COLOM'S FIRST YEAR HAS SUCCESS IN SOCIAL POLICY,

C O N F I D E N T I A L SECTION 01 OF 05 GUATEMALA 000162

SIPDIS

E.O. 12958: DECL: 02/04/2019
TAGS: PGOV ECON PINR ASEC SNAR EAID GT
SUBJECT: COLOM'S FIRST YEAR HAS SUCCESS IN SOCIAL POLICY,
BUT SECURITY A MAJOR SHORTCOMING

REF: A. 2008 GUATEMALA 1172

B. 2008 GUATEMALA 1268

C. 2008 GUATEMALA 1550

D. GUATEMALA 17

E. GUATEMALA 45

F. 2008 GUATEMALA 1131

G. 2008 GUATEMALA 1593

Classified By: Pol/Econ Counselor Drew Blakeney for reasons 1.4 (b&d).

Summary
--------------

1. (C) President Colom's first year in office was
characterized by a number of successes in the social field,
and growing challenges in others. Controversial First Lady
Sandra de Colom led the government's efforts to fulfill
campaign promises of poverty alleviation and social inclusion
of indigenous people and other marginalized groups. She set
in motion a Conditional Cash Transfer program and other
welfare programs that if continued could have an impact on
reducing poverty and increasing school attendance.
Guatemala's economy, which is closely tied to that of the
U.S., was buffeted during the year by the global financial
crisis and external inflation shocks. Although the price of
the basic basket of consumer goods rose 18.8% in 2008, no
idespread instability resulted. The country suffeed at the
hands of Mexican and Guatemalan drug traffickers as well as
gang members during the year; the security situation
continued to deteriorate. Security and justice will be the
make-or-break issue for the GOG in 2009. Colom was able to
advance his legislative agenda during 2008 due to the
disarray of the opposition and his ability to forge and
maintain congressional alliances through pork barrel
politics. Incendiary rhetoric from both Colom and his
largely urban critics needlessly exacerbated differences.
Guatemalan foreign policy during 2008 was aimed at
maintaining good relations with the USG while demonstrating
activism on immigration to domestic audiences, and at
burnishing center-left credentials with other regional
governments. In public and in private with the Ambassador,
Colom is seized with the need to improve the police and to
confront drug traffickers and gangs. The Embassy is using
the Merida Initiative and other programs to press for greater
action by the government on security and justice issues. End
Summary.

Advances in Poverty Alleviation
--------------

2. (SBU) President Colom was elected on the strength of
support from rural voters to carry out a poverty alleviation
and rural development agenda. The GOG's flagship poverty
alleviation program, "My Family Progresses," is a Conditional
Cash Transfer (CCT) program modeled on CCTs in Brazil and
Mexico, and run by First Lady Sandra de Colom. Via "My
Family Progresses," according to government statistics,
approximately 28,000 mostly rural and indigenous families
received a small monthly stipend in exchange for keeping
their children in school and keeping up on their vaccinations
during 2008. Business elites and other opinion leaders in
Guatemala City have derided the program as fomenting
dependency on the state, lacking in transparency, and as a
vehicle for political patronage and corruption. Despite the
criticisms, the program is popular with the rural poor.
Qcriticisms, the program is popular with the rural poor.


3. (SBU) The Social Cohesion Council's "Solidarity Baskets"
program in 2008 provided basic foodstuffs to more than 22,000
urban families living in extreme poverty, according to
official statistics. Some recipients also received soil and
seed packages for starting small, urban vegetable gardens.
Additionally, the Social Cohesion Council has established
soup kitchens located throughout the country. In defending
these and other social programs, Colom at times adopted an
adversarial tone toward his critics that provoked business
and other opinion leaders. The Ambassador has urged the
program's critics, primarily the private sector, to keep a
more open mind about what could be an effective partial
response to critical poverty.

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4. (SBU) Dissatisfied with the Ministry of Agriculture's
performance, President Colom reduced the Ministry's budget
and professional staff, and reallocated some of its functions
to the Social Cohesion Council, and others to the new Rural
Development Council, "Prorural." Prorural is headed by
wealthy agro-businessman Roberto Dalton, who is also the
principal provider of subsidized fertilizers that the
government distributes to farmers. Dalton's business deals
with the state have led critics to complain about possible
conflict of interest. Prorural made few advances during its
first year. Detractors accuse the GOG of confusing promotion
of subsistence farming with rural development. The GOG, they
say, too often encourages subsistence farming instead of
fomenting job alternatives through education, and encourages
corn planting on land better suited to other purposes, such
as forestry or tourism.


5. (U) The GOG established other popular programs for poor
families, such as providing children with vitamin supplements
and opening primary schools on Saturdays so that children can
play in a safe place where they are protected from gangs.
Public hospital attending hours were extended. For the first
time, families did not have to pay to register their children
for public school in 2009, although it is still unclear
whether the GOG will be able to fully compensate for the
education system's lost revenue. The GOG's success in
conveying an image of social activism is all the more
noteworthy because the state remains chronically
under-funded. Tax receipts were just 11.3% of GDP in 2008,
low even by regional standards. Per latest estimates, even
if fully implemented, the GOG's tax reform package would
increase the tax take by only about 1% of GDP.

Respect for Market Economics
--------------

6. (C) A pragmatist, President Colom has been careful to
preserve the free market mechanisms that are slowly helping
rural people to slip the bonds of extreme poverty. He has
embraced CAFTA as a boon to small farmers, who have increased
non-traditional agricultural exports to the United States.
Colom has also resisted the temptation to tax remittances
from Guatemalans in the U.S., which at more than $4 billion
annually have done far more to transform the countryside than
any government program, or even trade. The GOG has yet to
make progress, however, in increasing competition in sugar,
beer, poultry, and other foodstuffs.

Dodged a Bullet on Inflation
--------------

7. (C) At one point during 2008, year-on-year inflation
exceeded 14%, the basic basket of consumer goods was up 22%,
and gasoline spiked to $4.50 per gallon (ref a). Deeply
concerned by the impact of food and fuel inflation on the 51%
of Guatemalans who live in poverty, Colom twice publicly
stated that he would soon announce price controls on basic
consumer goods, but backed down when the president of CACIF
(Coordinating Committee for the Associations of Agriculture,
Commerce, Industry, and Finance) privately told him that
QCommerce, Industry, and Finance) privately told him that
doing so would be counter-productive for the economy and
would mean "war" with the private sector. Spurred by soaring
fuel prices, Colom rushed to sign a PetroCaribe deal with
Venezuela without coming to agreement on the terms. At one
point, he told us that he was worried about strikes and
unrest in poor areas unless he could bring food and fuel
prices down. They never materialized. The global fall in
food and fuel prices may have come just in time for the GOG.
With oil under $50/barrel, the GOG lost interest in
finalizing its PetroCaribe agreement, according to Minister
of Energy and Mines Meany. By year's end, inflation had
fallen to 9.4%, and inflation of the basic basket of consumer
goods finished the year at 18.8%. Driven by external
factors, GDP growth fell in 2008 to about 3.5% as the main
drivers of the economy -- tourism, remittances, and exports
slowed sharply.

Legislative Alliances Delivering Key Votes

GUATEMALA 00000162 003 OF 005


--------------

8. (C) The GOG scored some important legislative victories
in 2008, particularly in securing congressional passage of
the 2009 budget, the Femicide Law, the Freedom of Information
Law, most elements of the modest tax reform package, and
several IFI loans. Since the governing UNE party has only a
minority of congressional seats, the key to securing these
legislative victories has been the UNE's alliance with two
important, center-right parties, the GANA and FRG. This
alliance came at a cost. The UNE bench consented to some
pork barrel spending for GANA and FRG deputies' districts.
Journalists alleged that bribes were paid, and many believe
that the freeing of former President Portillo and other
senior FRG government officials imprisoned for corruption was
part of a quid pro quo (ref b). Regardless of how this
alliance was formed, it has enabled President Colom to
advance his agenda. In addition to the GANA and FRG votes,
the GOG has also enjoyed the legislative support of several
other, smaller parties. By threatening to make public
documents implicating General Otto Perez Molina, leader of
the opposition Patriot Party, in the congressional
embezzlement scandal, the UNE muted a main source of
opposition. Little real opposition is left in Congress. The
role of opposition is now mostly played by the press and
private sector.

Security Awful and Getting Worse
--------------

9. (U) Last year saw a further deterioration of the already
grave security situation. During 2008, the GOG lost
significant control of entire swaths of the national
territory -- concentrated in border regions -- to
narcotraffickers. With a homicide rate of 48.4 per 100,000,
and with over 6,200 murders in 2008, Guatemala is among the
most dangerous countries in Latin America. The current
government inherited a police force that for the last nine
years at least has been understaffed, usually poorly led,
underpaid, and often corrupt. The military, which was capped
at approximately 33,000 members by the 1996 Peace Accords,
was reduced to approximately 14,500 under the Berger
Government. It is under-staffed and under-resourced for the
security functions it has; it does enjoy increased public
confidence.


10. (SBU) Gravitating toward Guatemala's weak rule of law,
Mexican Zetas (the armed wing of the Gulf Cartel) displaced
Guatemalan traffickers in bloody shoot-outs, and established
a permanent presence in several border and interior regions.
The removal of several key traffickers from the scene in
eastern Guatemala brought on a bloody battle to fill the
resulting vacuum. One manifestation of this violence was the
November murders -- possibly with the complicity of police --
of 16 passengers of a Nicaraguan bus bearing cocaine, eleven
of whom were decapitated (ref c). Encouraged by a homicide
impunity rate of at least 93% (and even higher for other
kinds of crime),gang members increased their extortion
business in Guatemala City and other urban areas. Among
Qbusiness in Guatemala City and other urban areas. Among
their victims in 2008 were 163 murdered bus drivers, most of
whom failed to make extortion payments demanded by the gangs.
The resulting transportation strikes remained local and of
limited duration.

Collapse of Rule of Law Institutions
--------------

11. (C) Carlos Castresana, Commissioner of the UN-led
International Commission Against Impunity in Guatemala
(CICIG),publicly characterized Guatemala's rule of law
institutions as being in a state of "collapse." Vulnerable
judges, prosecutors, and police in rural areas are unprepared
to confront narcotraffickers' increasing challenge to state
authority. While Vice President Espada publicly named the
judiciary as the country's most corrupt rule of law
institution, the competition is stiff. Approximately 900
police officers were removed for cause (though in most cases
not prosecuted) during 2008, including the National Civilian
Police's (PNC) top leadership. Nonetheless, many of the
remaining police are also corrupt or complicit in the most

GUATEMALA 00000162 004 OF 005


serious kinds of crime. We believe that the reasons that
relatively few police are prosecuted are a) lack of
confidence that the prosecutions will advance in the
notoriously weak judicial system, and b) a decision to use
the relatively few reliable prosecutors on cases involving
CICIG (impunity),narcotics, and high-profile homicides. At
Castresana's urging, Colom undertook a major house-cleaning
at the Attorney General's Office. While the AG's Office is
much improved, much remains to be done. Reflecting rampant
corruption, inefficiency, and poor intelligence, authorities
seized just three of the approximately 200 metric tons of
cocaine estimated to have passed through Guatemalan air, sea,
and land space during 2008. Under rising public pressure to
improve the security situation, Colom removed ineffectual
Minister of Government Francisco Jimenez in January 2009.
His replacement, Salvador Gandara, is off to a promising
start (refs d and e).

Personnel Changes and the Kitchen Cabinet
--------------

12. (C) Colom's first year in office has been marked by
unusually high turnover in cabinet positions -- twelve in
all. Highest turnover has been in positions dealing with
security issues. On several occasions President Colom has
asked the Ambassador to vet persons under consideration for
senior positions, and has confided that he does not know whom
to trust. Corruption is a factor in every Guatemalan
government, including Colom's. Major personnel developments
included the aforementioned replacement of the Minister of
Government; of the Attorney General for failure to make
progress in prosecuting several high-profile cases; the
ouster amidst scandal of Colom's controversial friend and
financier Carlos Quintanilla as Director of the Presidential
Security Service (SAAS, ref f); the replacement of
problematic top police leaders; and the December mass removal
of the senior military leadership (ref g). Regarding the
military changes, Colom expressed his concerns about
officers' political loyalties to the Ambassador on several
occasions; he removed, at the Ambassador's request, several
senior officers involved in narcotics corruption.


13. (C) There was a marked strengthening of the Kitchen
Cabinet during Colom's first year in office. First Lady
Sandra de Colom regularly attends cabinet meetings, guides
social policy via her Social Cohesion Council, and has more
influence over the President on policy matters than does
anyone else. After Mrs. Colom, UNE campaign financiers
brothers Gustavo and Roberto Alejos are probably closest to
the President. Colom is rarely seen without Gustavo, his
private secretary, and Roberto Alejos will push forward
Colom's legislative agenda from his new position as President
of Congress. Finance Minister Alberto Fuentes Knight and
Foreign Minister Haroldo Rodas help set the center-left
ideological tone for the GOG, and appear to be closer to the
President thn other cabinet members.

Foreign Policy: Left, alf-Rudder
QForeign Policy: Left, Half-Rudder
--------------

14. (C) The mantra of the GOG's foreign policy is
maintenance of good relations with all countries in the
hemisphere. As demonstrated by their April visit to the
White House, Colom and FonMin Rodas appreciate that their
most important bilateral relationship by far is that with the
U.S., and have been eager not to jeopardize it. The MFA
recognizes that it is powerless to affect U.S. immigration
policy, which is of paramount interest to Guatemalans. Its
activism on that front is intended largely for domestic
consumption. The Colom Government has occasionally used
foreign policy to burnish its center-left credentials with
other Latin American governments, at times by indulging in
short bursts of anti-capitalist (though not anti-American)
rhetoric. The MFA has refrained from taking any principled
stands on Cubans' human rights, Nicaragua's flawed November
2008 elections, Chavez's support for the FARC and
anti-democratic shenanigans, and similar issues. Rodas was
the Secretary General of the Central American Integration
System (SICA) prior to assuming his current post, and has

GUATEMALA 00000162 005 OF 005


made a priority of advancing regional integration, including
promotion of free trade.

Comment
--------------

15. (C) Given the anemic state of Guatemala's public
finances and the unfavorable international economic climate,
Colom's first year went reasonably well. A Vox Latina poll
at year's end (which may have understated his rural support)
put his approval rating at 45% -- not great, but not
disastrous either, and ahead of most of his regional
counterparts. Colom is right to try to address Guatemala's
terrible poverty, including its worst manifestation,
widespread child malnutrition. (We have stressed to GOG
opponents that effective responses to social issues are the
only real bulwark against the appeal of authoritarian
populism.) Advances were made in 2008, thanks largely to
the First Lady and her Social Cohesion Council. Colom's
ability to forge congressional alliances allowed him to
advance his legislative agenda in 2008, and we anticipate
that he will be able to maintain those alliances during 2009.


16. (C) President Colom has resisted the temptation to stray
far from free market principles, and there is nothing radical
in most of his government's policies. Despite his fairly
centrist agenda, his relations with the business class and
other urban opinion leaders are often adversarial. Colom has
brought some of it on himself by at times resorting to
needlessly incendiary rhetoric. Many of his critics,
however, have also been more aggressive than the substance of
their differences with the GOG would seem to warrant. The
polemical First Lady's high-profile role has probably cost
Colom support among the urban middle and upper classes while
strengthening his rural base.


17. (C) The Embassy shares the widespread view that the
Colom Administration's major shortcoming to date is failure
to arrest the accelerating deterioration of the security
environment. The problem is exacerbated by the independence
of other key actors -- notably the corrupt and ineffective
judicial system as well as previous governments' avoidance of
tough decisions. While we are encouraged by the new Minister
of Government and by increased coordination between the GOG
and the Attorney General with the Congress, the challenges in
security and justice are huge. Security will be the
make-or-break issue during 2009.
McFarland