C O N F I D E N T I A L SECTION 01 OF 04 GUATEMALA 003211

SIPDIS

E.O. 12958: DECL: 12/17/2009
TAGS: PGOV ECON KCOR PREL KIPR GT
SUBJECT: LETTER FROM GUATEMALA (2)

REF: GUATEMALA 3071

Classified By: Ambassador John R. Hamilton for reasons 1.5 (b) and (d)

1 (U) This is the second in our planned biweekly series of
discursive messages on what's ticking in Guatemala.

Berger Doing Well in One Poll
--------------


2. (C) Compared to media in other countries, Guatemala's
media do not seem particularly interested in keeping tabs on
public opinion of how the president is doing. We recently
sat down with Felipe Noguera, an Argentine pollster who for
the last fourteen years has been hired by local magnate
Dionisio Gutierrez to track Guatemalan public reactions for a
select, private audience. As expected, crime and security
continue to vie with economic issues (jobs, inflation, cost
of living, etc.) for the public's concern. The bottom line
for the Berger administration was positive: the president
went from an approval rating of 82% in February to 44% in
July to 62% in November -- a surprising up tick for Berger
compared to his predecessors. Noguera indicated that this
strong showing could be maintained or even strengthened if
the public perceived Berger making progress in the short-term
on crime, followed by health care, education and public
works. We could not help but notice that military downsizing
-- arguably the Berger administration's biggest achievement
-- was not even a blip in Noguera's soundings.

UNE's Dirty Laundry
--------------


3. (U) Jaws are still agape over the acrimonious exchange
of accusations between two UNE leaders (and erstwhile
friends): former presidential candidate Alvaro Colom and
outgoing president of Congress Rolando Morales. Now that
their simmering dispute has boiled over in public, Morales
has left UNE, claiming he was slandered by Colom's
accusations of corruption (reftel para 6).


4. (U) Although Colom made a big splash with sensationalist
allegations against Morales of influence peddling, payroll
padding, and wiretapping his telephone calls, he backed away
from some of these charges when summoned by prosecutors for a
depositio

n. At that point, Colom limited his attack to
repeating allegations made by Carlos Quintanilla, a Colom
friend and supporter who owns the company hired by Morales to
provide private security guards to the Congress. Quintanilla
claims that Morales ordered all payments to Quintanilla
suspended until Quintanilla agreed to pay him kickbacks of
50,000 quetzales (a little over $6,000) per month.


5. (C) The two surprised everyone by agreeing to appear
together on a radio show. Morales denied the extortion
attempt and the wiretapping, and he questioned the
relationship between Colom and Quintanilla, noting that
Quintanilla had paid for a recent trip to Spain by Colom. On
the question of congressional payroll padding, Morales
claimed that it was Colom, as UNE secretary general, who had
recommended the hiring of 84 "advisors." Morales's steadfast
and indignant denials that he had taken a lover on a junket
to Indonesia took a pathetic turn when he lamely conceded
that "sure, we went to Morocco, but never to Indonesia."
Morales managed to get in a few digs at Colom's wife,
reinforcing the impression held by many that she is unduly
meddling in UNE affairs, promoting her proteges and
protecting her business interests.


6. (U) With Morales's exit from UNE, Colom (who finished
second in the 2003 presidential election) has one less
potential rival to his leadership of the party. The unseemly
mudslinging, however, did serious damage to both leaders, who
must be betting that voters will have forgotten this mess
before the next presidential election in 2007. It prompted
the exit from of at least one other congressional deputy,
Victor Hugo Toledo, reminding us that this year alone UNE
lost seven of its 33 congressional deputies, beginning with
Conchita Mazariegos, who told us that, appalled, she left UNE
(and founded BIEN) after it became clear to her that the FRG
had channeled campaign funds to UNE. Guatemalan political
parties are short-lived; at this rate, UNE could be no
exception.

PGN Stalemate
--------------


7. (C) The Constitutional Court appears to have stymied
President Berger's effort to rid himself of the last FRG
holdover from the previous administration. The Solicitor
General (PGN) needs to have the president's confidence since,
as the government's top legal counsel, he is expected to
defend state interests and advocate administration policies.
By a curious quirk of history, however, the PGN's terms of
office fell out of sync with presidential terms. The current
PGN, Luis Rosales, is a former FRG congressional deputy who
in 2002 was named PGN for a four-year term by Alfonso
Portillo, who was then president but is now thoroughly
discredited and on the lam in Mexico.


8. (C) Berger and others in his administration clearly
believe that Rosales, the FRG holdover, is not actively
pursuing the president's priorities and may indeed be
sabotaging them. When Berger sent Rosales a long list of
questions about his handling (or mishandling) of a long list
of civil cases involving the state, Rosales correctly
interpreted the questionnaire to be a preliminary to his
dismissal. He then obtained from the Constitutional Court an
injunction barring the government from firing him. Although
the Court's order has legal scholars scratching their heads,
it has apparently bought Rosales some time while highlighting
the need to update the PGN's legal mandate.

Military Corruption Cases
--------------


9. (U) We mentioned in our last letter the mysterious case
of Col. Raul Cerna, the missing former finance chief of the
Presidential military staff (EMP) and key witness in efforts
to track down the $115 million or more that went missing in
military hands under the Portillo administration. While
Guatemalans are still placing bets among themselves over the
fate of Cerna, authorities have exhumed a corpse from a local
cemetery. The press reported that a dentist identied the
remains as Cerna's, but, to be sure, a DNA sample has been
sent to Spain to see if it matches samples provided by
Cerna's son and father.


10. (SBU) The Third Court of Appeals vacated the
controversial decisions taken by judge Silvia de Leon de
Miranda in the case of Enrique Rios Sosa, the 56-year-old
former Army Chief of Staff and Minister of Defense accused of
diverting $4 million from the coffers of the National
Mortgage Fund (CHN). The judge is widely believed to be in
the sway of the FRG party run by Rios Sosa's father, former
president Efrain Rios Montt. The judge, after excluding the
appropriate prosecutors from the hearing, ordered Rios Sosa
released on $12,000 bond. Her decision was widely viewed as
preferential treatment for Rios Sosa, and prosecutors
complained to the Supreme Court, which essentially refused to
question the judge's handling of the case but left the door
open for an appellate court decision. Ironically, the Third
Court of Appeals found that the judge had acted precipitously
against Rios Sosa, not in his favor. In the court's opinion,
prosecutors had not yet presented sufficient evidence against
Rios Sosa to warrant even the minimal bail set by judge De
Leon. Other observers, however, believe that was the point:
to rush the case through before the evidence was ready and
thus earn an acquittal. The Dec. 17 press reports that the
Supreme Court, upon receiving "a more complete report," is
now looking at taking action against Judge Silvia.

PDH on a Rampage
--------------


11. (U) Human Rights Ombudsman (PDH) Sergio Morales has
scored a couple more dubious victories, getting the
Constitutional Court (CC) to strike down taxes on gasoline
and electricity. This all follows closely his successful
effort to restore electricity subsidies for "poor" users who
consume less than 300 KWH per month, a pool that includes
some Embassy officers. As a result of the CC ruling against
the gasoline distribution tax, the GOG is scrambling to cover
a $250 million shortfall for next year. The CC ruled that
the imposition of both the value added tax and a distribution
tax on fuel violated the Constitution's prohibition of
"double taxation." There is room for lawyers to argue this
point. The government's current thinking is to raise import
duties to cover the shortfall until legislation can be passed
to create a new single tax. The executive has delegated
authority from the Congress to raise customs duties but must
receive the blessing of Central Americas Council of Economic
Ministers (COMIECO). At the PDH's behest, the CC also struck
down a tax on electricity imposed by the Mixco municipality
to cover the bill for its public lighting, recently enhanced
in hopes of combating street crime. We gather that the
solution to this problem, together with the problem of
curbing subsidies, will have to await new legislation being
prepared by the Ministry of Energy and Mines.


12. (C) The PDH is appointed by Congress and reports to it.
Morales, who is widely believed to have political ambitions,
has carved out an agenda for the PDH that goes well beyond
human rights into supposed "social and economic rights," and
it is in this latter mandate that he acts as a consumer
advocate. Even on conventional human rights issues he can be
reckless in his statements, as he was in the wake of the
Nueva Linda August 31 eviction when he groundlessly claimed
there were "mass graves." Unable to stomach him any longer,
President Berger on December 16 declared to the press that
Morales was "mediocre, populist and myopic," noting that it
was the middle and upper classes who benefit from Morales'
ill-considered and "bad faith" actions.

Miners vs. Environmentalists: Advantage Miners
-------------- --


13. (C) While the energy side of the Ministry of Energy and
Mines suffers the PDH's ventures into the "human rights" of
energy pricing, the mining side is holding its own and
starting to build some momentum, but it isn't always easy.
Vice Minister Carolina Roca had hardly a moment to enjoy the
resounding success of her international symposium on
balancing mining and environmental interests (previewed in
our last letter) before activists blockaded a road in Solola
Department to prevent transport of a huge sixty-ton crusher
drum belonging to Canadian-American firm Glamis Gold. Glamis
had received permission to remove temporarily a couple
pedestrian overpasses blocking progress on the road to the
company's San Marcos site, when a crowd formed to stop the
work. Local authorities reportedly were quickly assured that
all was in order and the equipment was headed elsewhere (the
locals are said to be jumpy, in part because a rumor of
dubious provenance asserts that mining in Solola risks
draining stunningly beautiful Lake Atitlan). Days later,
however, the problem persisted, reportedly due to activists
bussed in from elsewhere. Moreover, protestors were
vandalizing the equipment. Roca told us that the government
had decided this could not continue, and arrest warrants were
being issued. Violence is always a possibility, but the
government is determined that the project move forward.


14. (SBU) With anti-mining attention focused on the West
and San Marcos, Canada's Skye Resources announced in
Vancouver December 14 that it was being awarded an
exploration contract covering the forty-year old (and
abandoned) nickel concessions of Exmibal in the Eastern
department of Izabal. Skye apparently jumped the gun: Roca
had told us the local announcement would come on Dec. 16.
Preventing Exmibal's reopening has for decades been the
rallying cry of some of the more radical environmental NGOs,
and they will see its reactivation as an affront by the
government when they hear about it. We believe they do not
yet know that the ministry also intends to open for public
tender in January a number of new areas for petroleum
exploration, along with renewing concessions that are due to
expire. We reported earlier that Roca, rumored to become the
new minister, would have her hands full with a crowded and
controversial ministerial agenda. More recent rumors suggest
that she is now slated to become chief revenuer at the SAT.

Sosa Saved by Contracted Validation of his Monetary Policy
-------------- --------------


15. (C) Guatemala's Central Bank (BanGuat) contracted UCLA
professor, National Bureau of Economic Research collaborator,
former World Bank Chief Economist for Latin America and
well-known Chilean Chicago graduate Sebastian Edwards for
"advice" on Guatemala's monetary policy. Edwards recently
delivered his results, with no surprises: he concluded that
Guatemala faced no crises but that BanGuat could do better
with a little more flexibility in addressing exchange rate
fluctuations while maintaining a "perfected" inflation rate
target as its central focus. There was, at first glance,
something for everybody in the conclusion. Businessmen and
government critics of BanGuat were told that they were right
to be concerned with the quetzal's appreciation and that
exogenous inflation (such as that caused by oil prices)
should not be counted against the monetary policy target.
The big winner, however, was Central Bank President Lizardo
Sosa, who has been under pressure to resign by Berger. We
gather that Berger, in turn, was acting at the behest of Plan
of Government Commissioner (and former Finance Minister)
Aitkenhead, who has been pressing for looser monetary policy
to cause the quetzal to depreciate and monetize some of the
fiscal deficit. In the end, Edwards validated Sosa's core
argument that inflation must be the principal target, while
exchange rate policy must be limited to stabilizing
fluctuations, not fighting the long-term trend.


16. (C) The press reports that efforts to remove Sosa have
ceased, at least for now. Edwards' report successfully
undercut Berger's ability to portray Sosa's policies as
errant. We also hear that Finance Minister Bonilla, Berger's
choice to replace Sosa, intervened in the end with the
President to say she would not accept the job if Sosa were
forced out, as the damage to BanGuat's autonomy and excellent
reputation would cost the country dearly. If so, our hats
are off to Bonilla -- not because we have strong feelings
about Sosa's abilities (his VP is superb and runs the place)
but because BanGuat is one of few local institutions that is
fine as it is and should not be politicized.

IPR and Generics Still Out There
--------------

17. (C) We're still spending hours per day on the effort to
convince President Berger that he has to veto recent
legislation that effectively eliminates data protection for
pharmaceuticals and agricultural chemicals (reftel para 5;
Guatemala 3188). Vice President Stein, Commissioner Mickey
Fernandez, and a host of others appear to understand clearly
that a failure to veto would likely doom the CAFTA.
Fernandez tells us that El Salvador's President Saca raised
this issue (at USTR's instigation) with Berger and apparently
made an impression. Berger and senior administration
officials were planning to meet to decide what to do late
December 16 or sometime December 17. The Ambassador has
repeatedly warned that anything short of a veto is not going
to fly.
HAMILTON