VZCZCXYZ0000
RR RUEHWEB

DE RUEHSN #1154/01 3382051
ZNR UUUUU ZZH
R 042050Z DEC 09
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 0100
INFO WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SAN SALVADOR 001154 
 
SENSITIVE 
SIPDIS 
DEPARTMENT PLEASE PASS USTR 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD PGOV ES
SUBJECT: El Salvador's Fiscal Reform Moves to the National Assembly 
 
REF: 09 SAN SALVADOR 1028 
 
¶1.  (SBU) SUMMARY: The Government of El Salvador's fiscal reform 
package moved forward to the National Assembly and will likely pass 
before the Christmas holidays.  While the Ministry of Finance made 
a number of minor changes to its October proposal (reftel) 
following lengthy consultations with the private sector, the 
underlying plan, including numerous new taxes, remains intact.  The 
GOES made good on promises to consult stakeholders and operate 
transparently. The complicated reform, however, is still likely to 
produce less revenue than the GOES has projected.   Trade agreement 
concerns with the alcoholic beverage tax have not been addressed. 
END SUMMARY. 
 
 
 
¶2. (U) Minister of Finance Carlos Caceres presented the GOES's 
revised fiscal reform package to the National Assembly on November 
30, after several weeks of consultations with the private sector 
and other interest groups.  On December 1, the Ministry published 
the full reform package to its website ( 
http://www.mh.gob.sv/portal/page/portal/MH_PR INCIPAL/ ), including 
summary documents detailing which group proposed what change and 
which changes the Ministry accepted.  The Ministry claimed to have 
accepted the great majority of the change requests it received. 
 
 
 
¶3. (SBU) President of the Private Enterprise Association (ANEP) 
Carlos Enrique Araujo, whose organization led the private sector in 
its negotiation with the GOES, called on the National Assembly to 
study the reforms carefully for at least three months and 
reiterated the private sector's overall opposition to raising taxes 
during a recession.   Jorge Daboub, President of the Salvadoran 
Chamber of Commerce, publicly compared the private sector's 
participation in the discussions to handing over one's wallet to a 
mugger in order to save one's life.  Araujo told Econcouns that 
ANEP was disappointed the GOES did not accept more of its proposed 
changes. 
 
 
 
¶4. (U) Leading (center-right) think tank FUSADES has continued to 
criticize both the timing and complexity of the reform package 
throughout the negotiations.  In response, Central Bank President 
Dr. Carlos Acevedo told the press that FUSADES was not providing a 
valid analysis because it was controlled by a cabal of "corporate 
interests."  (NOTE: FUSADES was founded by the private sector with 
assistance from USAID, but is now funded by an endowment and 
revenues from various spin-off projects.  END NOTE.)     President 
Funes personally joined the criticism of FUSADES in an interview 
published December 4. 
 
 
 
¶5. (SBU) In former Minister of Economy Miguel Lacayo's view, the 
reform is "not ideological, just incompetently written."  Lacayo 
told Econoffs that the tax on interest on savings accounts, one of 
the major points of private sector concern, was "perfectly 
justifiable economically and fiscally," but would lead to capital 
flight because of uncertainty about what an FMLN government would 
do with information on how much money is in one's bank account. 
Lacayo also expressed concern about immediately criminalizing tax 
cases, without an option for administrative settlement.  Because of 
"incompetence" in the Attorney General's office, he said, this 
would likely mean the GOES will take longer to resolve tax cases 
while likely receiving less revenue than in an settlement. 
 
 
 
¶6. (SBU) ARENA Deputy and President of the Assembly's Economic 
Commission Mario Marroquin advised Econoffs that, despite ARENA's 
opposition, the GOES had the votes in the Assembly to pass the 
reform no later than the Christmas holidays.  Araujo and Amcham 
President Armando Arias told Econcouns that they had met with the 
FMLN delegation leadership in the Assembly, who had promised them 
that the Assembly would listen closely to the private sector during 
the debate.  They were far from certain, however, that this would 
lead to any changes in the legislation. 
 
 
 
¶7. (SBU) COMMENT: While the GOES made mostly cosmetic changes to 
its original proposal, it did conduct open, transparent 
consultations with the private sector and other stakeholders as it 
 
had promised.  Changes made did not reduce the complexity of the 
reforms, which will still likely produce less revenue than expected 
as consumers and businesses alter their behavior.  The GOES also 
did not address trade agreement concerns in the proposed changes to 
the alcoholic beverage tax (reftel).  Post will continue to engage 
with the Ministries of Finance and Economy on possible CAFTA and 
WTO issues with the alcoholic beverage tax.  END COMMENT. 
COCKBURN