WHA/EPSC'S ROONEY HEARS SALVADORAN PRIVATE SECTOR CONCERNS

C O N F I D E N T I A L SAN SALVADOR 001393



SIPDIS



E.O. 12958: DECL: 12/18/2018

TAGS: ECON, ETRD, EFIN, PGOV, ES

SUBJECT: WHA/EPSC'S ROONEY HEARS SALVADORAN PRIVATE SECTOR

CONCERNS



REF: SAN SALVADOR 1353



Classified By: Ambassador Charles L. Glazer, Reasons 1.4 b and d



1. (SBU) Summary. On a December 10-12 visit, WHA/EPSC

Director Matthew Rooney led the U.S. delegation at the OAS

regional forum on renewable energy and an associated

conference geared to the private sector by the Institute of

the Americas (IOA). Outside of the forums, he met with

former finance and economy ministers, AmCham board members

and other influential Salvadorans. They were pessimistic

about ruling party ARENA's election prospects and critical of

its populist policies. Many were also concerned about a

possible FMLN (leftist party) victory. End Summary.



Two Successful Energy Conferences

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2. (U) WHA/EPSC Director Matt Rooney led the U.S. delegation

at the December 11 OAS "Forum on Sustainable Energy in

Central and North America." He was also the opening speaker

at the Institute of the Americas (IOA) "Central America

Energy: Renewables, Integration and Investment" forum the

following day. Representatives from regional governments,

renewable fuels experts and the private sector attended the

meetings. Both forums received broad and favorable press

coverage. More details on the events will follow in septel.



Disenchanted with Populist ARENA

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3. (C) Former Finance Minister Manuel Enrique Hinds and

Eduardo Zablah, a former Presidential Chief of Staff and

Economy Minister under President Saca, told Rooney they

thought it would be tough for ARENA presidential candidate

Rodrigo Avila to win the March 2009 election. Neither was

impressed with the campaign or candidacy of Avila and both

said that President Saca chose him so Saca could maintain

control over ARENA. They pointed out that Avila and ARENA

were consistently behind in all of the polls. Hinds and

Zablah said that FMLN presidential candidate Mauricio Funes'

economic team was better than either Saca's or Avila's teams.

On that basis, they concluded that the country might

actually be better off if Funes won the March 15 election.



4. (SBU) AmCham board representatives expressed similar

doubts about the Avila campaign in their separate meeting

with Rooney. Companies represented at the meeting were

Fruit-of-the-Loom, Wal-Mart, Chevron, U.S. electric company

AES, and Exxon. The AmCham Executive Director noted that if

she closed her eyes and listened to the campaigns of the

candidates she would confuse the FMLN for ARENA and vice

versa, and the others agreed. While the FMLN reiterated its

support for CAFTA-DR and dollarization, ARENA talked about

job guarantees, state control of the ports and government

giveaways. However, the AmCham representatives had strong

suspicions about the FMLN. While they believed that Funes

was sincere about his platform promises, they also believed

that the extreme left of the FMLN had not changed its stripes

and would obstruct Funes from carrying out his policies.



5. (SBU) Both groups criticized current Saca administration

policies that they said seemed designed to attract the

popular vote, but were unfriendly to business and not good

for the country. The AmCham noted a litany of examples to

illustrate the point: interference in the banking sector

(attempts to cap interest rates),telecommunications (U.S.

long distance call tax),extended tax audits (to the point of

harassment) of U.S. petroleum companies, anti-competition

claims by the Superintendent of Competition against petroleum

companies, and the latest minimum wage hike agreement (where

the AmCham's advice was not sought and the textile companies'

advice was not followed). They also lamented bus transport

subsidies, and other untargeted subsidies such as electricity

subsidies, which raised companies' costs and the GOES was

struggling to pay. They complained that there seemed to be

no one in the Saca Administration who would seriously

consider their concerns. Businesses are a natural

constituency for ARENA. However, they are troubled by the

choice between a continuation of ARENA's populist policies

and the risks and uncertainties associated with the FMLN.



6. (U) WHA/EPSC Office Director Rooney reiterated our

non-partisan election posture. He also took the opportunity

to brief the groups about the Pathways to Prosperity in the

Americas initiative and the recent ministerial meetings held

in Panama. Rooney encouraged private participation in that

initiative, noting that it created a platform where

governments could reaffirm their commitment to market-based

economic development policies, and stressed that it would be

an excellent way for Latin America to engage the incoming



Obama Administration.



De Gavidia, Umana and Membreno Join the Refrain

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7. (SBU) Former Minister of Economy Yolanda de Gavidia and

former CAFTA-DR trade agreement negotiator Claudia Umana, who

both currently work at respected think tank FUSADES, told

Rooney about the new port at La Union and the GOES delays in

deciding how to manage the port. They relayed how Vice

President de Escobar had worked hard to attract the best port

operators in the world to bid on the port concession. The

decision to solicit a port concessionaire was also supported

by a separate commission ordered by President Saca, the

National Development Commission and others. They criticized

ARENA Vice Presidential candidate Arturo Zablah for

interfering in the process before he was even elected.

Zablah has publicly argued against a master port concession

and in favor of state control of the ports. De Gavidia and

Umana also noted a FUSADES study showing that the majority of

the benefits of the current subsidies such as those for

electricity and propane gas were actually going to the

wealthiest segments of Salvadoran society.



8. (SBU) Economic analyst and consultant Luis Membreno

explained the current liquidity problems (reftel) of the

government. He also expressed his dismay that the Saca

Administration could not even meet a December 11 deadline to

produce a letter with a plan to reimburse the electricity

companies for the subsidy payments they had covered for the

GOES. More disturbing, Membreno said he had heard from both

sides that there were armed groups running around the country

and he was concerned that there could be violence leading up

to or after the elections. He asked the USG to do what it

could to urge all parties to not resort to violence. (Note.

In the days following the visit, the press reported that

numerous armed groups were apparently in the country. Both

the FMLN and ARENA have called for thorough investigations )

currently underway - and denied any involvement with the

groups. End Note.)



9. (SBU) Concerns about public security were raised by

several interlocutors in their meetings with Matt Rooney. We

believe this to be the number one issue in inhibiting foreign

direct investment. However and not surprisingly given their

backgrounds, most of the interlocutors' attention and

comments were centered on economic issues. In addition,

several mentioned allegations of corruption within the Saca

administration and thought such allegations could become more

public as the elections approach.



10. (U) WHA/EPSC Office Director Matt Rooney has cleared this

cable.

GLAZER