FINANCE MINISTER WANTS PRESIDENT PACHECO TO SUBMIT

C O N F I D E N T I A L SECTION 01 OF 02 SAN JOSE 002227

SIPDIS

WHA/CEN
EB FOR WCRAFT, BLAMPRON
E FOR DEDWARDS
WHA FOR WMIELE
WHA/EPSC FOR KURS, LGUMBINER
H FOR JHAGAN
STATE PASS TO USTR FOR RVARGO, NMOORJANI, AMALITO

E.O. 12958: DECL: 09/22/2015
TAGS: ETRD ECPS ECON PREL PGOV SOCI CS
SUBJECT: FINANCE MINISTER WANTS PRESIDENT PACHECO TO SUBMIT
CAFTA-DR FOR RATIFICATION

REF: A. SAN JOSE 2202

B. SAN JOSE 2051

Classified By: Charge Russell Frisbie for Reasons 1.4 (b) and (d)


1. (C) Summary. On September 21, 2005, Charge met with GOCR
Finance Minister Federico Carrillo, in part, to discuss the
status of the United States-Central American-Dominican
Republic Free Trade Agreement (CAFTA-DR). Carrillo was
buoyed by the Commission of Eminent Persons' report on
CAFTA-DR and stated the FTA would be presented to the
legislature by September 28 (a subsequent statement by the
Vice President calls this optimistic timeline into question,
however). Carrillo characterized the report as independent
confirmation of his firm view that fiscal reform is a
necessary corollary to CAFTA-DR for effecting the profound
changes that the country must make to further development.
End Summary.


2. (C) Carrillo stated that he views the Commission of
Eminent Persons report as positive in that it highlights the
need to pass fiscal reform in order to be able to implement a
robust and appropriate complementary agenda (Ref A). He
stated that the complementary agenda should be expanded to
address the concerns of the Commission but that it cannot be
done all at once. He agreed with the statements of Foreign
Trade Minister Manuel Gonzalez regarding the need to have a
long-term, fifteen- to twenty-year plan for projects to
sustain development of the country under CAFTA-DR.


3. (C) Carrillo stated that he, Trade Minister Gonzalez,
Central Bank President Francisco Gutierrez, and Economy
Minister Gilberto Barrantes (who is also Chair of the
President's Economic Council),have been pushing the
President to move forward on CAFTA-DR by sending it to the
Legislative Assembly for ratification. Carrillo hoped the
President would send the agreement on September 20 when the
Commission of Eminent Persons delivered its report. He said
Pacheco would nonetheless forward it to the legislature by
September 28, 2005. (Comment: Despite Carrillo's
affirmation, Vice President Lineth Saborio told the press the
same day that the soonest the President would send the
agreement to the Assembly would be October 19, 2005. Other
knowledgeable sources believe that Pacheco will not forward
the Agreement any sooner that November or December, if at
all. End Comment.)


4. (C) Carrillo also said that the legislation required to
implement CAFTA-DR in Costa Rica, such as the law to open the
telecommunications and insurance industries, are almost
ready. He said they are using several international and
Costa Rican consultants to do this work. The insurance
industry-related legislation should be sent to the Assembly
in October, and the telecommunications sector-related
legislation probably sometime soon after that.


5. (C) Carrillo also commented on the now-dead draft law to
strengthen and modernize the Costa Rican Institute of
Electricity (ICE),which provides electricity and
telecommunications services. He welcomed the legislation's
demise because of the unprecedented power it would have given
to ICE. He also stated that ICE will be given sufficient
autonomy to operate in an open telecommunications market and
that legislation to effect these changes will be a separate
project from the Telecommunications Act. This legislation
would not give ownership of the entire telecommunications
frequency spectrum or other special treatment to ICE as
proposed earlier as this would have resulted in less
competition, not more.


6. (C) Carrillo was pleased that tax revenues were up
twenty percent in the first six months of this year over the
same period in 2004. This result is due to better tax
collection procedures and enforcement. He cited the
assistance provided by the Department of Treasury's Office of
Tax Assistance as instrumental in this success.

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COMMENT
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7. (C) Summary. Carrillo's ability alone to influence
President Pacheco to move more quickly on CAFTA-DR is
limited, but his assertion that the three other members of
the council are also pushing hard for the President to send
CAFTA-DR to the Assembly immediately makes his quest somewhat
less Quixotic. Nonetheless, the VP's rather definitive
description of a protracted timeline, coupled with the
President's usual capriciousness and intransigence, would
seem to trump Carrillo's optimistic forecast.
FRISBIE