The Guatemalan private sector's priorities and

UNCLAS SECTION 01 OF 03 GUATEMALA 000431 SIPDIS DEPT PASS USTR SENSITIVE E.O. 12958: N/A TAGS: ECON PREL EINV PGOV GT SUBJECT: The Guatemalan private sector's priorities and concerns Ref: A) 05 Guatemala 2645, B) 05 Guatemala 2653 ¶1. (SBU) Summary: Private sector leaders are increasingly concerned about the country's social and economic conditions and their consequences. Intractable poverty, rising crime, and fears of populism are making them reevaluate traditional attitudes. Their solutions focus on economic growth and job creation, institution building, and promoting the rule of law. They want the government to combat crime, contraband and tax evasion, and call for stronger institutions, from the judiciary to Congress and the political parties. They emphasize the need for rural development, including improved education, health care, and infrastructure. To promote employment generating investment, they want quick implementation of CAFTA, as well as more flexible labor laws, easier credit, and lower energy costs. These priorities are little different from those of the government and the International Financial Institutions; however, they won't happen if the powerful private sector is not on board. Whether the businessmen will consent to giving up enough of their privileges, such as tax exemptions, monopolies and low minimum wages, to make a difference remains to be seen. However, the pressures are building, and changing attitudes could be a start. End summary ¶2. (SBU) At a recent lunch with the heads of most of the member chambers of CACIF, Guatemala's powerful business umbrella organization, private sector leaders outlined their economic and political concerns and goals. The lunch, attended by the Ambassador and the Economic, Commercial and Agricultural Counselors, featured the presidents or deputies of the Chambers of Industry, Agriculture, Exports, Sugar, SMEs, and Finance, as well as the President and Executive Director of CACIF. It marked another step in a long series of meetings of the Ambassador and Embassy officers with private sector leaders to discuss the economic and political situation in Guatemala. While their interests and views vary, overall they share a strong consensus. -------------- CACIF the power broker -------------- ¶3. (SBU) CACIF (Comite Coordinador de Asociaciones Agricolas, Comerciales, Industriales y Financieras),whose member chambers have over 200,000 adherents, has been the dominant business voice for the last four decades. It is closely identified with both the traditional land-owning elite and the new industrial elite. As such it has had extraordinary power over Guatemala's political and economic destiny, whether it gets directly involved or through its proxies in the government and Congress. ¶4. (SBU) Since the internal armed conflict died down in the mid-eighties, CACIF has played mostly a constructive role, supporting the modernization of the state, democracy, and the rule of law. For example, it helped stop the "auto-coup" of President Serrano, opposed corruption under President Portillo, and seconded its members to the modernizing administrations of Presidents Arzu and Berger. Private sector leaders are beginning to realize that business as usual is not a prudent strategy, for them or the country, and are looking for solutions. Our interlocutors have cited several reasons for this change of attitude. -------------- THE FEARS -------------- ¶5. (U) Globalization: Globalization has increased competition, especially from Asia, so Guatemalan firms have to modernize and, when possible, build regional alliances to compete. The more internationalist among the entrepreneurs consider that part of modernization and global competitiveness is a well-trained, content workforce, well-publicized respect for international environmental and labor standards, public works and charity, and a corporate commitment to following the rule of law. ¶6. (SBU) Poverty: Many of the businessmen see poverty not as a moral but as an economic issue. While some have capitalized on Guatemala's internal market, which is large by regional standards, they realize that they could double their customer base if they help lift the majority of Guatemalans out of poverty. They also object to unfair competition from the informal sector, which thrives because it is often the only income source for the poor. ¶7. (SBU) Populism: After suffering through the corrupt populist regime of President Portillo, most executives fear the influence of other populist champions of the poor on Guatemala's large rural and urban under classes. At the CACIF lunch, they cited a recent trip to Venezuela by leftist NGOs and sympathizers financed by Chavez. The recent victory of Evo Morales only underlines their fears. Their hope is that economic growth and employment creation, especially in rural areas, will lessen the appeal of such leaders. ¶8. (U) Crime: The other regional evil they fear is organized crime, with Guatemala suffering under sharply rising rates of drug trafficking and smuggling of everything from humans to chicken parts. Several of the most prominent families have suffered kidnappings or murders, and most now travel with several bodyguards. The lack of rule of law threatens them personally and affects the business climate, with contraband, high-jacking of merchandise and other criminal acts eating into profits and competitiveness (ref B). While the large firms have substituted for the state with elaborate security systems and bodyguards, they wish the state could better fulfill this public sector role. -------------- THE SOLUTIONS -------------- ¶9. (SBU) The private sector has initiated or been involved in numerous master plans to "save" Guatemala. These include the 1996 Peace Accords, which have an extensive economic chapter, Foro Guatemala and the Grupo Barometro, basically calls to action against Portillo, the Pacto Fiscal, a comprehensive reform of the financial system, and most recently the as yet nameless and somewhat secretive group of "wise men" who focus on key areas such as education, health and security (ref A). In addition, the Berger administration, which is led by private sector scions, from the President on down, has its own action plans, including the Competitiveness Agenda and Vamos Guatemala. ¶10. (SBU) The changes most often proposed by the private sector to promote Guatemala's economic development fall broadly into three areas: 1) economic growth, 2) institution building, and 3) rule of law. Under the latter our interlocutors most often cite the need to combat common and transnational crime, to fight contraband and tax evasion, and to improve the judicial system. Under improving institutions, justice reform also looms large, as does building responsible political parties. The overriding concern is establishing public sector and congressional professionalism and continuity. Public servants are badly trained and paid, are not well respected, and are liable to lose their jobs when administrations change. This leads to bad performance, corruption, and a lack of continuity in government operations and administrative services. Congress, for its part, is splintered, prone to influence peddling and unprofessional, with political parties based on personal loyalty and expediency. ¶11. (U) In the economic area, private sector leaders call for an extensive menu of measures. These include improving infrastructure (especially transportation),rural development, developing the financial sector to lower capital costs, lowering energy costs, making the labor market more flexible, fomenting employment and investment, and investing in education (especially at the technical level). ¶12. (U) They recognize that, in spite of having colleagues running the government now, they need to work through the political process in the long term. During the lunch with the Ambassador, CACIF presented a somewhat ominous power point on the political scene and the 2007 elections, with diagrams of new linkages between leftist groups, Chavez, organized crime and more. CACIF is particularly concerned about supporting strong, honest candidates for six top-level posts that are now vacant or will be so in the coming months: Prosecutor General, the Constitutional Court (which often blocks legislation), Finance Minister, Tax Director (SAT),Human Rights Ombudsman, and Bank Supervisor. ¶13. (SBU) Moreover, while not all CACIF members are participating (or perhaps even know about) the "wise men" initiative (ref A),under this rubric the private sector - with broad participation, even from leftists - hopes to influence and strengthen the political parties to make them more effective and to assure continuity to the next administration. They have already held meetings with most of the parties and hope to build a coalition of from 40-50 congressmen (out of 158) that will support their priorities. ¶14. (SBU) While CACIF purports not to support a single presidential candidate, it will comment freely on the candidates once they become known. The CACIF members posited that presidential front-runner Alvaro Colom is mostly a centrist with some business experience, who is riding high on a political family name. He does not worry them per se, but they are concerned about his entourage. In Congress, CACIF's first priority will be to try to keep the GANA coalition united, preserve the support of the Unionista party of former President Arzu, and if possible reestablish the alliance with the PAN party. ¶15. (SBU) Legislation: CACIF will not support tax increases until the tax base has been enlarged and the informal sector reduced, claiming that its members already pay the lion's share of taxes. In spite of suspicions of some to the contrary, most business chambers insist that they support a pending tax evasion bill, albeit with changes to make it less "subjective." Whether reduced tax evasion will make the private sector more amenable to comprehensive tax reform, which most analysts feel is a key ingredient for improving the government's ability to solve Guatemala's problems, remains the big question mark. ¶16. (U) Another law with strong support is the Ley de Catastro (real estate registry),which will grant land titles to those qualified. This will allow peasants and farmers to invest more in their land, use it as collateral for loans, or sell it to invest in a different, and in the case of subsistence farmers, a more fruitful livelihood. This law was approved in June 2005, but has not been fully implemented. ¶17. (U) Another priority law for the private sector is the Competition Law, although its support is likely mixed. In addition, to improve infrastructure development, CACIF supports the Concessions Law, which would allow private firms to invest in badly needed public physical capital. Although proposals for this were sent to the executive in November, it is not yet on the congressional agenda. Finally, implementation of CAFTA is the private sector's number one priority, and CACIF has pledged its assistance with Congress once the implementation law is done. Its strategy will be to target party leaders and the pre-candidates for the 2007 election, and it should prove to be an important ally for the Embassy in getting quick congressional approval. Derham