Identifier
Created
Classification
Origin
06GUATEMALA135
2006-01-25 18:20:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Guatemala
Cable title:
Economic update - Guatemala: January 3-23, 2006
how-toThis record is a partial extract of the original cable. The full text of the original cable is not available. 251820Z Jan 06
UNCLAS SECTION 01 OF 02 GUATEMALA 000135
SIPDIS
DEPT PASS USTR
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EIND EWWT TBIO SOCI GT
SUBJECT: Economic update - Guatemala: January 3-23, 2006
-------
Summary
-------
UNCLAS SECTION 01 OF 02 GUATEMALA 000135
SIPDIS
DEPT PASS USTR
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EIND EWWT TBIO SOCI GT
SUBJECT: Economic update - Guatemala: January 3-23, 2006
--------------
Summary
--------------
1. GUATEMALA LAGS BEHIND REGION IN ECONOMIC GROWTH
2. OVER $300 MILLION FOR INFRASTRUCTURE PROJECTS
3. TAX EVASION BILL SLOWLY MOVES THROUGH CONGRESS
4. INCREASED ACTIVITY AT GUATEMALAN PORTS
5. PNEUMONIA AND DIARRHEA TOP KILLERS
6. AVIAN FLU PREVENTION PLAN
7. AUTOMOBILE SALES RISE DESPITE LIMITED ECONOMIC GROWTH
8. 225,000 SCHOLARSHIPS WILL BE AWARDED FOR 2006
-------------- --------------
1. GUATEMALA LAGS BEHIND REGION IN ECONOMIC GROWTH
-------------- --------------
(U) According to a Bear Stearns report, with a 3.2% economic
growth rate and a 2.3% population growth rate, Guatemala
remains in next to last place of CAFTA-DR countries for per
capita GDP growth in 2005. The absence of judicial and fiscal
certainty is cited as one of the principal impediments to
growth, since it deters foreign investment. Analysts call for
a growth rate approaching 7% for the country to address its
many socio-economic problems. (Guatemala's population growth
rate of 2.3% is the highest in the CAFTA-DR region, where the
average is 1.7%, while yearly GDP growth of 3.2% is second
lowest after El Salvador, and well below the CAFTA-DR average
of 4.7%.)
-------------- --------------
2. OVER $300 MILLION FOR INFRASTRUCTURE PROJECTS
-------------- --------------
(U) Communications and Infrastructure Minister Castillo
announced that his ministry will invest $301 million in five
major project areas, including road, port and airport
rehabilitation. The roads alone will see $78.5 million in
improvements, including repair of damage caused by Hurricane
Stan. Road improvements include widening the road to the
Pacific, finishing the beltway around Guatemala City, and
constructing a northern corridor highway. The ministry
announced $65 million to develop new airports and renovate the
capitol's international airport, La Aurora. The GOG hopes
that these improvements will attract more foreign investment,
particularly after CAFTA implementation.
-------------- --------------
3. TAX EVASION BILL SLOWLY MOVES THROUGH CONGRESS
-------------- --------------
(SBU) A bill on tax evasion that has been under discussion for
months is stalled in the Congressional Finance Commission.
Victor Ramirez, the Commission president, admits that there is
still a lot of work to be done and plans to call extra
sessions as needed. Passage of a tax bill is considered
urgent, due to a shortfall in 2005 tax revenues. Guatemala
has long struggled with tax collection and enforcement, with a
huge informal sector that includes relatively large
businesses. Currently, the tax to GDP ratio is a low 10.1%,
far from the goal of 12% set by the 1996 Peace Accords.
Legitimate taxpayers, which include the country's most
powerful business groups, demand improved enforcement before
new tax measures are passed. Business chambers publicly voice
support for the bill; however, there are fears that behind the
scenes they may undermine it, as they have with similar
measures in the past.
--------------
4. INCREASED ACTIVITY AT GUATEMALAN PORTS
--------------
(U) Guatemala saw an overall 6.7% increase in port activity in
2005. The largest port, Puerto Quetzal, located on the
Pacific coast, saw nearly a 20% increase. Authorities praised
the teamwork demonstrated by port employees, and are eager to
attract additional investment and shipping companies.
Freighter traffic has increased steadily since 2003, with 5.0%
growth in 2004 and 5.8% in 2005. Proposed port improvements
and the implementation of CAFTA should bring further gains for
2006.
--------------
5. PNEUMONIA AND DIARRHEA TOP KILLERS
--------------
(U) According to a recent study, the principal cause of death
in Guatemala is Pneumonia, with 7,168 fatal cases reported in
2005, followed by diarrhea, with 1,782. The leading cause of
death in developed countries, heart attacks, ranked fourth,
behind murders or injuries from armed assaults, for which
Guatemala has one of the world's highest per capita rates.
The lack of strict water sanitation, food safety and public
health standards are chiefly to blame for the spread of
diseases. The public health system, which is generally
overcrowded and ill equipped, is hard pressed to handle the
demand for care.
--------------
6. AVIAN FLU PREVENTION PLAN
--------------
(U) Guatemala is working with regional health agencies to
establish a permanent commission for the prevention of Avian
Flu. A February session of congress will be devoted to
educating members and the public about the dangers and methods
of preventing Avian Flu. There have been isolated reports of
the less virulent strain of Avian Flu reported in the
northwestern parts of the country along the border with
Mexico. However, the infected chickens have been isolated and
destroyed, and there has been no connection to the deadly form
of the Avian Flu now threatening Asia and parts of Europe.
-------------- --------------
7. AUTOMOBILE SALES RISE DISPITE LIMITED ECONOMIC GROWTH
-------------- --------------
In spite of only modest economic growth in 2005, car sales
were reported as very strong. This increase was largely a
reflection of a change in the assessment of taxes under GATT
guidelines. Historically, Guatemala imposed a flat tax on the
sale of cars. For used cars there was a blue book value that
applied regardless of the actual cost of the car. Now, tax on
the sale of cars is assessed based on the value of the sale.
As a result, used car sales rose by almost 100%, while new car
sales rose by only 2%. Skeptics wonder if under the new
guidelines buyers are undervaluing the true cost of the
transaction to avoid paying higher taxes.
-------------- --------------
8. 225,000 SCHOLARSHIPS WILL BE AWARDED FOR 2006
-------------- --------------
The Ministry of Education will issue 56,000 more educational
scholarships this year for a total of 225,000. This increase
in funding for education, which is being realized through
assistance from UNICEF, will focus on assisting children in
the primary school. A 2005 review of the educational system
identified 2,300 schools where the likelihood of students
dropping out was extremely high due to poverty. Analysts fear
that most of the children taken out of school enter the child
labor market. Under the scholarship program specific
attention will be devoted to children affected by Hurricane
Stan, whose families may be under particular financial
pressure to take their children out of school in order to
work.
DERHAM
SIPDIS
DEPT PASS USTR
SENSITIVE
E.O. 12958: N/A
TAGS: ECON EIND EWWT TBIO SOCI GT
SUBJECT: Economic update - Guatemala: January 3-23, 2006
--------------
Summary
--------------
1. GUATEMALA LAGS BEHIND REGION IN ECONOMIC GROWTH
2. OVER $300 MILLION FOR INFRASTRUCTURE PROJECTS
3. TAX EVASION BILL SLOWLY MOVES THROUGH CONGRESS
4. INCREASED ACTIVITY AT GUATEMALAN PORTS
5. PNEUMONIA AND DIARRHEA TOP KILLERS
6. AVIAN FLU PREVENTION PLAN
7. AUTOMOBILE SALES RISE DESPITE LIMITED ECONOMIC GROWTH
8. 225,000 SCHOLARSHIPS WILL BE AWARDED FOR 2006
-------------- --------------
1. GUATEMALA LAGS BEHIND REGION IN ECONOMIC GROWTH
-------------- --------------
(U) According to a Bear Stearns report, with a 3.2% economic
growth rate and a 2.3% population growth rate, Guatemala
remains in next to last place of CAFTA-DR countries for per
capita GDP growth in 2005. The absence of judicial and fiscal
certainty is cited as one of the principal impediments to
growth, since it deters foreign investment. Analysts call for
a growth rate approaching 7% for the country to address its
many socio-economic problems. (Guatemala's population growth
rate of 2.3% is the highest in the CAFTA-DR region, where the
average is 1.7%, while yearly GDP growth of 3.2% is second
lowest after El Salvador, and well below the CAFTA-DR average
of 4.7%.)
-------------- --------------
2. OVER $300 MILLION FOR INFRASTRUCTURE PROJECTS
-------------- --------------
(U) Communications and Infrastructure Minister Castillo
announced that his ministry will invest $301 million in five
major project areas, including road, port and airport
rehabilitation. The roads alone will see $78.5 million in
improvements, including repair of damage caused by Hurricane
Stan. Road improvements include widening the road to the
Pacific, finishing the beltway around Guatemala City, and
constructing a northern corridor highway. The ministry
announced $65 million to develop new airports and renovate the
capitol's international airport, La Aurora. The GOG hopes
that these improvements will attract more foreign investment,
particularly after CAFTA implementation.
-------------- --------------
3. TAX EVASION BILL SLOWLY MOVES THROUGH CONGRESS
-------------- --------------
(SBU) A bill on tax evasion that has been under discussion for
months is stalled in the Congressional Finance Commission.
Victor Ramirez, the Commission president, admits that there is
still a lot of work to be done and plans to call extra
sessions as needed. Passage of a tax bill is considered
urgent, due to a shortfall in 2005 tax revenues. Guatemala
has long struggled with tax collection and enforcement, with a
huge informal sector that includes relatively large
businesses. Currently, the tax to GDP ratio is a low 10.1%,
far from the goal of 12% set by the 1996 Peace Accords.
Legitimate taxpayers, which include the country's most
powerful business groups, demand improved enforcement before
new tax measures are passed. Business chambers publicly voice
support for the bill; however, there are fears that behind the
scenes they may undermine it, as they have with similar
measures in the past.
--------------
4. INCREASED ACTIVITY AT GUATEMALAN PORTS
--------------
(U) Guatemala saw an overall 6.7% increase in port activity in
2005. The largest port, Puerto Quetzal, located on the
Pacific coast, saw nearly a 20% increase. Authorities praised
the teamwork demonstrated by port employees, and are eager to
attract additional investment and shipping companies.
Freighter traffic has increased steadily since 2003, with 5.0%
growth in 2004 and 5.8% in 2005. Proposed port improvements
and the implementation of CAFTA should bring further gains for
2006.
--------------
5. PNEUMONIA AND DIARRHEA TOP KILLERS
--------------
(U) According to a recent study, the principal cause of death
in Guatemala is Pneumonia, with 7,168 fatal cases reported in
2005, followed by diarrhea, with 1,782. The leading cause of
death in developed countries, heart attacks, ranked fourth,
behind murders or injuries from armed assaults, for which
Guatemala has one of the world's highest per capita rates.
The lack of strict water sanitation, food safety and public
health standards are chiefly to blame for the spread of
diseases. The public health system, which is generally
overcrowded and ill equipped, is hard pressed to handle the
demand for care.
--------------
6. AVIAN FLU PREVENTION PLAN
--------------
(U) Guatemala is working with regional health agencies to
establish a permanent commission for the prevention of Avian
Flu. A February session of congress will be devoted to
educating members and the public about the dangers and methods
of preventing Avian Flu. There have been isolated reports of
the less virulent strain of Avian Flu reported in the
northwestern parts of the country along the border with
Mexico. However, the infected chickens have been isolated and
destroyed, and there has been no connection to the deadly form
of the Avian Flu now threatening Asia and parts of Europe.
-------------- --------------
7. AUTOMOBILE SALES RISE DISPITE LIMITED ECONOMIC GROWTH
-------------- --------------
In spite of only modest economic growth in 2005, car sales
were reported as very strong. This increase was largely a
reflection of a change in the assessment of taxes under GATT
guidelines. Historically, Guatemala imposed a flat tax on the
sale of cars. For used cars there was a blue book value that
applied regardless of the actual cost of the car. Now, tax on
the sale of cars is assessed based on the value of the sale.
As a result, used car sales rose by almost 100%, while new car
sales rose by only 2%. Skeptics wonder if under the new
guidelines buyers are undervaluing the true cost of the
transaction to avoid paying higher taxes.
-------------- --------------
8. 225,000 SCHOLARSHIPS WILL BE AWARDED FOR 2006
-------------- --------------
The Ministry of Education will issue 56,000 more educational
scholarships this year for a total of 225,000. This increase
in funding for education, which is being realized through
assistance from UNICEF, will focus on assisting children in
the primary school. A 2005 review of the educational system
identified 2,300 schools where the likelihood of students
dropping out was extremely high due to poverty. Analysts fear
that most of the children taken out of school enter the child
labor market. Under the scholarship program specific
attention will be devoted to children affected by Hurricane
Stan, whose families may be under particular financial
pressure to take their children out of school in order to
work.
DERHAM