Identifier
Created
Classification
Origin
04GUATEMALA245
2004-02-02 19:39:00
SECRET
Embassy Guatemala
Cable title:  

DESPISED TAX AND CUSTOMS CHIEF ABADIO QUITS; IS

Tags:  EFIN PGOV KCOR SNAR GT 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
S E C R E T SECTION 01 OF 03 GUATEMALA 000245 

SIPDIS

TREASURY FOR OASIA: CHRIS KUSHLIS AND BILL BLOCK

E.O. 12958: DECL: 02/02/2009
TAGS: EFIN PGOV KCOR SNAR GT
SUBJECT: DESPISED TAX AND CUSTOMS CHIEF ABADIO QUITS; IS
REPLACED BY WILLIE ZAPATA, WHO THOUGHT HE WAS BECOMING
SUPERINTENDENT OF BANKS

REF: A. 2003 GUATEMALA 772


B. 2003 GUATEMALA 2593

Classified By: EconCouns Steven S. Olson for reason 1.5 (d).

Summary
-------
S E C R E T SECTION 01 OF 03 GUATEMALA 000245

SIPDIS

TREASURY FOR OASIA: CHRIS KUSHLIS AND BILL BLOCK

E.O. 12958: DECL: 02/02/2009
TAGS: EFIN PGOV KCOR SNAR GT
SUBJECT: DESPISED TAX AND CUSTOMS CHIEF ABADIO QUITS; IS
REPLACED BY WILLIE ZAPATA, WHO THOUGHT HE WAS BECOMING
SUPERINTENDENT OF BANKS

REF: A. 2003 GUATEMALA 772


B. 2003 GUATEMALA 2593

Classified By: EconCouns Steven S. Olson for reason 1.5 (d).

Summary
--------------

1. (C) President Berger appointed respected banker and
former Central Bank President Willy Zapata to be the new
Superintendent of Tributary Administration on January 28.
His exceptionally unpopular predecessor, Marco Tulio Abadio,
quit as rumors circulated that the government sought his
removal. President Berger publicly called for civil
society's views on Abadio's performance, knowing what the
response would be, in a deft move to expedite Abadio's
departure. Abadio is widely considered the implementer of
the former government's campaign of "fiscal terrorism"
against its private sector opponents, though he may also have
had his own agenda. Zapata's appointment was a surprise.
Only days earlier, he had called on EconCouns to report that
he would become an advisor to Superintendent of Banks Douglas
Borja until Borja could "retire" gracefully. Zapata would
then take over. Borja had performed well on most occasions
but was thought to have covered for cronies of former
President Portillo, a childhood friend who appointed him.
The problem was such that Borja's own money laundering
investigators did not share all of what they knew with him.
Zapata contrasted Borja's attitude with that of Central Bank
president Lizardo Sosa, who did not have Berger's confidence
but was insisting on riding out the remainder of his recently
renewed term. End Summary.

Zapata New Head of Taxes and Customs (SAT)
--------------

2. (U) President Berger swore in respected economist and
former central bank president Willy Zapata as new head of the
Superintendence of Tax Administration (SAT) on January 28.
The SAT is the Guatemalan equivalent of the IRS and Customs
Service combined. The previous SAT superintendent, Marco
Tulio Abadio, was held in contempt by the private sector and
much of civil society, which saw Abadio as corrupt and as the
implementer of the FRG government's policy of "fiscal

terrorism" against its critics. Abadio had resigned on
January 23 as rumors circulated that he would be dismissed
imminently. True to character, Abadio fired a broadside
against the press, particularly "El Periodico" president Jose
Ruben Zamora, whom he called a tax evader and drug user as
well as a slanderer. He also lashed out at Berger for being
manipulated by the press and using it to disparage him rather
than calling him up and asking him to leave. He warned that
if anybody dared to push him any further, he would go public
with the information he had collected on the "tax evaders"
who backed the new government.

Unsubtle Abadio Deftly Forced Out
--------------

3. (C) Abadio had a longstanding feud with the press,
especially "El Periodico" and Zamora, who was particularly
persistent and outspoken in condemning "fiscal terrorism."
Abadio, not known for his subtlety, responded by practicing
"fiscal terrorism" (never-ending audits and threats of
criminal tax evasion charges) on Zamora. Berger indeed used
the press to put pressure on Abadio, but not, as Abadio
implied, because he lacked the nerve to fire him. Abadio
still had two more years in his term, and Berger's legal
grounds to fire Abadio depended on relatively vague language
suggesting the authority to dismiss at the very beginning of
a new administration if the President lacked confidence in
the SAT chief. The other route would have been to
demonstrate malfeasance or nonfeasance, which offered the
prospect of months of public mud wrestling over who was
really to blame for missed tax targets: Abadio or a
recalcitrant private sector that caused some of his taxes to
be thrown out by the courts. Berger's public call for civil
society to speak its mind was sure to generate a groundswell
in support of the President's "lack of confidence" and belie
Abadio's charges that Berger was acting solely to protect his
tax evading cronies. Abadio (who is smart, if not subtle)
evidently saw what was coming and cut his losses while he
could.

Zapata Thought He Was Replacing Borja, Not Abadio
-------------- --------------

4. (C) Zapata did not expect to be the new head of the SAT.
He had told Econ Counselor only days earlier of Berger's
plan to name him an advisor to Superintendent of Banks
Douglas Borja until enough time had passed for Borja to
"retire" gracefully. Zapata, an insider in Berger's economic
team who is close to economic policy coordinator Richard
Aitkenhead and Minister of Finance Maria Antonieta de
Bonilla, said that Borja's departure had already been
negotiated and that he would be assuming the advisory role on
Feb. 1. A retirement date for Borja had yet to be set, but
it probably would be within a couple of months. Zapata would
then take over as new Superintendent. Zapata said that Borja
recognized that the new government wanted him out because of
his connections with former president Portillo, who appointed
him. Zapata said that Borja agreed to leave peacefully if
the new administration would let him do so gracefully. Borja
and Portillo are said to have grown up together in Zacapa.


5. (C) EconCouns spoke again with Zapata on February 29.
Zapata said the change in plans and his move to the SAT were
unexpected. The government had not thought that Abadio would
move out as quickly and easily as he did, and it did not have
other willing candidates readily available. Zapata admitted
that taking on the SAT had given him pause, noting that the
job would be "dangerous." He said he looked forward to
repairing the damage done to the institution during Abadio's
tenure, but there were "bigger problems" he wanted to discuss
in more detail the following week. (Comment: "Bigger
problems" was undoubtedly an allusion to the influence of
organized crime in Customs.)

Borja Did Some Good, but Too Close to Portillo
-------------- -

6. (C) Zapata gave mixed reviews of the recent performance
of the Superintendence of Banks (SIB) but expressed his
confidence in the leadership of the SIB's financial
intelligence unit (IVE). He said he would seek to improve
their anti-money laundering capabilities. Zapata credited
Borja with having done some good in his position, such as
implementing new financial reform legislation and pursuing
the criminal case against former banker and Portillo
financier Francisco Alvarado McDonald. However, Borja's
actions were suspect in other areas, such as allowing the
failed state mortgage bank (CHN) to absorb failed private
Banco del Nororiente (BANORO),permitting a cover-up of the
illegal activities of a friend of Portillo who ran the bank
(Reftel A). The friend, Bruno Straga, fled to his native
Italy and allegedly sold a large Zacapa farm to Portillo for
about $250. Zapata mentioned examples of waste in the SIB's
budget and sloppiness in handling sensitive banking
information as areas where he would look to reform the SIB.


7. (S) Zapata was aware that Borja's connections with the
former administration left his own IVE reluctant to pass
along to him information regarding particularly sensitive
cases linked to Portillo or Portillo's allies. Comment: The
problem is real. IVE has been passing information to the
Embassy for some time that it doesn't share with the
Superintendent. Most recently, in a meeting the day before
with EconOff, IVE officials passed along information
regarding suspicious transactions by former VP Reyes using
U.S. bank accounts (this information has been relayed through
appropriate law enforcement channels). The information was
provided with the request that the source not be revealed,
even to others within the SIB. End Comment.

Lizardo Sosa Insists on Staying Put at the Central Bank
-------------- --------------

8. (C) Zapata contrasted Borja's willingness to step down
with the defiant attitude of Central Bank President Lizardo
Sosa, who vowed to stay on for the rest of his recently
renewed term despite clear signals from the Berger
Administration that he would not be included in executive
branch consultations on policy. Zapata didn't think it would
be too much of a problem for the Berger government: the
Monetary Board controlled monetary policy, and the competent
professional staff of the Central Bank, led by Vice President
Mario Garcia Lara, would implement that Board's instructions
whether or not Sosa chose to cooperate.

Comment
--------------


9. (C) The SAT was a mess, and Abadio had to go. Both AID
and the World Bank stopped working with the organization
under Abadio's tenure, and he methodically removed many of
its better-trained staff and replaced them with people he
personally recruited. He was widely considered the attack
dog of confrontational former Vice President "Paco" Reyes,
though former Finance Minister Weymann told EconCouns that
Abadio had his own agenda (presumably of extortion) and was
beyond anyone's control toward the end. We note that Abadio
was an early enemy of the FRG administration as Controller
General until half-way through its term, when he suddenly
shelved the "Panama Connection" case implicating Portillo,
Reyes and others in offshore money laundering and was
rewarded shortly after by being named to the more powerful
SAT. He is thought to have assiduously collected dirt on
everyone he can, and we expect he can be very dangerous when
cornered.


8. (C) Zapata was a superb choice for the SIB, where his
strategic vision and banking knowledge would have served him
well. Those same skills will be useful at the SAT, but he
will also need to be fearless and tough if he intends to get
corruption and organized crime out of Customs. We know him
more as a theorist than an operator, but longtime friends say
he is actually quite tough and up to the task. The inability
of the IVE to share information freely within the SIB or with
the Public Ministry (Attorney General's office) has been a
serious weakness in Guatemala's anti-money laundering
efforts. Borja's replacement by Zapata is now by the
wayside, but his replacement will still come about. Current
odds seem to favor Edgar Barquin, Borja's principal deputy
and a career SIB official who was instrumental in building
the IVE. Barquin seems quite the opposite of Zapata, more an
operator than a strategist, but he would still be an
excellent choice.

HAMILTON