PRESIDENT OF CONGRESS ANTICIPATES FAILURE OF TAX

C O N F I D E N T I A L GUATEMALA 001281

SIPDIS

E.O. 12958: DECL: 10/07/2018
TAGS: ECON PGOV EFIN KCRM GT
SUBJECT: PRESIDENT OF CONGRESS ANTICIPATES FAILURE OF TAX

REFORM PROPOSAL

REF: A. GUATEMALA 744

B. GUATEMALA 1017

Classified By: Ambassador Stephen G. McFarland for reasons 1.4 (b&d).


1. (C) Summary. President of Congress Crespo told the
Ambassador October 3 that he believed Congress would approve
neither the GOG's tax reform package nor the pending Arms and
Ammunition Bill. Crespo supported President Colom's request
for a substantial national budget increase to address
deteriorating security conditions, but said Colom needed make
clear how he intended to pay for it. Given recent corruption
scandals, the GOG would need to provide for enhanced
transparency of public accounts -- including those
administered by the First Lady's "Social Cohesion Council" --
if it wants to raise more taxes, he said. Crespo said he was
not seeking to remain in office as President of Congress
during 2009, but he appeared open to the possibility of doing
so. End Summary.


2. (SBU) During an October 3 meeting with the Ambassador and
Pol/Econ Couns, President of Congress Aristides Crespo said
he did not know how President Colom planned to pay for his
proposed national budget increase, from approximately USD 5.8
billion for 2008 to approximately USD 6.97 billion for 2009
-- a 20.2% increase. (Much of the proposed increase would be
for security, and specifically to increase the size of the
army and national police, see septel report.) Reactions to
Colom's proposal to increase security spending were generally
positive, but to effect such changes the GOG would have to
produce a plausible plan to pay for them, Crespo said.
Crespo and other members of the FRG (Guatemalan Republican
Front) take a dim view of IFIs' suggestion that the GOG
simply take on more debt, given its continuing fiscal
conservatism. The Ambassador noted that President Colom has
not yet made clear how the proposed additional troops and
police would be employed, and that it would be important that
he do so.


3. (C) Crespo said he did not believe the GOG has enough
votes in Congress to pass its tax reform proposal in its
current form, despite its concession to the private sector to
postpone discussion of the income tax portion of the package
(ref a). In the wake of the recent congressional funds
scandal and other corruption cases, public confidence in the
state has ebbed. That being case, Crespo opined, a
successful tax reform package would need to be accompanied by
enhanced transparency guarantees. Crespo and fellow FRG
Congressman Luis Fernando Perez, who chairs Congress's
International Relations Committee, said that Congress and the
public are also concerned about the transparency of First
Lady Sandra de Colom's "Social Cohesion Council." The
Council, which is President Colom's vehicle for his
Conditional Cash Transfer plan (CCT, "My Family Progresses")
and other flagship social welfare programs, manages
approximately USD 40 million, but is exempt from the usual
transparency rules. Perez noted that the GOG's CCT was
modeled on Brazil's, and said the GOG ought to also consider
Brazil's companion transparency regulations.


4. (SBU) Crespo and Perez said they thought that the Arms
and Ammunition Bill, formally presented to Congress October
7, was also unlikely to pass in its current form. The bill
is an attempt to address the widespread problem of illegal
gun ownership, including possession of military weapons, and
would establish sanctions for infractions of the law. Perez
Qwould establish sanctions for infractions of the law. Perez
asserted that the bill's definitions of offensive (and
therefore illegal) and defensive arms were inadequate and
poorly informed. For example, the bill makes references to
"large caliber" weapons as offensive, but caliber is
irrelevant to such considerations, he asserted.


5. (SBU) Perez also opposed the bill's proposed caps on
consumers' monthly ammunition purcases. Some sportsmen have
valid reasons for exceding the proposed cap. Furthermore,
the ammunition provisions do not differentiate among kinds of
ammunition. For example, while it might be desirable to cap
purchases of AK-47 rounds, there is no reason to limit
purchases of bird shot for shotguns, Perez said. He noted
that large land owners continue to oppose any ban on
long-distance weapons, which they might employ against cattle
rustlers or other thieves. Finally, no consensus had yet
been reached on whether the Department of Control of Arms and
Ammunition (DECAM),which as the state's gun licensing
authority brings in much revenue, should remain within the
Ministry of Defense or be transferred to the civilian
Ministry of Government, as proposed in the draft legislation.



6. (SBU) Crespo said he is not interested in retaining the
Presidency of Congress in 2009. His party, the FRG, has only
14 of the 158 congressional seats, and it would be logical
that a candidate from a larger party assume the presidency.
He said, however, that in the midst of the congressional
funds scandal (ref b),the leadership of Congress needs to
demonstrate "tranquillity" and work toward restoring
confidence in the institution. He opined that two frequently
mentioned candidates, Mario Taracena of the governing UNE
(National Union for Hope) and Roxana Baldetti of the
opposition PP (Patriot Party),are both polemical figures and
would not contribute toward that end. Crespo was pleased
that President Colom had cooled developing rivalries for the
presidency within his own UNE party by saying the UNE would
not take a position on who should assume the Presidency of
Congress until January 2009.


7. (C) Comment. Many informed observers believed that the
GOG-private sector compromise to postpone discussion of
income taxes had breathed new life into the rest of the GOG's
tax reform package. Crespo's view is among the most
pessimistic we have heard, but it may be accurate. That
would be unfortunate, since reform is needed to invigorate
Guatemala's chronically under-funded state. Crespo has so
far demonstrated moderate and competent leadership of
Congress; certainly Congress could do worse in electing its
next leader.
McFarland