VZCZCXYZ0012
PP RUEHWEB

DE RUEHSN #2431/01 3542204
ZNR UUUUU ZZH
P 202204Z DEC 07
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC PRIORITY 8750
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC

UNCLAS SAN SALVADOR 002431 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELTN ES
SUBJECT: GOES APPROVES $42 MILLION TRANSPORTATION SUBSIDY 
 
¶1. (U) SUMMARY: The Salvadoran government has approved $42 million 
subsidy for public transportation intended to avoid bus fare 
increases through mid-2009.  Public transportation providers called 
off a threatened strike, but failed to reach agreement on 
transportation reforms and refused to promise that fares will remain 
stable through mid-2009.  Taxi owners, cargo transporters and 
private citizens criticized a 10 cent per gallon fuel tax 
established to pay for the subsidy and lobbied congress to repeal 
this tax.  Politically influential transportation groups have used 
GOES concern over pocketbook issues affecting the 2009 elections to 
restore a controversial subsidy that had been twice eliminated in 
the past five years. END SUMMARY. 
 
ADMINISTRATION CLAIMS ITS FOR THE PEOPLE 
---------------------------------------- 
 
¶2. (SBU) On November 29, the GOES approved a plan to subsidize 
public transportation through a new 10 cent per gallon tax on 
gasoline and diesel.  Beginning in January 2008, buses and minibuses 
will receive monthly payments of $400 and $200 respectively for 20 
months, at a total cost of $42 million.  Bus and minibus operators 
were demanding fare increases of 5-15 cents or 20-50% after diesel 
prices rose 25% in 2007.  The GOES noted that the subsidy will 
benefit 85% of the population using public transportation while the 
tax will only affect 15% who own vehicles.  The Ministry of Economy 
also underscored the importance of public transport fares to low 
income families who spend 15% of their income on bus fares and would 
be hard hit by any fare hike.  Though, we heard privately from a 
reliable source that the Administration's economic team was not 
consulted prior to the decision to impose the new tax. 
 
¶3. (U) The GOES announced that in order to receive the subsidy bus 
owners will be required to pay outstanding fines, renew any expired 
registration and fulfill service requirements. It also called for 
additional conditions, including mandatory training classes aimed at 
improving customer service.  Bus operators denied approving specific 
reforms.  They also contradicted the GOES claim that transport fares 
would be frozen through 2009, stating that they only agreed to call 
off their strike and "continue talking" with the GOES. 
 
¶4. (U) In the past, bus owners have commonly ignored fines, allowed 
their registration to expire and operated illegally, knowing that 
the GOES rarely sanctions illegal bus operators but has repeatedly 
exonerated their fines.  Bus drivers are nearly universally vilified 
by their clients, due to the poor conditions of many of the buses 
and the reckless driving of the bus drivers, which have caused 
numerous deaths.   The Vice Minister of Transportation said bus 
operators know that public opinion is against them.  He told the 
press recently that the people don't want to give them (bus owners) 
"even one cent" in subsidies.  He added that bus drivers have earned 
their moniker "asesinos volantes" or "flying killers" for their 
reckless driving habits. 
 
BETTER ALTERNATIVES? 
-------------------- 
 
¶5. (U) Cargo transporters, taxi drivers and private vehicle owners 
criticized the new tax, arguing that it will have an inflationary 
effect, effecting prices for any good that is transported.  Truck 
and taxi drivers threatened to strike and block roads when the tax 
was instituted on December 1, but they later agreed to negotiate 
with the GOES.  Cargo transporters have lobbied legislators to 
repeal the new tax and urged the GOES to use another revenue source 
such as a "sin tax" on liquor and cigarettes or offer a VAT tax 
exemption to subsidize public transportation.  Some members of the 
opposition FMLN party have publicly opposed the new fuel tax but it 
retains majority support in Congress, in part because of the 
personal interests of some legislators, as discussed below. 
 
BACKGROUND: HISTORY OF SUBSIDIES AND ABORTED REFORMS 
--------------------------------------------- ------- 
 
¶6. (U) Public transportation in El Salvador is provided by 
privately-owned bus companies operating an estimated 7,500 buses and 
4,000 minibuses on prescribed routes with fares approved by the Vice 
Minister of Transport in the Ministry of Public Works.  The Saca 
administration has appointed four different Transportation Vice 
Ministers tasked with reforming public transportation and 
negotiating with bus associations to avoid fare increases. 
 
¶7. (U) Transporters have a long history of receiving subsidies while 
resisting efforts to modernize the fleet and improve services.  The 
sector benefited from fuel subsidies from 1974 until they were 
eliminated in 2002.  In October 2005, they convinced the GOES to 
establish a new subsidy for buses and minibuses after pressuring for 
bus fare hikes due to a 25% increase in diesel fuel prices.  Under 
that program, bus owners received direct payments linked to their 
volume of business.  The GOES eliminated that public transportation 
subsidy in June 2006 but agreed to increase fares by $0.10 to avoid 
another threatened strike. 
 
¶8. (U) Under prior subsidy programs, the GOES had little success 
imposing conditions to modernize the bus fleet and improve service 
quality.  The GOES required bus owners to retire older buses while 
offering credit for purchase of new vehicles but Congress repeatedly 
postponed the retirement of old vehicles and only one requirement 
was implemented in 2005 to retire vehicles more than 25 years old. 
The GOES also tried unsuccessfully to require bus owners receiving a 
subsidy to receive training in driving skills and customer service. 
In 2005, the GOES announced a requirement for registered buses to 
undergo regular mechanical inspections, however the Italian company 
that won the inspection contract failed to execute the contract 
after it was implicated in a corruption scandal involving contracts 
with the state water company (ANDA). 
 
POLITICAL INFLUENCE 
------------------- 
 
¶9. (SBU) The public transport associations have effectively used 
their political influence in the Legislative Assembly to support 
subsidy programs and delay reforms.  A prominent legislator from the 
National Conciliation Party (PCN), Elizardo Lovo, owns a bus company 
and is well known for promoting the sector's interest.  The 
opposition Frente Farabundo Marti para la Liberacion Nacional (FMLN) 
includes many bus owners who have joined the PCN, normally part of 
the ruling coalition, to support several amnesties for fines on bus 
operators.  This coalition has also repeatedly approved decrees to 
postpone the retirement of older vehicles.  In addition to the 
economic interests of some legislators, bus owners also benefit from 
their ability to bring voters to the polls during elections. 
 
COMMENT 
------- 
 
¶10. (SBU) Politically influential transport groups have used GOES 
concern over pocketbook issues to restore a controversial subsidy 
that was twice eliminated in the last five years.  While the subsidy 
has averted the immediate threat of a crippling transportation 
strike, the new fuel tax has rankled other vehicle owners, is likely 
to drive up other prices and has aroused pressure from cargo 
transporters for their own concessions.  With gasoline prices 
already setting record highs, the Administration's tacking on an 
additional ten cents a gallon to those costs does not make much 
economic or political sense. 
 
¶11. (SBU) The Administration, preoccupied by the 2009 elections and 
the more moderate appearing FMLN Presidential candidate, apparently 
intended to curry populist favor with the new tax.  However, the tax 
is more likely to be viewed as ARENA helping a few 
politically-connected interest groups, who traditionally have not 
been very responsive to the people's interests.  Saca had also 
pledged to fix the public transportation problem when he took 
office.  This effort will certainly not fulfill that promise.  As 
the end of his term draws nearer, he has his staff focused on 
fulfilling other campaign pledges. 
 
Glazer