VZCZCXRO7781
RR RUEHLMC
DE RUEHSN #0642/01 1882120
ZNR UUUUU ZZH
R 072120Z JUL 09
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 1357
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC
RUMIAAA/USCINCSO MIAMI FL

UNCLAS SECTION 01 OF 02 SAN SALVADOR 000642 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EINV KCRN ES
SUBJECT: ECONOMISTS DISCUSS GOVERNMENT'S ANTI-CRISIS PLAN 
 
REFTEL: SAN SALVADOR 494 
 
¶1. (SBU) SUMMARY.  Two prominent economists offered similar views of 
the Government of El Salvador's (GOES) $587 million anti-crisis 
plan.  Luis Membreno and Claudio DeRosa separately said the plan 
largely consisted of increased spending on existing programs.  As an 
economic stimulus, the plan was likely to add no more than 1 percent 
to GDP over the next 18 months, which would not be enough to do more 
than reduce the severity of a recession.  Likewise, the promised 
100,000 new jobs would be mostly temporary in nature.  While the 
plan's increased spending on social programs may be worthwhile on 
its own merits, the anti-crisis plan is unlikely to ameliorate the 
effects of the international financial crisis on the Salvadoran 
economy.  END SUMMARY. 
 
¶2. (SBU) Econoff met with Luis Membreno, a freelance economist who 
served on the Funes transition team's "Anti-Crisis Commission." 
Membreno's official role ended June 1, but he is still providing 
informal advice to Presidency Chief of Cabinet Alex Segovia and 
various Ministers.  Separately, Econoff met July 1 with Claudio 
DeRosa, a former banking association director turned commentator. 
DeRosa also drafted the anti-crisis section of ARENA presidential 
candidate Rodrigo Avila's government plan. 
 
¶3. (SBU) According to Membreno, the $587 million Anti-Crisis Plan's 
(reftel) expenditures break down into the following rough 
categories: 
 
- $53 million for "employment generating activities," such as 
labor-intensive public works projects 
 
- $255 million for "Solidarity Communities" (the renamed "Solidarity 
Network" conditional cash transfer program) 
 
- $118.6 million for the purchase of school uniforms and school 
supplies 
 
- $75.4 million for the Ministry of Health to purchase medicine 
 
- $85 million for all other activities, including pensions for the 
rural elderly poor 
 
¶4. (SBU) In Membreno's view, the plan was a combination of increased 
social spending and existing government programs that have been 
shifted to the plan so they could be funded by international loans. 
For example, Membreno cited the Ministry of Health's purchase of 
medicines as an activity that is part of the Ministry's "normal" 
operations.  DeRosa called the plan "nothing new," asserting that 
"95 percent" of the plan was just existing programs, some with 
increased funding.  DeRosa also faulted the plan's social component 
for being too focused on rural areas. 
 
¶5. (SBU) Membreno, who also operates a luggage wholesaler, expressed 
concern over the $118.6 million figure for school uniforms and 
supplies.  In his view, this was approximately double what the cost 
should be even if the GOES "bought the pricey stuff."  DeRosa, on 
the other hand, thought the estimate was reasonable given the 
promise of uniforms, shoes, backpacks, books, and supplies. 
 
¶6. (SBU) Asked about the GOES's assertion that the plan would create 
100,000 new jobs, Membreno said that it depended on how one counted 
new jobs.  The "employment generating activities" were intended to 
employ 20-30,000 people per semester at about $100/month, roughly 
the rural minimum wage.  So, over the roughly 18-month timeline of 
the plan, this would have created 100,000 short-term jobs, just not 
all at the same time.  On the other hand, DeRosa doubted that the 
new government had the technical expertise to get many new public 
works projects started within the first year and thus would be 
unlikely to reach their stated goal.  Both Membreno and DeRosa 
expressed concern that the plan did not involve working with the 
private sector on job creation. 
 
¶7. (SBU) In terms of economic stimulus, Membreno thought that the 
plan would add about 1 percent to GDP over the next 18 months.  This 
would not be enough to keep the economy out of recession, he added, 
but it would help reduce the overall contraction.  DeRosa said that 
the stimulus effect would depend entirely on how much new money was 
brought in via new international loans.  All the existing spending, 
he said, was already factored into economic projections.  DeRosa 
added that, while the economic downturn was caused by decreased 
exports, falling remittances, and lower domestic consumption 
(largely a result of increased unemployment), the plan only included 
elements to address the last item. 
 
¶8. (SBU) COMMENT: Membreno's and DeRosa's comments track with Post's 
initial assessment of the plan and its limited stimulus potential 
 
SAN SALVAD 00000642  002 OF 002 
 
 
(reftel).  Neither Membreno nor DeRosa thought the plan itself was 
bad, but neither thought it was the right remedy to address the 
effects of the international economic crisis on El Salvador.  While 
the increased social spending, particularly through the already 
successful Solidarity Communities program, may be worthwhile on its 
own merits, the anti-crisis plan is unlikely to do much to 
ameliorate the effects of the international financial crisis on the 
Salvadoran economy. END COMMENT. 
 
Blau