This record is a partial extract of the original cable. The full text of the original cable is not available.

251820Z Jan 06

UNCLAS SECTION 01 OF 02 GUATEMALA 000135 
 
SIPDIS 
 
DEPT PASS USTR 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EIND EWWT TBIO SOCI GT
SUBJECT:  Economic update - Guatemala:  January 3-23, 2006 
 
 
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Summary 
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¶1.  GUATEMALA LAGS BEHIND REGION IN ECONOMIC GROWTH 
¶2.  OVER $300 MILLION FOR INFRASTRUCTURE PROJECTS 
¶3.  TAX EVASION BILL SLOWLY MOVES THROUGH CONGRESS 
¶4.  INCREASED ACTIVITY AT GUATEMALAN PORTS 
¶5.  PNEUMONIA AND DIARRHEA TOP KILLERS 
¶6.  AVIAN FLU PREVENTION PLAN 
¶7.  AUTOMOBILE SALES RISE DESPITE LIMITED ECONOMIC GROWTH 
¶8.  225,000 SCHOLARSHIPS WILL BE AWARDED FOR 2006 
 
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¶1.   GUATEMALA LAGS BEHIND REGION IN ECONOMIC GROWTH 
--------------------------------------------- ------- 
 
(U) According to a Bear Stearns report, with a 3.2% economic 
growth rate and a 2.3% population growth rate, Guatemala 
remains in next to last place of CAFTA-DR countries for per 
capita GDP growth in 2005.  The absence of judicial and fiscal 
certainty is cited as one of the principal impediments to 
growth, since it deters foreign investment.  Analysts call for 
a growth rate approaching 7% for the country to address its 
many socio-economic problems. (Guatemala's population growth 
rate of 2.3% is the highest in the CAFTA-DR region, where the 
average is 1.7%, while yearly GDP growth of 3.2% is second 
lowest after El Salvador, and well below the CAFTA-DR average 
of 4.7%.) 
 
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¶2.  OVER $300 MILLION FOR INFRASTRUCTURE PROJECTS 
--------------------------------------------- ---- 
 
(U) Communications and Infrastructure Minister Castillo 
announced that his ministry will invest $301 million in five 
major project areas, including road, port and airport 
rehabilitation.  The roads alone will see $78.5 million in 
improvements, including repair of damage caused by Hurricane 
Stan.  Road improvements include widening the road to the 
Pacific, finishing the beltway around Guatemala City, and 
constructing a northern corridor highway.  The ministry 
announced $65 million to develop new airports and renovate the 
capitol's international airport, La Aurora.  The GOG hopes 
that these improvements will attract more foreign investment, 
particularly after CAFTA implementation. 
 
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¶3.  TAX EVASION BILL SLOWLY MOVES THROUGH CONGRESS 
--------------------------------------------- ----- 
 
(SBU) A bill on tax evasion that has been under discussion for 
months is stalled in the Congressional Finance Commission. 
Victor Ramirez, the Commission president, admits that there is 
still a lot of work to be done and plans to call extra 
sessions as needed.  Passage of a tax bill is considered 
urgent, due to a shortfall in 2005 tax revenues.  Guatemala 
has long struggled with tax collection and enforcement, with a 
huge informal sector that includes relatively large 
businesses.  Currently, the tax to GDP ratio is a low 10.1%, 
far from the goal of 12% set by the 1996 Peace Accords. 
Legitimate taxpayers, which include the country's most 
powerful business groups, demand improved enforcement before 
new tax measures are passed.  Business chambers publicly voice 
support for the bill; however, there are fears that behind the 
scenes they may undermine it, as they have with similar 
measures in the past. 
 
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¶4.  INCREASED ACTIVITY AT GUATEMALAN PORTS 
------------------------------------------ 
 
(U) Guatemala saw an overall 6.7% increase in port activity in 
¶2005.  The largest port, Puerto Quetzal, located on the 
Pacific coast, saw nearly a 20% increase.  Authorities praised 
the teamwork demonstrated by port employees, and are eager to 
attract additional investment and shipping companies. 
Freighter traffic has increased steadily since 2003, with 5.0% 
growth in 2004 and 5.8% in 2005.  Proposed port improvements 
and the implementation of CAFTA should bring further gains for 
¶2006. 
 
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¶5.  PNEUMONIA AND DIARRHEA TOP KILLERS 
-------------------------------------- 
 
(U) According to a recent study, the principal cause of death 
in Guatemala is Pneumonia, with 7,168 fatal cases reported in 
2005, followed by diarrhea, with 1,782.  The leading cause of 
death in developed countries, heart attacks, ranked fourth, 
behind murders or injuries from armed assaults, for which 
Guatemala has one of the world's highest per capita rates. 
The lack of strict water sanitation, food safety and public 
health standards are chiefly to blame for the spread of 
diseases.  The public health system, which is generally 
overcrowded and ill equipped, is hard pressed to handle the 
demand for care. 
 
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¶6.  AVIAN FLU PREVENTION PLAN 
----------------------------- 
 
(U) Guatemala is working with regional health agencies to 
establish a permanent commission for the prevention of Avian 
Flu.  A February session of congress will be devoted to 
educating members and the public about the dangers and methods 
of preventing Avian Flu.  There have been isolated reports of 
the less virulent strain of Avian Flu reported in the 
northwestern parts of the country along the border with 
Mexico.  However, the infected chickens have been isolated and 
destroyed, and there has been no connection to the deadly form 
of the Avian Flu now threatening Asia and parts of Europe. 
 
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¶7.  AUTOMOBILE SALES RISE DISPITE LIMITED ECONOMIC GROWTH 
--------------------------------------------- ------------ 
 
In spite of only modest economic growth in 2005, car sales 
were reported as very strong.  This increase was largely a 
reflection of a change in the assessment of taxes under GATT 
guidelines.  Historically, Guatemala imposed a flat tax on the 
sale of cars.  For used cars there was a blue book value that 
applied regardless of the actual cost of the car.  Now, tax on 
the sale of cars is assessed based on the value of the sale. 
As a result, used car sales rose by almost 100%, while new car 
sales rose by only 2%.  Skeptics wonder if under the new 
guidelines buyers are undervaluing the true cost of the 
transaction to avoid paying higher taxes. 
 
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¶8.  225,000 SCHOLARSHIPS WILL BE AWARDED FOR 2006 
--------------------------------------------- ---- 
 
The Ministry of Education will issue 56,000 more educational 
scholarships this year for a total of 225,000.   This increase 
in funding for education, which is being realized through 
assistance from UNICEF, will focus on assisting children in 
the primary school.  A 2005 review of the educational system 
identified 2,300 schools where the likelihood of students 
dropping out was extremely high due to poverty.  Analysts fear 
that most of the children taken out of school enter the child 
labor market.  Under the scholarship program specific 
attention will be devoted to children affected by Hurricane 
Stan, whose families may be under particular financial 
pressure to take their children out of school in order to 
work. 
 
DERHAM