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