SCENESETTER FOR U/S HUGHES, VISIT TO EL SALVADOR,

UNCLAS SECTION 01 OF 02 SAN SALVADOR 003298

SIPDIS

STATE FOR U/S HUGHES

E.O. 12958: N/A
TAGS: KPAO EAID PREL ECON ES OVIP
SUBJECT: SCENESETTER FOR U/S HUGHES, VISIT TO EL SALVADOR,
DECEMBER 6, 2005

Introduction
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1. Embassy San Salvador extends a warm welcome to you and
your party on December 6, 2005. We expect your visit will
underscore the U.S. commitment to the people of El Salvador
in assisting their recovery from Hurricane Stan and the
eruption of the Santa Ana volcano in early October. Combined,
these natural disasters killed 128 people and in the
immediate aftermath left 67,000 people temporarily homeless;
another 5,000 were permanently displaced. The twin disasters
caused about $355.6 million in economic damages according to
the United Nations, equivalent to 2.2 percent of GDP. To
date, international donors have offered $7 million in
disaster relief funding. The government is also reprogramming
loans from the Inter-American Development Bank and other
sources for reconstruction.


2. El Salvador is particularly prone to natural disasters,
suffering from hurricanes, earthquakes, and volcanic
eruptions on a regular basis. These natural disasters,
compounded by the country's war-torn past, have posed
significant development challenges for El Salvador. One
defining characteristic of the Salvadoran people, however, is
their ability to face adversity and rebuild their lives.

United States - El Salvador Relations
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3. El Salvador is one of our strongest allies in the Western
Hemisphere, and is a bedrock of economic and political
stability in the region. In broad terms, U.S. goals in El
Salvador are to build prosperity, enhance security, promote
democracy, and invest in people. El Salvador is committed to
open markets, fiscal responsibility, individual freedoms,
rule of law, and the fight against terrorism and other
international criminal activity. El Salvador is the only
other country in the Western Hemisphere to maintain troops in
Iraq.


4. El Salvador was the first country to ratify CAFTA-DR, and
President Saca is hopeful the agreement will be implemented
January 1, 2006, to give the economy a much needed shot in
the arm. The Millennium Challenge Corporation recently
declared El Salvador eligible for MCC funding in 2006; El
Salvador has identified a possible compact that would
integrate transportation links and health and education
improvements for the impoverished northern part of the
country. The United States is the largest foreign investor in
El Salvador, principally in electricity generation and
distribution, but also in textiles and apparel, financial
services, and call centers. The Department of Homeland
Security recently notified El Salvador that it would not
participate in the U.S. Container Security Initiative,
significantly lowering the country's attractiveness as a
transshipment hub.

Domestic Political Overview
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5. President Elias Antonio "Tony" Saca of the governing
Nationalist Republican Alliance (ARENA) party assumed office
June 1, 2004, after winning a hotly-contested presidential
race by 22 percentage points. President Saca's ARENA party
holds only 29 of 84 seats in the Legislative Assembly, but
through alliances with smaller parties, regularly passes
legislation requiring a simple majority. ARENA's major
political opposition is the leftist Farabundo Marti National
Liberation Front (FMLN),which has been weakened recently by
internal struggles and defections. Attention is already
focusing on municipal and Legislative Assembly elections
scheduled for March of next year; early polls suggest that
ARENA may win additional legislative representation.

Domestic Economic Overview
--------------

6. El Salvador's stable economy, the result of a broad reform
agenda implemented by three successive ARENA governments, has
earned El Salvador an investment-grade debt rating from
Moody's, and provides a measure of economic predictability.
The government views foreign investment as crucial for
economic growth and development and has taken numerous steps
in recent years to improve the investment climate.
Nonetheless, the economy has been growing at a disappointing
rate of about two percent per year since 1999, despite its
excellent macroeconomic fundamentals.


7. President Saca's highest priorities are reinvigorating El
Salvador's economy, creating jobs, and improving the nation's
infrastructure. Roughly 40 percent of the population still
lives in poverty, though poverty rates have declined in
recent years thanks in part to remittance flows from
Salvadorans in the United States that may top $3 billion in

2006. A recently announced anti-poverty program will provide
direct subsidies to the poorest Salvadorans; participants
will be expected to send their children to school and
participate in public health programs to receive the subsidy.

El Salvador's Foreign Policy
--------------

8. El Salvador is the only other country in the Western
Hemisphere with troops in Iraq and has recently sent its
fifth contingent to serve there with coalition forces. El
Salvador's postwar ARENA governments have generally been
reliable in their support for U.S. positions in international
fora such as the United Nations, including on issues such as
U.N. reform, human rights abuses in Cuba, the Middle East
peace process, and free trade in Latin America.

Migration Issues
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9. As many as two million Salvadorans live in the United
States, most illegally. Since the 2001 earthquakes, between
250,000-280,000 Salvadorans have benefited from Temporary
Protected Status (TPS),living and working legally in the
United States. The U.S. announcement in January 2005 of a
further 18-month extension of TPS was of paramount importance
to the Saca Administration. El Salvador is focused on
obtaining permanent status for TPS recipients, claiming it
cannot absorb that number of returnees--President Saca raised
this topic with President Bush during their meeting on the
margins of the Summit of the Americas, and President Saca may
raise this issue with you, linking it directly with Hurricane
Stan.

Terrorism and Crime
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10. El Salvador has been a strong supporter of the United
States in the fight against terrorism and international
organized crime. Drug trafficking has received significant
government attention and cooperation; El Salvador hosts a
Cooperative Security Location at Comalapa Airport, one of
three in the region. Trafficking in persons remains a serious
problem, but the police are conducting raids against those
suspected of exploiting children. Gang violence is a growing
concern for all levels of society and has a serious impact on
economic development. The FBI will soon open a permanent
office at the Embassy to exchange intelligence on gang
organizations.

Civilian-Military Relations
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11. The Armed Forces of El Salvador (ESAF) are capable,
professional, and subordinate to civilian authority. The
military consistently receives high approval ratings in
public opinion polls, reflecting its dramatic transformation
since the 1980-1992 war. The fifth contingent of a 380-person
"Cuscatlan Battalion" task force that rotates every six
months departed for Iraq in August 2005; nearly 2,000
Salvadoran soldiers have now served with coalition forces in
Iraq. The Battalion has suffered two fatal casualties in
Iraq, one combat death in Najaf on April 4, 2004 and one
non-combat-related traffic death in Hilla on June 27 of this
year. The ESAF has performed admirably in humanitarian and
reconstruction efforts in support of the Iraqi people.
Barclay