ECLAC ASSESSMENT OF HURRICANE STAN'S DAMAGE TO GUATEMALA

UNCLAS SECTION 01 OF 03 GUATEMALA 002658

SIPDIS

STATE for A/S Tom Shannon and David Lindwall
DHS for Secretary Chertoff and Ambassador Arcos
AID For Administrator Natsios, Deputy Administrator
Schieck, LAC Assistant Administrator Franco
NSC for Dan Fisk

E.O. 12958; N/A
TAGS: EAID AEMR PREF MOPS GT
SUBJECT: ECLAC ASSESSMENT OF HURRICANE STAN'S DAMAGE TO GUATEMALA
- LOW IN MACROECONOMIC TERMS, HIGH IN HUMAN AND SOCIAL IMPACT

REF: Guatemala 02573


1. SUMMARY. An ECLAC study of the impact caused to Guatemala by
Tropical Storm Stan estimates the total damage and losses to be
just shy of US$1 billion ($983 million) and suggests that while
the Storm's impact may have been marginal in macroeconomic terms,
the impact was devastating for the thousands of poor and
indigenous Guatemalans affected by the Storm and will continue to
be so when crop and income losses translate into hunger in the
coming months. The report's recommendations for the short-term
include the continuing need for emergency food assistance,
restoring productive capacity for the most vulnerable and exposed
populations, rebuilding housing and closing emergency shelters,
and repairing local roads and small irrigation infrastructure to
re-start production and allow products to get to market. In the
medium-term, the assessment identifies the need to rebuild and
establish early warning systems and community-based prevention
programs, improve watershed management, and develop Central
American regional risk management instruments. END SUMMARY.

STAN'S FINANCIAL AND ECONOMIC IMPACT


2. On November 9, an ECLAC team assisted by experts on loan from
the World Bank, IMF, CABEI and various UN agencies, completed its
assessment of the damages and economic losses caused to Guatemala
by Hurricane/Tropical Storm Stan. (For this Report's purposes,
"damage" is the immediate impact, and "losses" are effects over
time). The following day, joined by the Ministers of Agriculture
and Public Works and other Government of Guatemala (GoG)
officials, the ECLAC team presented findings to the international
community.


3. The ECLAC Assessment (methodology described on website:
www.eclac.cl/mexico under "disastres") opens with the central
conclusion that while the macroeconomic impacts of the Stan will
be minimal, the livelihoods of the most vulnerable --the country's
indigenous, rural and poor-- will be significantly affected. The
study estimates overall damages and losses at just under US$1
billion ($983 million or 3.4% of the country's 2004 GDP). The
economic impact was highest in terms of the country's
infrastructure (the Ministry of Public Works reports that 26% of
the country's paved roads were affected, 52% of its unpaved roads,
45 bridges, and more than 10,000 homes),followed by damage and
losses to the productive sectors, the social sectors (housing,
education and health) and the environment, as outlined below:

Guatemala: Summary of Impact
Sector and sub sector
Damage
Losses
Total


Millions of US dollars

Social sectors
148,9
Housing
126,5
Education
8,1
Health
14,2

Productive sectors
215,4
Agriculture
77,8
Industry
56,7
Trade and commerce
80,9
Tourism
53,4

Infrastructure
446,9
Water and drainage
11,9
Electricity
5,1
Transport and communications
430,0
Environment
40,5

Emergency expenses
78,3

TOTAL
983,3


4. The Report notes that the damage from Stan was equivalent to
39% of the country's gross capital formation. While 59% of the
damage was to private sector assets, the public sector will face
increased expenditures and investments to assist the most directly
affected and vulnerable populations (some 475,000, or 4% of the
country's population) to rebuild their lost assets and sources of
incomes.


5. Guatemalan Central Bank officials suggest that one of the main
reasons for the limited macroeconomic impact is that greatest
damage was done to subsistence crops that were about to be
harvested such as white corn, and to micro-businesses in the
country's large informal economy (estimated to be 70% of all
economic activity),which make only a small contribution to the
GDP. In many cases, harvests for the more important cash crops
were already completed before Stan or have more frequent crop
cycles than basic grains and will thus rebound more quickly. The
Ministry of Agriculture reports that 46% of the damage to the
agricultural sector was to basic grains (white corn, beans, and
other subsistence crops),26.4% to export crops, 20% to
horticultural products, and 7.6% to fruit and other commodities.

GEOGRAPHIC DISTRIBUTION OF DAMAGE


6. The ECLAC Report notes that the Departments of San Marcos,
Escuintla and Solola, in that order, were most affected by Stan.
But, in terms of damage as a percentage of contribution to GDP,
the greatest economic impacts were to Solola (due to tourism),San
Marcos and Retalhuleu. The Ministry of Agriculture asesses
agricultural losses to be greatest in Retalhuleu-nearly 40% harder
hit than the next most affected department, Escuintla. And
finally, in terms of impact per inhabitant, the ranking was
different yet again with Retalhuleu the hardest hit, followed by
Solola, and Jutiapa.

ENVIRONMENTAL IMPACT


7. The assessment notes that another critical impact of the Storm
was to the environment. This included loss of soil due to
landslides and the creation of crevices on steep slopes that will
aggravate pre-existing environmental fragility and further
increase the risk of damage and loss in the face of future events,
leading to reduced welfare and postponement of economic growth and
attainment of the country's development goals.

THE HUMAN IMPACT-THOSE WHO CAN LEAST AFFORD IT HURT MOST


8. While more than a third of the country's population, or some
3.5 million people, was estimated to have been directly or
indirectly affected by Stan, the report notes that "...when
departmental and municipal damage and loss distribution is
correlated to the indigenous population present in them, it
becomes evident that the indigenous population suffered in a
disproportionate way, above its statistical presence in the
community or the country as a whole." This is particularly
significant because the participation of Guatemala's indigenous in
the ranks of the country's poor and extremely poor is far above
the national average. The Minister of Agriculture also remarked
in a recent meeting with Embassy officials that "...this is not an
agricultural problem, rather it is a social problem." He said the
agricultural losses will be recovered fairly quickly, but "the
real problem is that there are 25,000 families who are in a state
of shock, abandonment, and despair..." That their loss doesn't
have much of an impact on the GDP, he added, is only a
confirmation that the people who lost their homes and crops were
poor and don't contribute much to the GDP.


9. The Report noted that many self-employed indigenous women --
artisans, weavers and embroiderers, as well as those who depend on
cottage industries -- have not only lost their homes but their
means of production and, in many instances, their stock of work.
The ECLAC team analyzed losses related to the production of
embroidered blouses or "huipiles" in four representative
departments and concluded that the financial impact was $5.6
million to the 2,600 households dependent upon this economic
activity.

FINANCING THE RECONSTRUCTION EFFORT


10. GoG officials noted that a gap exists between the $415 million
assessment of damages by ECLAC and their own funding estimate for
the National Reconstruction Plan of $368 million. These officials
noted, however, that between a first assignation of $368 million
in 2006 and a complementary amount in 2007, the needs of the
reconstruction plan could be fully met; they announced earlier
that this funding would come from a mix of GoG budgetary
resources, reprogrammed loans and donor assistance, among other
sources (see reftel on the GoG national reconstruction plan). The
report's recommendations for the short-term include the need to
continue with provision of emergency food assistance, restore
productive capacity for the mostly highly vulnerable and exposed
populations, rebuild housing and close emergency shelters, and
repair local roads and small irrigation infrastructure to re-start
production and allow products to get to market. Another priority
will be to involve the most affected populations in the estimated
17,000 reconstruction jobs that will be needed, and the report
recommends that reconstruction efforts be designed to be as labor-
intensive as possible. In the medium-term, the assessment
identifies the need to rebuild and establish early warning systems
and community-based prevention programs, improve watershed
management, and develop some Central American regional risk
management instruments. The report notes that "Although
appropriate risk management has been recognized before --after
Mitch--, given the multi-hazard nature of the county's territory
there is a need for a more solid and permanent approach to risk
reduction."


11. In his presentation to the international community, the
Minister of Public Works placed special emphasis on the
transparency and accountability measures being built into the
reconstruction effort. These measures include the formation of a
Transparency Council of respected civil society representatives
and government officials to oversee reconstruction expenditures
and the use of the internet-based procurement system,
GuateCompras.

AN OPPORTUNITY TO REDRESS THE COUNTRY'S HISTORIC INEQUALITY?


12. Many commentators have noted that Stan "exposed" Guatemala's
historic inattention to the precarious poverty in which a majority
of its mainly indigenous population lives, and highlighted the
fact that this population's efforts to scratch out a living
damages the environment puts them at greater risk. In terms of
income distribution, Guatemala is the third most unequal country
in the world, and Stan made clear how such poverty increases a
population's vulnerability. The Berger Administration's response
shows all the right intentions in terms of addressing these
inequalities and the related multicultural issues, but whether it
will have sufficient resources or time before it leaves office is
an open question. This post-Stan period offers the country and
its government a window of opportunity and the international
community should be poised to help them to seize it.

WHARTON