LETTER FROM GUATEMALA (3)

C O N F I D E N T I A L SECTION 01 OF 03 GUATEMALA 000047

SIPDIS

E.O. 12958: DECL: 01/04/2015
TAGS: PGOV PREL ECON ETRD KCOR KIPR KCRM ASEC SNAR EAID GT
SUBJECT: LETTER FROM GUATEMALA (3)

REF: 04 GUATEMALA 3211

Classified By: Ambassador John R. Hamilton, Reason: 1.4 (d).


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

Generics: Moving to Plan B after Xmas Setback
--------------


2. (C) President Berger signed into law Decree 34-2004 on
December 22, effectively eliminating data protection for
pharmaceuticals and agricultural chemicals. This despite a
furious lobbying effort by the Ambassador, Country Team, and
a direct call from USTR Zoellick, informing Berger and his
cabinet of the negative consequences for CAFTA ratification.
Berger committed to the Ambassador and Amb. Zoellick that,
although he politically could not veto the legislation, he
would send fresh legislation restoring data protection along
with a CAFTA ratification package to the Congress for speedy
approval in mid-late January. Investment and Competitiveness
Commissioner Fernandez told us late Jan. 5 that the
government had decided that new legislation would be drawn
directly from CAFTA text, presumably to demonstrate that
Guatemala is giving only the protection that is absolutely
necessary and not being forced into anything more. All of
this is easy to say, but things won't necessarily go as
quickly and smoothly as planned in a Congress that shows
little discipline and has yet to discuss CAFTA seriously. In
any event, supporting this process is our new best option.


3. (C) The press was quick to criticize the U.S. following
the press release of USTR's position that we could not
forward the CAFTA for ratification with Guatemala moving away
from its commitments. Supposed public health advocates and
representatives of the local pharmaceutical copying industry
congratulated the government for its action, claiming the
U.S. was using CAFTA to eliminate access to generics in
general through data protection legislation. Nobel Peace
Prize laureate and newly minted generics entrepreneur
Rigoberta Menchu joined the fray with some particularly
unfortunate rhetoric (e.g., "blackmail," "FTA with an
anti-human face," "U.S. policies that increase poverty and
unemployment"). The Ambassador responded by hosting a group
of seven representatives of major media outlets in an effort
to educate a seriously misinformed press. He spent
additional time with the press on the record at several
public events where he was approached on the issue. The
initial outreach appears to have paid off, as subsequent
articles have shifted a little towards balanced. EconCouns
has since been on two radio talk shows and taped a follow-up
with representatives of generics producers. More are
scheduled to clarify facts and drive home our central theme
that generics and data protection can thrive together, just
as they do in the U.S. The host of the first show concluded
helpfully that it was a "myth" that CAFTA would eliminate
generics. In private, we continue to press the GoG to follow
through with its commitment to both a legislative fix and
CAFTA ratification as soon as possible. DUSTR Allgeier will
visit next week to reinforce the message directly with Berger.

Generics Reveal Dysfunction in the Presidency
--------------


4. (C) The headache over generics has highlighted the
organizational weakness of the Berger presidency, something
Guatemalans increasingly notice and include in their chatter.
Berger can seem like a bold leader with vision when seized
with a good idea, such as slashing the size of the military
and airing the details of its budget. But when he starts off
with a wrong-headed notion, in this case that data protection
is somehow creating a health care problem, it can be almost
impossible to get through to him with facts and a different
opinion. Economy Minister Cuevas threw in the towel several
months ago. A host of others have tried, including
Commissioner Fernandez, Ambassador Castillo, and, most
significantly, Vice President Stein. Tourism Commissioner
Kaltschmitt, who has an agro-chemical joint venture with
Monsanto and understands the subject thoroughly, told us that
he tried as well, only to get a very Guatemalan (jovially
vulgar) brush-off from his childhood friend. What Berger is
clearly missing is a strong and competent chief of staff to
vet ideas and initiatives where appropriate throughout the
Cabinet and distill the elements required for informed
presidential decisions. That could have prevented the Health
Minister's half-cocked (if not larcenous) crusade from
threatening to derail the CAFTA. Berger may also need to
train himself to listen to a competent and hardworking COS,
but that won't happen until he has one. The imminent
transfer of Energy and Mines Minster Roberto Gonzalez to the
Presidency may help. He seems the sort of person who might
roll up his sleeves and bring a more systematic approach to
running the Presidency.

Good Early News on the Fiscal Front
--------------


5. (C) Investment and Competitiveness Commissioner Mickey
Fernandez told EconCouns Jan. 4 that he had just returned
from going over preliminary CY-04 budget figures with Finance
Minister Maria Antonieta "Toni" Bonilla. The news was "much
better than expected": the fiscal deficit for the year
looked to be in the range of 1.1% of GDP, well below the
target of 1.7% of GDP. Many observers had considered 1.7%
too optimistic. Fernandez said that better-than-expected
revenue receipts was the main factor behind the good news,
without going into any further detail. He laughed when
EconCouns noted that this "surprise" was one we had been
anticipating for months.


6. (C) The Guatemalan finance team of Bonilla, Government
Plan Commissioner Aitkenhead, and former chief revenuer
(newly Superintendent of Banks) Willy Zapata has consistently
painted a pessimistic scenario for revenues due to a court
ruling overturning the IEMA alternative minimum tax and only
limited success with a mid-year tax reform package. Part of
this reflects the caution and conservatism that characterizes
the team, two of whom (Bonilla and Zapata) have spent much of
their professional lives as central bankers and fully act the
part. There is also, however, a bit of gamesmanship in the
conservatism. The mantra of taxpayers, led by the business
elite, has been one of no more taxes until 1) everyone pays
the current ones and 2) government waste, fraud and
mismanagement are stanched. Setting low revenue expectations
and then exceeding them shows that Berger's team is having
some success (which, indeed, they are) in meeting the
taxpayers' first demand. Reducing the military and
prosecuting corrupt former officials does the same with the
second. We had been witnessing a strong performance in
improving collections over the course of the year and were
counting on 2004 revenues exceeding those for 2003, despite
the loss of the IEMA (04 Guatemala 1765). We will look into
this in further detail when the numbers become available.

Closing in on Julio Giron?
--------------


7. (U) Ex-President Portillo's former Private Secretary
Julio Giron was back in the news on Jan. 3, together with a
picture of a half-million dollar check made out to cash and a
deposit slip and endorsement showing that the funds had been
deposited in Giron's account in TotalBank, Coconut Grove.
The check was drawn on a Miami ABN-AMRO Bank account of
Comcel Guatemala, the Millicom-affiliated cellular telephone
service provider. The press noted that the date of the
check, Oct. 19 1999, was less that three weeks before
Portillo's election. Months later, Comcel received cellular
band B without a public tender and was exonerated from a 10%
royalty payable to the vestigial parastatal telephone company
Guatel. Comcel's current general manager confirmed the
authenticity of the check but said he had no information on
what it was for as documents from the era had been retired.
Attorney General Juan Luis Florido announced that a special
prosecutor would be named to investigate the matter.


8. (C) We first learned of this case in 2002 when helping
anti-corruption prosecutor Juan Pablo Rios work through an
elaborate kiting and money-laundering scheme using the
moribund state mortgage bank (CHN) and a series of banks and
exchange houses to direct carloads of cash (probably phantom
military payrolls) to the U.S. accounts of Guatemalan
government and organized crime figures (02 Guatemala 2901).
Rios also gave us a copy of the Comcel/Giron documents
described above, plus similar documents covering two
additional half-million dollar Comcel payments to Giron in
November 1999 and January 2000. Yet another set of documents
indicates that Comcel paid a million dollars to Cesar Medina
Farfan, a Portillo crony implicated in the "Panama
Connection" case, in June 2000. The million was transferred
to Giron's account the next day, according to a copy of a
debit notice. All of these document copies have been shared
with U.S. law enforcement. The good news here is this case
may finally start to go somewhere within the Guatemalan
judicial system. Prosecutor Rios, for all of his energy and
manifest goodwill, was justifiably unwilling to show all that
he had to his superiors while the Portillo government was
still in power due to the links with some of the most
dangerous names in organized crime. We gave Attorney General
Florido copies of these checks about six months ago (on
receiving the documents, his comment was "it's beginning to
look a lot like Christmas!"),which leaves us wondering why
he waited until now to leak. Florido and leaks have a
history together.

Holiday Season Travel
--------------

9. (U) With the end-of-year shift of focus to holiday
celebrations, public security loomed large as a topic of
conversation and government attention. The government
mobilized additional police and military personnel (as it has
done in previous years) to cope with the holiday crowds and
increased traffic. Police also increased drunk driving
checkpoints at the same time that the government lifted
alcohol sales restrictions (i.e. the late night cutoff on
alcohol sales) for Christmas Eve, Christmas, New Year's Eve,
and New Year's Day.


10. (SBU) In response to criticisms about highway security,
most notably robberies of Salvadorans visiting Guatemala,
President Berger took a pre-Christmas drive from the
Salvadoran border to the capital to inspect police and
military security measures. The police have established
fixed checkpoints and roving patrols on the three principal
routes from El Salvador. The Army's Third Brigade
headquartered in Jutiapa has two thirds of its personnel
devoted to highway security (with the remainder participating
in joint police-military patrols in the capital) using fixed
highway checkpoints, foot patrols along certain highway
routes, and detachments stationed at, or near, border entry
stations. However, despite the security measures, Guatemalan
authorities were embarrassed when a Salvadoran Vice Minister
was robbed on the highway during the holiday season. And
despite GOG pleas, Salvadoran groups are continuing their
publicity campaign warning against travel to Guatemala.
HAMILTON