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

UNCLAS SECTION 01 OF 03 GUATEMALA 000431 
 
SIPDIS 
 
DEPT PASS USTR 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON PREL EINV PGOV GT
SUBJECT:  The Guatemalan private sector's priorities and 
concerns 
 
Ref: A) 05 Guatemala 2645, B) 05 Guatemala 2653 
 
¶1.  (SBU) Summary:  Private sector leaders are increasingly 
concerned about the country's social and economic conditions 
and their consequences.  Intractable poverty, rising crime, 
and fears of populism are making them reevaluate traditional 
attitudes.  Their solutions focus on economic growth and job 
creation, institution building, and promoting the rule of law. 
They want the government to combat crime, contraband and tax 
evasion, and call for stronger institutions, from the 
judiciary to Congress and the political parties.  They 
emphasize the need for rural development, including improved 
education, health care, and infrastructure.  To promote 
employment generating investment, they want quick 
implementation of CAFTA, as well as more flexible labor laws, 
easier credit, and lower energy costs.  These priorities are 
little different from those of the government and the 
International Financial Institutions; however, they won't 
happen if the powerful private sector is not on board. 
Whether the businessmen will consent to giving up enough of 
their privileges, such as tax exemptions, monopolies and low 
minimum wages, to make a difference remains to be seen. 
However, the pressures are building, and changing attitudes 
could be a start.  End summary 
 
¶2.  (SBU) At a recent lunch with the heads of most of the 
member chambers of CACIF, Guatemala's powerful business 
umbrella organization, private sector leaders outlined their 
economic and political concerns and goals.  The lunch, 
attended by the Ambassador and the Economic, Commercial and 
Agricultural Counselors, featured the presidents or deputies 
of the Chambers of Industry, Agriculture, Exports, Sugar, 
SMEs, and Finance, as well as the President and Executive 
Director of CACIF.  It marked another step in a long series of 
meetings of the Ambassador and Embassy officers with private 
sector leaders to discuss the economic and political situation 
in Guatemala.  While their interests and views vary, overall 
they share a strong consensus. 
 
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CACIF the power broker 
---------------------- 
¶3.  (SBU) CACIF (Comite Coordinador de Asociaciones Agricolas, 
Comerciales, Industriales y Financieras), whose member 
chambers have over 200,000 adherents, has been the dominant 
business voice for the last four decades.  It is closely 
identified with both the traditional land-owning elite and the 
new industrial elite.  As such it has had extraordinary power 
over Guatemala's political and economic destiny, whether it 
gets directly involved or through its proxies in the 
government and Congress. 
 
¶4.  (SBU) Since the internal armed conflict died down in the 
mid-eighties, CACIF has played mostly a constructive role, 
supporting the modernization of the state, democracy, and the 
rule of law.  For example, it helped stop the "auto-coup" of 
President Serrano, opposed corruption under President 
Portillo, and seconded its members to the modernizing 
administrations of Presidents Arzu and Berger.  Private sector 
leaders are beginning to realize that business as usual is not 
a prudent strategy, for them or the country, and are looking 
for solutions.  Our interlocutors have cited several reasons 
for this change of attitude. 
 
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THE FEARS 
--------- 
¶5.  (U) Globalization: Globalization has increased 
competition, especially from Asia, so Guatemalan firms have to 
modernize and, when possible, build regional alliances to 
compete.  The more internationalist among the entrepreneurs 
consider that part of modernization and global competitiveness 
is a well-trained, content workforce, well-publicized respect 
for international environmental and labor standards, public 
works and charity, and a corporate commitment to following the 
rule of law. 
 
¶6.  (SBU) Poverty: Many of the businessmen see poverty not as 
a moral but as an economic issue.  While some have capitalized 
on Guatemala's internal market, which is large by regional 
standards, they realize that they could double their customer 
base if they help lift the majority of Guatemalans out of 
poverty.  They also object to unfair competition from the 
informal sector, which thrives because it is often the only 
income source for the poor. 
 
¶7.  (SBU) Populism: After suffering through the corrupt 
populist regime of President Portillo, most executives fear 
the influence of other populist champions of the poor on 
Guatemala's large rural and urban under classes.  At the CACIF 
lunch, they cited a recent trip to Venezuela by leftist NGOs 
and sympathizers financed by Chavez.  The recent victory of 
Evo Morales only underlines their fears.  Their hope is that 
economic growth and employment creation, especially in rural 
areas, will lessen the appeal of such leaders. 
 
¶8.  (U) Crime:  The other regional evil they fear is organized 
crime, with Guatemala suffering under sharply rising rates of 
drug trafficking and smuggling of everything from humans to 
chicken parts.  Several of the most prominent families have 
suffered kidnappings or murders, and most now travel with 
several bodyguards.  The lack of rule of law threatens them 
personally and affects the business climate, with contraband, 
high-jacking of merchandise and other criminal acts eating 
into profits and competitiveness (ref B).  While the large 
firms have substituted for the state with elaborate security 
systems and bodyguards, they wish the state could better 
fulfill this public sector role. 
 
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THE SOLUTIONS 
------------- 
¶9.  (SBU) The private sector has initiated or been involved in 
numerous master plans to "save" Guatemala.  These include the 
1996 Peace Accords, which have an extensive economic chapter, 
Foro Guatemala and the Grupo Barometro, basically calls to 
action against Portillo, the Pacto Fiscal, a comprehensive 
reform of the financial system, and most recently the as yet 
nameless and somewhat secretive group of "wise men" who focus 
on key areas such as education, health and security (ref A). 
In addition, the Berger administration, which is led by 
private sector scions, from the President on down, has its own 
action plans, including the Competitiveness Agenda and Vamos 
Guatemala. 
 
¶10.  (SBU) The changes most often proposed by the private 
sector to promote Guatemala's economic development fall 
broadly into three areas: 1) economic growth, 2) institution 
building, and 3) rule of law.  Under the latter our 
interlocutors most often cite the need to combat common and 
transnational crime, to fight contraband and tax evasion, and 
to improve the judicial system.  Under improving institutions, 
justice reform also looms large, as does building responsible 
political parties.  The overriding concern is establishing 
public sector and congressional professionalism and 
continuity.  Public servants are badly trained and paid, are 
not well respected, and are liable to lose their jobs when 
administrations change.  This leads to bad performance, 
corruption, and a lack of continuity in government operations 
and administrative services.  Congress, for its part, is 
splintered, prone to influence peddling and unprofessional, 
with political parties based on personal loyalty and 
expediency. 
 
¶11.  (U) In the economic area, private sector leaders call for 
an extensive menu of measures.  These include improving 
infrastructure (especially transportation), rural development, 
developing the financial sector to lower capital costs, 
lowering energy costs, making the labor market more flexible, 
fomenting employment and investment, and investing in 
education (especially at the technical level). 
 
¶12.  (U) They recognize that, in spite of having colleagues 
running the government now, they need to work through the 
political process in the long term.  During the lunch with the 
Ambassador, CACIF presented a somewhat ominous power point on 
the political scene and the 2007 elections, with diagrams of 
new linkages between leftist groups, Chavez, organized crime 
and more.  CACIF is particularly concerned about supporting 
strong, honest candidates for six top-level posts that are now 
vacant or will be so in the coming months: Prosecutor General, 
the Constitutional Court (which often blocks legislation), 
Finance Minister, Tax Director (SAT), Human Rights Ombudsman, 
and Bank Supervisor. 
 
¶13.  (SBU) Moreover, while not all CACIF members are 
participating (or perhaps even know about) the "wise men" 
initiative (ref A), under this rubric the private sector - 
with broad participation, even from leftists - hopes to 
influence and strengthen the political parties to make them 
more effective and to assure continuity to the next 
administration.  They have already held meetings with most of 
the parties and hope to build a coalition of from 40-50 
congressmen (out of 158) that will support their priorities. 
 
¶14.  (SBU) While CACIF purports not to support a single 
presidential candidate, it will comment freely on the 
candidates once they become known.  The CACIF members posited 
that presidential front-runner Alvaro Colom is mostly a 
centrist with some business experience, who is riding high on 
a political family name.  He does not worry them per se, but 
they are concerned about his entourage.  In Congress, CACIF's 
first priority will be to try to keep the GANA coalition 
united, preserve the support of the Unionista party of former 
President Arzu, and if possible reestablish the alliance with 
the PAN party. 
 
¶15.  (SBU) Legislation:  CACIF will not support tax increases 
until the tax base has been enlarged and the informal sector 
reduced, claiming that its members already pay the lion's 
share of taxes.  In spite of suspicions of some to the 
contrary, most business chambers insist that they support a 
pending tax evasion bill, albeit with changes to make it less 
"subjective."  Whether reduced tax evasion will make the 
private sector more amenable to comprehensive tax reform, 
which most analysts feel is a key ingredient for improving the 
government's ability to solve Guatemala's problems, remains 
the big question mark. 
 
¶16.  (U) Another law with strong support is the Ley de 
Catastro (real estate registry), which will grant land titles 
to those qualified.  This will allow peasants and farmers to 
invest more in their land, use it as collateral for loans, or 
sell it to invest in a different, and in the case of 
subsistence farmers, a more fruitful livelihood.  This law was 
approved in June 2005, but has not been fully implemented. 
 
¶17.  (U) Another priority law for the private sector is the 
Competition Law, although its support is likely mixed.  In 
addition, to improve infrastructure development, CACIF 
supports the Concessions Law, which would allow private firms 
to invest in badly needed public physical capital.  Although 
proposals for this were sent to the executive in November, it 
is not yet on the congressional agenda.  Finally, 
implementation of CAFTA is the private sector's number one 
priority, and CACIF has pledged its assistance with Congress 
once the implementation law is done.  Its strategy will be to 
target party leaders and the pre-candidates for the 2007 
election, and it should prove to be an important ally for the 
Embassy in getting quick congressional approval. 
 
Derham