COUNTRY TEAM ASSESSMENT OF SALVADORAN ELECTORAL

C O N F I D E N T I A L SAN SALVADOR 001133

SIPDIS

E.O. 12958: DECL: 09/23/2018
TAGS: PGOV PREL ES
SUBJECT: COUNTRY TEAM ASSESSMENT OF SALVADORAN ELECTORAL
LANDSCAPE

REF: A. STATE 97392

B. SAN SALVADOR 1066

Classified By: The Ambassador, for reasons 1.4 (b) and (d)


1. (C) Summary: In response to reftel, Embassy San Salvador
Country Team assesses that the issues influencing voters are
primarily, but not exclusively, economic. Public security
and justice issues remain important. There are a number of
ongoing programs that offer us the ability to make a
high-visibility case for good relations with the U.S.,
including TPS, the Merida Initiative, the MCC compact, USAID
programs, law enforcement cooperation and more. End Summary.

Drivers: It's the Economy


2. (SBU) Cost of Living: As elsewhere around the world, El
Salvador has been hit by higher food and fuel prices.
Inflation, the lowest in the region because of El Salvador's
dollarized economy, has risen in recent months to an annual
rate of 9.9 percent in August, a 12-year high. According to
a July 2008 Legislative Assembly Commission report, in the
first 5 months of the year the cost of the basic basket of
goods rose by over 67 percent. The poor are hit particularly
hard because of the price increases in basic consumables such
as rice, beans, eggs and cooking oil and because a greater
percentage of their income is spent on food. The rural poor,
a traditional ARENA base, have felt the effects even more
than urban residents. Poverty actually increased in 2007 to
34.6 percent of the population from 30.7 percent from the
year before, according to a 2007 Household Survey by the GOES
statistical unit. The rate of extreme poverty also increased
from 9.6 percent in 2006 to 10.8 percent in 2007.


3. (SBU) Unemployment: The Salvadoran Social Security
Institute reports that formal sector jobs increased by 4.3
percent in the first 5 months of 2008, but this is slower
than the 8 percent growth rate of 2007. In addition
underemployment, at 28.4 percent, is a serious concern.


4. (SBU) Remittances: Remittances from Salvadorans working
abroad account for over 18 percent of Salvadoran GDP. The
GOES and many Salvadorans have expressed relief that the
growth rate of remittances has merely slowed (now growing at
just 4.9 percent annually through August 2008). However,
there is persistent fear that a slowing U.S. economy will
have a pronounced impact on the Salvadoran economy, perhaps
making itself felt just as elections kick off in January 2009.


5. (SBU) Investment Climate: President Saca's decision to
freeze electricity prices (implemented by the Salvadoran
regulator) has caused turmoil in the electricity market and
finally forced the GOES to eliminate the subsidy for
commercial users, driving their electricity prices up by 38
percent (in 3 phases) over the next 9 months. The
Superintendent of Competition has fined foreign oil companies
Exxon and Shell for alleged anti-competitive zone pricing,
but has not taken any concrete action against the joint
Venezuelan-FMLN mayor venture Alba Petroleos, which appears
to be dumping diesel and now gasoline trucked in from
Nicaragua. There are persistent rumors that Shell is pulling
out of the country.


6. (SBU) Subsidies: The cost of subsidies to the Salvadoran
treasury is approaching USD 700 million this year. Unfocused
subsidies are hurting the GOES budget and taking away from
social spending. This year, the electricity subsidy has
increased 140 percent and the propane gas subsidy grew by 57
percent. To offset the public transportation subsidy, the
GOES had already added a 10 cent tax to the already high fuel
prices, a hard hit for middle class drivers. In part because
of a recently imposed 4 cent/minute tax on long distance
calls from the United States, a U.S. telecommunications
carrier has left the market (in Guatemala too). This
unpopular tax falls mostly on Salvadorans living in the
United States who call home to friends and relatives here and
has resulted in a 30 percent drop in call volume and some
creative re-routing of calls to avoid the tax. The tax was,
in part, designed to pay for increased subsidies for the
almost universally vilified bus companies, whose subsidy was
recently doubled without requiring them to pay for past fines
or improve their bus fleet or service.


7. (SBU) Some Economic Bright Spots: Several U.S. textile
companies, e.g., Fruit of the Loom, Hanes and George C. Moore
have expanded operations and added employees. GDP growth in
the first half of 2008 was a respectable 4 percent, below
last year's 4.7 percent growth rate, but still a much higher
rate than the roughly 2 plus percent growth rate of
1996-2006, before CAFTA-DR was implemented. El Salvador also
improved its standing in the World Bank's Doing Business

Report, climbing 5 places to 72 of 181 countries. Poverty
has been cut in half since the 1992 Peace Accords. However,
just this week, Standard and Poors reduced El Salvador's
credit rating from BB stable to BB negative, in part
because of the uncertainty of the economic policies that will
be enacted after the 2009 elections. Presidential Chief of
Staff Eduardo Ayala has already publicly put the blame on the
FMLN for causing that uncertainty.


8. (C) Simply playing on the fear of economic catastrophe in
the event of an FMLN victory will not win the election for
ARENA, which must play up its own positive record. The
country has made remarkable economic progress and ARENA
should be trumpeting those advances. ARENA needs to draw a
direct link between the economic ideology of FMLN and the
economic freefall in Venezuela, Nicaraua, Bolivia, etc. and
contrast that with concret examples of successful free
market economies.
Crime and Corruption


9. (C) Public Security. ang violence in El Salvador,
especially in urbanareas, continues to frustrate the best
efforts ofthe Salvadoran National Civilian Police (PNC).
Tansnational street gangs MS-13 and M-18 habituallyextort,
assault, and victimize the Salvadoran pulic, with the middle
and lower classes particulaly hard hit. While the
consistently high rate of gang-on-gang violence directly
affects only a small segment of the population, it
contributes to the overall feeling of insecurity in the
country and amplifies the effect of other gang-related
crimes. Protection rackets abound, especially in the realms
of transportation and the informal economy. El Salvador's
informal transportation sector, particularly the buses, are
especially hard-hit by extortion and rampant criminal
activity. Panhandlers and street vendors, left alone by
Salvadoran police authorities, add to the congestion and
contribute to the public perception of chaos and criminal
threats to public safety. There is palpable fear among
Salvadorans both in and out of government that the country
risks sliding into chaos unless the police find a way to rein
in transnational gang activity. Numerous outside observers,
both within the USG and the GOES, realize that "taking back
the streets" is a necessity if El Salvador is to bolster
public confidence that a democratic government can ensure
public safety.


10. (C) Corruption. There is a widespread belief among
Salvadorans that the judicial sector suffers from systemic
corruption. There is a similar belief, though never backed
by specific evidence, that some in the current administration
have enriched themselves unethically, if not illegally.
There is also a growing perception that some judges,
particularly in the San Miguel department in eastern El
Salvador, accept bribes in return for finding technicalities
and legal loopholes to justify releasing narcotics
traffickers.

Foreign Policy and Foreign Interference


11. (C) Foreign policy is playing an important, but
secondary, role in Salvadoran decisions regarding the
elections. The Salvadoran Iraq deployment, while unpopular
among the electorate, will not be decisive in 2009 unless
there is a spike in casualties, of which there have been none
since October 2006. Across the spectrum, Salvadorans agree
on the need to maintain good relations with the U.S.; ARENA
is attempting to capitalize on the perceived threat to
U.S.-Salvadoran relations by reminding Salvadorans of myriad
FMLN statements and positions opposing U.S. policies in the
region, the Dominican Republic-Central AMERICA Free Trade
Agreement (CAFTA-DR),dollarization, the establishment of the
Comalapa Cooperative Security Location (CSL) for
counter-narcotics operations, etc. Recognizing that these
issues have resonance with many voters, the FMLN is
attempting to burnish (some would say establish) its
U.S.-friendly credentials, with mixed success. Its affinity
for the Castro, Chavez, and Ortega regimes leaves many voters
convinced of the risk to U.S.-Salvadoran relations if the
FMLN wins. That, coupled with a natural fear of Venezuelan
infiltration of and interference in a Funes-led GOES,
presents the FMLN and Funes with a significant challenge and
an opportunity for ARENA.


Demonstrating the Benefits of a Good Relationship


12. (C) Embassy San Salvador offers the following activities
we can use to highlight the benefits to El Salvador of the
excellent relationship we enjoy.

-- The Embassy Public Affairs section is developing an
outreach plan to engage media outlets and major universities
throughout the country in order to publicize the
accomplishments of the USG, especially during the current
administrations in both countries. This outreach would be
timed to occur before Salvadoran elections begin January 18.

-- We will urge the private sector to speak out in favor of
free trade, sustainable economic policies and how they reduce
poverty.

-- We will encourage the Saca administration to prevent
further short-sighted policies such as the telephone tax and
bus subsidies, not only for the sake of U.S. companies, but
because it is those policies that interfere with the
investment that has created the new jobs and improved the
Salvadoran economy.

-- We will use public diplomacy opportunities to highlight
the positive influence of U.S. companies in the country and
the higher labor standards and better pay they generally
bring to El Salvador.

-- We will continue to press the FMLN on the specifics of
their economic plan and on who will control the government )
the old or the new guard. We should seek concrete assurances
through actions by them, such as legislative support for
multilateral financing packages.

-- Embassy believes a well timed editorial by the Secretary
published in regional, not just Salvadoran, media, extolling
our views on core principles of open markets, liberalized
trade, accountable and accessible government (including
judicial systems) would have a positive impact in focusing
voters' minds.

-- Washington could prepare a fact sheet comparing the
relative performance of the economies of Venezuela,
Nicaragua, and Bolivia against that of Chile, Brazil, and
others, in order to highlight the benefits of the core
principles to be described in the above op-ed.

-- USAID will continue to participate in public outreach
events with the Ministry of Education to highlight the
National Education Plan (Plan 2021) and the results of joint
USG and GOES cooperation and focus, such as increased
enrollment numbers, higher graduation rates, and improved
teacher training.

-- USAID will find opportunities to publicize successes of
the CAFTA-DR free trade agreement with the U.S., emphasizing
successes and growth achieved by local businesses that, with
USG assistance, have taken advantage of the favorable
economic environment and conditions put in place by CAFTA.

-- Responding to concerns about the lack of employment
opportunities for youth and the risk of gang recruitment or
retaliation, USAID will work with municipalities and
communities to establish community outreach centers where
children of the electorate can safely participate in
educational and recreational activities.

-- Responding to concerns over the availability of quality
health services, USAID will continue to support the National
Health Plan through assstance to the ministry of Health
accompanied by utreach programs to publicize improved
maternal ealth care services, decreased infant mortality
rtes, and better educated public health sector servce
providers.

-- MCC: As part of a public dipomacy push, the Embassy will
highlight the large pending infrastructure investment
represented b the MCC compact, though ribbon-cutting
ceremonie will not be possible until early 2009, perhaps
ven after the first round of presidential elections March 15.

-- Comalapa CSL: Welcome Salvadoran extension of the Comalapa
agreement, announce intention to work with the government to
enhance the effectiveness of the facility by adding
additional mission sets. It would be extremely beneficial to
announce significant additional support for the Salvadoran
Armed Forces engaged in these counter-narcotics activities.
We also will publicize large seizures that were made possible
by the CSL.

-- AFIS Rollout: Hold an unveiling ceremony with the Director
of the PNC once the newly-installed AFIS (automated
fingerprint identification system) is up and running. The
Ambassador can make public remarks lauding El Salvador for
taking a leading role in the fight against transnational
crime, and link the AFIS to ongoing programs such as the

trans-national anti-gang unit (TAG) and International Law
Enforcement Academy (ILEA). This would also be a good
opportunity to congratulate both the PNC and the GOES for the
improvements in human rights in the post-1992 Peace Accords
era.

-- Merida Initiative: Hold a press conference with Minister
of Public Security and Justice Rene Figueroa to announce the
"kickoff" of the Merida Initiative. The Ambassador can
compliment the Salvadorans for taking a leading role in
regional transnational crime programs, and publicly thank
Figueroa, Saca, and the PNC for their leadership and vision.
The Ambassador can also stress that the funds the USG is
committing under the Merida Initiative reflect the trust and
confidence we place in our Salvadoran partners, as well as
our commitment to buttressing democratic governance in
Central America.
GLAZER