VZCZCXRO7985
RR RUEHLA
DE RUEHGT #0434/01 1261831
ZNR UUUUU ZZH
R 061831Z MAY 09
FM AMEMBASSY GUATEMALA
TO RUEHC/SECSTATE WASHDC 7419
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 0069

UNCLAS SECTION 01 OF 03 GUATEMALA 000434 
 
STATE PLEASE PASS TO TREASURY - SARA SENICH 
 
SENSITIVE  SIPDIS 
 
E.O.12958: N/A 
TAGS: ECON EFIN ETRD PGOV PREL GT
SUBJECT:  VISIT OF DEPUTY ASSISTANT SECRETARY NANCY LEE TO 
GUATEMALA 
 
Summary 
-------- 
 
¶1. (SBU) Treasury Deputy Assistant Secretary for the Americas Nancy 
Lee visited Guatemala April 17 to attend the Central American 
Finance Ministers meeting and discuss the impact of the global 
economic crisis on Guatemala and Central America.  In meetings with 
a variety of private and public sector leaders, DAS Lee underscored 
the USG commitment to support Guatemala in its efforts to mitigate 
the political and social impact of the economic crisis.  She noted 
that $1.1 trillion in additional resources was made available to 
developing countries during the G-20 meeting in London.  She also 
highlighted President Obama's micro-finance initiative.  While some 
private sector leaders expressed concern over in the Government of 
Guatemala's (GOG) slow recognition of the financial crisis' all 
agreed that Guatemala's well-managed economy, sound financial system 
and substantial international reserves have left Guatemala in a 
better position to efficiently use additional assistance than some 
other Central American countries.  DAS Lee discussed some ways 
additional bilateral and multi-lateral assistance could be used in 
Guatemala, including increased credit facilities for small- and 
mid-sized businesses, support to Guatemala's Conditional Cash 
Transfer assistance program, and increased trade and infrastructure 
finance.  In addition, DAS Lee suggested that technical assistance 
by Treasury and World Bank experts in areas such as budgetary 
control, financial regulation of business, tax policy and 
administration of the cash transfer assistance program would help 
modernize Guatemala's economy over the medium and long-term.  End 
Summary. 
Guatemalan Opinion Leaders 
-------------------------- 
 
¶2. (SBU) DAS Lee began her visit by meeting with several Guatemalan 
opinion leaders, including journalists, economists, and business and 
trade representatives.  Interlocutors agreed that Guatemala had been 
impacted by the U.S. recession and opined that economic activity 
would continue to weaken in the coming months.   They expressed 
concern that this would aggravate the already serious problems of 
poverty and unemployment in Guatemala as well as the social issues 
of violence, organized crime and narco-trafficking.  They expressed 
concern that the GOG had not anticipated the recession or prepared 
for it, saying that the GOG had spent "the last twelve months with 
its head in the sand." 
¶3. (SBU) The Director of the Guatemalan Exporters Association stated 
that agricultural exports have remained strong and that the biggest 
problem facing agriculture in Guatemala was insufficient production. 
 Guatemalan farmers are not able to take advantage of demand for 
non-traditional agricultural exports for a number of reasons 
including a poorly educated work force with poor English skills and 
a lack of irrigation systems and poor infrastructure.  Scholarships 
for young people to study English in the U.S. are needed.  DAS Lee 
noted that increased resources are being made available through 
international financial institutions (IFIs) as a result of the G-20 
meeting and discussed the need to expand credit to small- and 
mid-sized businesses and to farmers.  She pointed out that, the 
President's micro-finance initiative is an important effort to 
address this issue. 
¶4. (SBU) Interlocutors suggested the U.S. join the Central American 
Bank of Economic Integration (CABEI), a request echoed later in the 
day by Central American Finance Ministers.   DAS Lee acknowledged 
Qday by Central American Finance Ministers.   DAS Lee acknowledged 
the perception that the InterAmerican Development Bank (IDB) focused 
on larger Latin American countries at the expense of Central America 
and the important role the CABEI plays in Central America.  However, 
the U.S. prefers to promote reforms to the IMF and IDB to ensure 
they are adequately addressing the needs of smaller Latin countries, 
including Guatemala, rather than join a new multilateral 
institution. 
Meeting with the Social Cohesion Counsel 
---------------------------------------- 
 
¶5. (SBU) DAS Lee met with members of the Social Cohesion Council, a 
GOG social services coordinating body administered by Guatemala's 
First Lady, Sandra Torres de Colom.  Meeting participants discussed 
Guatemala's Conditional Cash Transfer program which seeks to 
eventually reach approximately 3.5 million Guatemalans living in 
poverty with direct cash subsistence payments contingent upon 
keeping their children in school and regular health checkups. 
Participants noted that the major challenge facing the program in 
its first year of operation was political opposition due to a 
perceived lack of transparency and controls.  The Social Cohesion 
Council members stated that the biggest challenge going forward is 
the increased demand for health and education services from families 
receiving assistance.  DAS Lee suggested that the Council seek 
technical support and advice from the IMF and the World Bank, which 
have the benefit of experience in setting up and maintaining such 
programs in other countries.  DAS Lee acknowledged the need for 
adequate funding and indicated support for the provision of 
technical assistance. 
 
GUATEMALA 00000434  002 OF 003 
 
 
Central American Finance Ministers' Meeting 
------------------------------------------- 
 
¶6. (SBU) DAS Lee delivered opening remarks to the meeting of Central 
American Finance Ministers, discussing the U.S. economic situation 
and noting that U.S. economic recovery and world economic recovery 
are interconnected.  She emphasized Central America's importance to 
the U.S. given its integration with the U.S. economy.  She commented 
on the depth of the U.S. recession and reported that the U.S. 
economy showed some signs of bottoming out including mildly improved 
consumer spending and housing sales.  The Finance Ministers were 
encouraged by the news and expressed their appreciation for DAS 
Lee's visit, saying that it signals the importance that the Obama 
Administration places on its economic relationship with Central 
America, and its commitment to confront the crisis with a strong 
multi-lateral, organized and integrated response. 
¶7. (SBU) The Finance Ministers expressed concern that the decreased 
economic activity was negatively affecting national budgets, and 
that, together with reduced remittances, these budget deficits are 
threatening gains made in reducing poverty in recent years. 
Ministers from Honduras, Rebeca Patricia Santos Rivera, and 
Nicaragua, Alberto Jose Guevara Obregon, stated that without 
external budget support their programs would be difficult to 
continue.  The minister from El Salvador, Guillermo Handal, 
emphasized his country's severe contraction in credit, especially 
for construction lending and also expressed the need for budget 
support as well as expanded credit and trade finance facilities.  He 
said "if democracy does not solve the crisis it will erode support 
for the democratic process."  DAS Lee acknowledged the need for 
counter-cyclical budget support, but cautioned that the USG could 
not be expected to provide outright grants for budget support given 
our large budget deficit.  However, the USG was evaluating the 
possibility of additional technical cooperation on a wide range of 
issues such as customs harmonization to interdict illicit money flow 
and taxation. 
Meeting with Bankers 
-------------------- 
 
¶8. (SBU) Guatemalan bankers expressed satisfaction with the 
financial system's resiliency.  They noted that Guatemalan lending 
practices are conservative and banks were not affected by the 
sub-prime losses.  However, the general economic slowdown was 
impacting their business.  For example, the apparel industry 
suffered a reduction of orders resulting in job losses.    Demand 
for credit by the private sector has declined and financial 
institutions have tightened credit standards based on fear of what 
may lie ahead for the economy.  DAS Lee stated that Guatemala stands 
out in fiscal and monetary responsibility and thus would have more 
access to IMF and IDB resources than some of the other countries in 
the region.   The bankers stated that maintaining monetary and 
fiscal policy discipline and avoiding inflation remained a priority. 
 
¶9. (SBU) DAS Lee discussed the role of development banks, focusing 
on the private sector involvement in risk-sharing arrangements.  The 
bankers acknowledged that there was not much appetite in Guatemala 
for public/private partnerships due to a lack of a legislative 
framework and government inefficiency which leads to skepticism 
among private investors who would otherwise consider engaging in 
public projects.  The bankers and DAS Lee discussed the need for 
Qpublic projects.  The bankers and DAS Lee discussed the need for 
infrastructure to support improvements in the economy, but 
acknowledged that the lack of financing would limit GOG 
infrastructure projects. 
¶10. (SBU) There was a general consensus among the bankers that the 
crisis was affecting the urban poor more than the rural poor because 
agricultural exports have remained strong while the urban poor are 
facing high unemployment and cannot resort to subsistence 
agriculture to support their families. 
Meeting with Business Leaders 
----------------------------- 
 
¶11. (SBU) DAS Lee met with The Committee of the Associations of the 
Agriculture, Commerce, Industry and Finance Sectors (CACIF), the 
most influential business organization in Guatemala.  The business 
leaders agreed that Guatemala's macroeconomic situation is better 
than in other Central American countries, but were very concerned 
about the economic downturn.  They noted the 100,000 jobs lost in 
the construction industry in 2008 and the decline in remittances, 
which constitute more than 10 percent of GDP.  Also, textile 
assembly plants, previously a large employment generator, are 
suffering from the drop-off in demand.   The GOG had failed to 
anticipate the recession and had based its budget estimates on 
unrealistic growth assumptions (4.6 percent GDP growth).  As a 
result, the GOG is now experiencing significant budget shortfalls. 
The business leaders were concerned that if the GOG substantially 
increased domestic borrowing, it would soak up available liquidity 
and crowd out private borrowing.  Similarly, business leaders 
worried that increased borrowing would drive up inflation and 
commodity prices.  They said it was important to make credit 
 
GUATEMALA 00000434  003 OF 003 
 
SUBJECT:  VISIT OF DEPUTY ASSISTANT SECRETARY NANCY LEE TO 
GUATEMALA 
available for trade finance, infrastructure improvments and for 
small- to mid-size farmers.   They also suggested that efforts could 
be made to encourage the GOG to provide an institutional framework 
for public/private investment vehicles. 
¶12. (SBU) On tax reform, the business leaders complained that they 
bear a disproportionately large share of the tax burden since the 
majority of Guatemala's population works in the informal sector. 
Comment 
------- 
 
¶13. (SBU) DAS Lee's visit to Guatemala came at an important moment 
when both public and private sector leaders are coming to grips with 
the impact of the global economic downturn in Guatemala.  Her visit 
sent an important signal to Guatemala's financial community that the 
United States takes Guatemala and Central American economic recovery 
seriously and that the Obama Administration is committed to 
continuing and improving close economic and trade relations with 
Guatemala. [End Comment] 
¶14. This cable has been cleared with The Western Hemisphere Office 
at the Department of Treasury.