA 756; F. 09 GUATEMALA 538 G. 09 GUATEMALA 929; H. GUATEMALA 25

CLASSIFIED BY: Drew G. Blakeney, Political and Economic Counselor,
State, P/E; REASON: 1.4(B), (D)

Summary

¶1. (C) President Colom's tenure during 2009 was characterized by a number of successes in the social field, and growing challenges in others, especially security. Preparing for a presidential run in 2011, controversial First Lady Sandra de Colom continued to lead the government's efforts to alleviate poverty, broaden access to education, and foment social inclusion of indigenous people. She oversaw a substantial expansion of the GOG's Conditional Cash Transfer Program. President Colom increasingly ceded power to his wife during the year. Lawyer Rodrigo Rosenberg's accusation from the grave that Colom and his inner circle had murdered him threatened the government's stability, but CICIG's exoneration of Colom helped restore a basis for dialogue with the GOG's political opponents. The Ambassador urged the political opposition not to prejudge the outcome of the investigation, and later hosted the President and private sector representatives to renew dialogue. With encouragement from the Embassy and CICIG, Congress elected a cleaner Supreme Court and passed important rule of law reform legislation. The Attorney General's Office was well-led, and collaborated with CICIG to solve high-profile crimes. Nonetheless, the impunity rate for homicides in 2009 was 96.5%. President Colom named the country's leading human rights activist to a commission to reform the police; she will begin her new job in May. The Army demonstrated responsiveness to civilian authority. However, it failed to fully comply with a presidential order to turn over controversial plans dating back to the internal conflict, and to adequately address the theft of thousands of weapons from its stocks, some of which were resold to narcotraffickers. With USG assistance, cocaine seizures tripled from 2008, but nonetheless remained low. Traffickers generally operated with impunity.

¶2. (SBU) Guatemala's macro-economic management remained sound, but its economy, closely tied to that of the United States, was buffeted by the global downturn. The GOG has yet to adequately address the appalling child malnutrition problem. The GOG maintained goodrelations with its neighbors, and recognized the Lobo Government in Honduras. It was generally successful in advancing its legislative agenda, with the major exception of its top priority, tax reform. Close to half the members of the governing UNE's congressional bench left the party in search of greener pastures. Political jockeying for the 2011 elections has begun, making it harder to reach consensus on tax reform and other important legislation, and consolidate gains in the judiciary. End Summary.

A Pre-Electoral Year that Feels Like an Election Year

¶3. (C) Although presidential, congressional, and municipal elections will not be held until Sept. 2011, 2010 already feels like an election year. President Colom has ceded most responsibility for social policy to his capable but polarizing wife, Sandra Torres, who also plays a leading role in cabinet meetings and was the GOG's principal protagonist in the Supreme Court selection process (ref a). Regarding the presidential contest that is now taking shape, per polls of unknown reliability, presidential front-runner rightist General Otto Perez Molina appears to have a 2-1 lead over Sandra Torres de Colom. It is quite clear that Torres will be the governing UNE's presidential candidate despite a constitutional ban on the sitting president's family members running for the office. Rightist preacher Harold Caballeros of VIVA appears to be in third place, with centrist caudillo Manuel Baldizon of LIDER a distant fourth.

¶4. (C) In Congress, deputies are switching parties in hopes of improving their re-election chances and, in the case of those switching to Baldizon's LIDER bench, for a $60,000 check (ref b). The balance of power in Guatemala's 158-member Congress is split among more than a dozen parties. The governing UNE bench began the 2008 Congress with 51 deputies, but has continued to hemorrhage members -- mostly to LIDER -- and is down to 32. The size of the opposition LIDER and Patriot Party benches is now similar to that of the UNE; also in the same league is GANA, which so far has worked in legislative alliance with the UNE, but will likely soon start to fracture.

-- (C) What to watch for in 2010: How long the shrinking UNE bench can hold together its ad hoc legislative alliance with GANA and FRG; passage of critical justice and security laws sought by the USG and CICIG; whether the GOG can make any progress on tax reform in an increasingly charged environment; growth of the opposition LIDER and Patriot benches.

CICIG's Contribution to Democratic Stability

¶5. (SBU) Thanks to a thorough investigation by the UN-led International Commission Against Impunity in Guatemala (CICIG), as well as USG and other countries' efforts to rein in intemperate proposals by the GOG and the opposition, the Colom Government successfully weathered a major political crisis. A prominent lawyer, Rodrigo Rosenberg, recorded and circulated a video just days before his murder in May alleging that President Colom and his inner circle were plotting to assassinate him. Crowds marched in the streets of Guatemala City during May and June, accusing Colom of murder. The political opposition demanded he step down temporarily; theAmbassador persuaded the head opposition leader, Otto Perez Molina, to backtrack. The Ambassador subsequently hosted a meeting between the President and Perez Molina to give political breathingroom to the CICIG investigation. In January 2010, CICIG Commissioner Castresana publicly announced his finding that Rosenberg had arranged for his own murder, and that President Colom and his inner circle had nothing to do with it (ref c). At a dialogue hosted by the Ambassador, private sector leaders expressed regret for the political turmoil that followed the publication of Rosenberg's allegations, and said they were willing to work with the GOG on tax reform and other issues.

-- (C) What to Watch for in 2010: Two related CICIG investigations, those into the murders of businessman Khalil Musa and his daughter Marjorie as well as a separate investigation into accounts at Banrural, a major Guatemalan bank used to disburse Social Cohesion Council funds, could be the source of more political drama.

Expansion of Social Programs

¶6. (SBU) President Colom was elected on the strength of support from rural voters to carry out a poverty alleviation and rural development agenda. As GOG efforts on other fronts faltered, President Colom increasingly ceded power to his wife, Sandra Torres de Colom. As head of the government's Social Cohesion Council, which administers social welfare programs concentrated on the rural poor, the First Lady became the GOG's principal standard bearer. Under her leadership, the GOG expanded its flagship poverty alleviation program, "My Family Progresses," a conditional cash transfer program (CCT) that provides monthly stipends to poor mothers in exchange for keeping their children vaccinated and in school. By the end of 2009, "My Family Progresses" had disbursed stipends to over 477,000 mostly rural and indigenous families. This is up from 28,000 families in 2008.

¶7. (C) Business elites and other opinion leaders in Guatemala City continued to deride the program as fostering dependency on the state, lacking transparency, and as a vehicle for political patronage and corruption. The Constitutional Court directed the Ministry of Education, which maintains the records relating to "My Family Progresses," to release the records to independent Congresswoman Nineth Montenegro NLT Jan. 29, 2010. However, on Jan. 28 the Ministry of Education invoked confidentiality provisions of the Freedom of Information Law and placed a seven-year hold on release of the information. The Comptroller General, who is sympathetic to the First Lady, publicly stated that his review of a sample of "My Family Progresses" recipients had uncovered no significant irregularities. Despite the criticisms and lack of transparency, "My Family Progresses" remains popular with the rural poor. The Social Cohesion Council's "Solidarity Baskets" program in 2009 provided basic foodstuffs to more than 400,000 urban families living in extreme poverty, according to official records. As part of the Open Schools Program, the government opened 192 primary schools on Saturdays in poor areas throughout the country to provide students a safe place to learn and play on weekends.

Other Transparency Concerns

¶8. (C) Amidst growing concerns about the opacity of the First Lady's Social Cohesion Council programs, civil society groups reported that government use of "Guatecompras" and other systems intended to ensure transparency in public expenditures fell. In January 2009, theGOG announced it would stop purchasing children's vaccines, HIV retro-viral drugs, and other drugs from the Pan-American Health Organization, and instead purchase them at much higher prices from J.I. Cohen, a pharmaceuticals company and major contributor to the Colom campaign owned in part by President of Congress Roberto Alejos and his brother Gustavo, Private Secretary to the President. Under public pressure, the GOG then back-tracked on some purchases. Also raising questions about GOG commitment to transparency is the reticence of Banrural, a partially publicly-owned bank, to disclose to CICIG investigators records for 53 accounts used for Social Cohesion Council funds.

-- (U) What to Watch for in 2010: Growth and effectiveness of Social Cohesion Council programs; the Banrural investigation; election of a new Comptroller General in October.

Guatemala Weathers the Economic Downturn

¶9. (U) Although negatively impacted, Guatemala weathered the 2009 international economic crisis better than most and was the only Central American country to register positive GDP growth in 2009. GDP growth was estimated at 0.6% in 2009, down from 3.8% in 2008. The economy is expected to recover in 2010 with 1.7% growth, according to Central Bank statistics. Remittances, trade flows, tourism, and foreign direct investment all declined in 2009. Remittances fell 9.3% ($4.3 billion to $3.9 billion) in 2009 after 12 years of uninterrupted growth. The Central Bank projects remittances will recover in 2010 with 3.5% growth. Exports, which comprise about 20% of GDP, also contracted in 2009. During the first 11 months of 2009, total exports declined 6.9%, from $7.1 billion to $6.7 billion. The value of coffee exports and apparel exports declined 12.7% and 18.5% respectively during the first 11 months of 2009. The decline in exports to the United States was only 2.5%, while exports to Central America declined by 15% and exports to Mexico declined by 24%. Reliable employment figures are unavailable in Guatemala, but the construction and apparel sectors, both hit hard by the economic crisis, reported job losses of 56,000 and 11,000 respectively. Weak demand and declines in international food prices led to the first deflation in Guatemala in 26 years. Inflation slowed from 7.8% in 2008 to -0.28% for 2009.

-- (U) What to Watch for in 2010: Return of growth in remittances, investment, and trade. October selection of a new Central Bank President, who will direct pre-electoral monetary policy.

Anemic Tax Collection

¶10. (U) The sharp slowdown in the economy led to lower tax revenues, which were 18% below 2009 projections. As a percentage of GDP, tax revenue declined from 11.3% in 2008 to 10.4% in 2009 - well below the Latin American average of approximately 14.5%. To cover the gap in tax revenues, the GOG was forced to cut budgets in most ministries as well as outlays for municipal governments, and took on additional debt during the year. The government will continue to depend on public borrowing to finance the 2010 budget. Tax revenues are projected to increase by 5.4% in 2010. Increased public spending is projected to lead Guatemala's total public debt as a percentage of GDP to increase from 20% in 2008 to 25% in 2010. While this level is not high by international standards, Guatemala's limited ability to collect taxes has led the IMF to urge Guatemala to begin to reduce its public debt.

No Agreement on Tax Reform

¶11. (U) To address the fiscal shortfall, at the end of November 2009 the government submitted a fiscal reform policy to Congress that included increases to income tax and "solidarity" (similar to USG Alternative Minimum Tax) tax rates. The GOG also proposed a new tax on cell phone calls. The tax reform would have increased tax revenues by about 1.1% of GDP. Confronted by traditional private sector opposition, however, the proposal failed to gather adequate congressional support in December. The Ambassador hosted meetings between the President and the private sector in December 2009 and January 2010, which led to resumption of a formal dialogue process.

-- (U) What to Watch for in 2010: Status of GOG-private sector dialogue on tax reform.

Worsening Food Insecurity

¶12. (U) During 2009, Guatemala's levels of food and nutritional insecurity reportedly were the worst in the Western Hemisphere and exceeded those of many African nations - 43.4% of children between the ages of three to 59 months suffered from chronic malnutrition. The lack of rainfall and higher fertilizer prices led to crop losses between 40 and 90 percent in the most affected areas, collectively known as the "Dry Corridor." Guatemala crossed a tipping point that left many families without access to farming inputs or food to supplement crop losses. President Colom declared a food security state of emergency in September 2009. Given below-average rainfall levels throughout the country, low soil moisture, and continued lack of access to funds for farming inputs, the food security crisis is expected to continue into 2010 and expand into the northwest highland region. The USG responded to address the needs of Guatemala's most vulnerable by: providing a single-year program of $15 million focused on food aid coupled with nutritional and health education in 295 communities in the Dry Corridor; continuing to provide $25 million in similar assistance to families in the highland region; and discussing with the GOG how to align the Global Hunger and Food Security Initiative with Guatemala's Strategic Plan for Food Security and Nutrition.

-- (U) What to Watch for in 2010: Continued food insecurity in the Dry Corridor that expands into the highland region; the effectiveness of government efforts to alleviate it.

Security: Narcos Maintain the Initiative

¶13. (SBU) With USG assistance, the GOG tripled cocaine seizures in 2009 over 2008; approximately 11 of the 300 metric tons estimated to have transited Guatemala during 2009 were seized. Nonetheless, it continued to lose control of national territory -- concentrated in border regions -- to narcotraffickers in 2009. Gravitating toward Guatemala's weak rule of law, Mexican Zetas (the armed wing of the Gulf Cartel) displaced Guatemalan traffickers in bloody shoot-outs, and established a permanent presence in several border and interior regions (ref d). With a homicide rate of 48.4 per 100,000, and with 6,498 murders in 2009, Guatemala is among the most dangerous countries in Latin America. The current government inherited a police force that has been chronically understaffed, usually poorly led, underpaid, and corrupt. In August, the National Police Director and other senior police leaders were arrested while trying to steal a load of cocaine (ref e). The military, which was capped at approximately 33,000 members by the 1996 Peace Accords, was reduced to approximately 15,500 under the Berger Government, although a recent government accord signed by Colom increased the cap to 20,000 (no funds, however, have been provided to effect the increase). It is under-staffed and under-resourced but does enjoy substantial public confidence. Gang members increased their extortion business in Guatemala City and other urban areas. Among their victims in 2009 were 107 bus drivers, most of whom were murdered when they failed to make extortion payments demanded by the gangs. In the face of inadequate state efforts, citizens established their own vigilante justice groups in several departments. In 2009, there were 49 vigilante-related deaths and 216 injuries compared with eight vigilante-related deaths in 2008, a six-fold increase.

¶14. (SBU). Despite institutional shortcomings, some vetted units such as DEA's Sensitive Investigative Unit (SIU), the anti-gang unit (PANDA), and the Attorney General's Special Methods Unit (UME) worked well and in close coordination with CICIG and the Embassy. The Ministry of Government needs additional vetted and better-trained police to combat narcotraffickers. The expansion of the Model Precinct Program into a second crime-ridden suburb of Guatemala City resulted in immediate reductions in extortions and violent crime. Throughout 2009, the Army helpfully supported police in patrolling dangerous neighborhoods, and made important intelligence and operational contributions to counternarcotics efforts. The Army failed, however, to fully comply with a presidential order to turn over four conflict-era military plans, and its efforts to address the theft of thousands of weapons from its stocks, some of which were resold to narcotraffickers, were entirely inadequate (ref f). Recalling the country's bloody civil conflict, human rights groups continued to express concern about the military's limited role in citizen security.

-- (C) What to Watch for in 2010: Presidential selection in May of a new Attorney General; CN performance; indictment of former Minister of Government Gandara; possible defenestration of current Minister of Government Velasquez.

Rule of Law Reform

¶15. (C) The new Supreme Court, seated in October, is an improvement over its deeply corrupt predecessor. The Embassy and CICIG monitored and influenced the selection process (ref g). The new Supreme Court has taken positive steps on asset seizures and sharing, but to date has failed to act to adequately equip and prepare the new, designated High-Impact Court. Supreme Court President Alvarez's public spats with CICIG Commissioner Castresana and other initial actions are not encouraging. The Attorney General's Office progressed dramatically during 2009 under new leadership and with coaching from CICIG, DEA, and NAS. President Colom named an outstanding human rights activist, Helen Mack, to become the new Commissioner for Police Reform in May. According to Mack, Colom gave her license to reform the police academy and make personnel appointments, but told her that her reform efforts must be revenue neutral (ref h). It is doubtful that Mack can succeed without strong political backing, money, and societal consensus about the urgency of police reform.

¶16. (U) Some of the year's best news on the rule of law front came from Congress which, under the leadership of President Roberto Alejos and in close cooperation with the USG and CICIG, passed important reform legislation. The reform legislation provided the legal basis for use of modern tools such as: phone intercepts; controlled drugs deliveries; undercover operations; plea bargaining; streamlining extradition for foreigners; electronic transmission to courtrooms of witness testimony; and establishment of exceptional, "high-impact" courts for narcotrafficking and other dangerous cases.

-- (C) What to Watch for in 2010: Whether the Supreme Court appropriately punishes corrupt judges and uses its substantial holdings of seized cash and assets to protect threatened judges and courts. Appropriate resourcing of the High-Impact Court(s). Supreme Court cooperation with CICIG. Reform of the Injunctions (amparos) Law and passage of an Illicit Enrichment Law. Selection of a new Attorney General. Success of efforts to reform the Civil National Police.

Foreign Policy

¶17. (C) The mantra of the GOG's foreign policy continues to be maintenance of good relations with all countries in the hemisphere, which explains the GOG's reluctance to take a stand against anti-democratic practices by Venezuela, Nicaragua, and like-minded governments. President Colom and his ministers remain mindful, however, that their most important bilateral relationship by far is with the United States. The MFA continued to raise U.S. immigration reform with USG officials during the year. The GOG knows that it is essentially powerless to influence the course of the U.S. immigration reform debate, but nonetheless feels compelled to make its points due to the overriding importance of this issue to the Guatemalan people. The MFA resisted Russian and Iranian advances during the year. Advancing regional integration is high on the GOG's agenda, and it regrets Nicaragua's departure from the region's otherwise centrist trends. The GOG publicly condemned the coup in Honduras, and went on to recognize the Lobo Government. Guatemalans have closer business and family ties to El Salvador than to any other Central American country; GOG relations with the Funes Government are good.

Comment

¶18. (C) According to a Borges and Associates poll taken at the end of 2009, Guatemalans rated President Colom's performance as a 5.1 on a scale of 1 to 10. That is not bad given the global economic recession, continuing crime wave, Rosenberg scandal, and concerning indices of corruption. That said, Colom consistently has trouble with execution of his programs and promises. The most effective programs are those run by the First Lady; however, her likely presidential candidacy will generate considerable controversy. The President's initial fumbling of the Rosenberg murder, and most of the opposition's knee-jerk reaction to believe the worst of Colom, put democratic institutions in danger. 2009 saw some important state advances in social welfare and legislation underpinning rule of law reform, as well as improvements in the Attorney General's Office and Supreme Court. Nonetheless, security, rampant corruption, loss of state control of Guatemalan territory, and widespread child malnutrition will remain serious problems during 2010 that demand better government responses. Shaping the political landscape in 2010 will be the ascendancy of Sandra Torres de Colom and the approach of the 2011 elections. CICIG's investigations will likely produce more surprises during 2010 amidst an increasingly politically charged atmosphere.

MCFARLAND