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. GUATEMALA 00000162 002 OF 005 ¶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