FUNES' ADVISOR DISCUSSES STRATEGY, ECONOMIC &

C O N F I D E N T I A L SAN SALVADOR 000171 SIPDIS E.O. 12958: DECL: 02/24/2019 TAGS: ECON PGOV ENRG ES SUBJECT: FUNES' ADVISOR DISCUSSES STRATEGY, ECONOMIC & ENERGY POLICY Classified By: Charge d'Affaires Robert I. Blau, Reasons 1.4(B),(D) ¶1. (C) SUMMARY. Alexander Segovia, economic advisor to FMLN presidential candidate Mauricio Funes, expressed confidence that Funes still maintained the advantage going into the March presidential election, but acknowledged legitimate doubts regarding whether Funes would actually control the party. Funes' post-January 18 strategy is to portray Funes as a "national unity figure." Funes has also been privately speaking with ARENA figures on ways to work together after the election. Segovia said either side would need a "clean win" of at least 51-49 for both parties to accept the results. ¶2. (C) Unemployment was the FMLN,s major concern given deteriorating economic conditions, and an FMLN government would enact a short-term plan to mitigate the related social issues. Energy policy would focus on targeting subsidies and encouraging stalled private sector projects and new public-private partnerships. Segovia also described a plan to bring in international financial institutions (IFIs) to help reduce political polarization. The FMLN is trying to retake the momentum it lost after the January 18 elections. While Segovia's economic proposals would likely meet with broad support, the question remains whether a Funes government would actually be able to implement them. END SUMMARY. Shifting Strategies Post January 18 -------------- ¶3. (C) Alexander Segovia, economic advisor to FMLN presidential candidate Mauricio Funes, told Econcouns and Econoff on February 11 that Funes had not been surprised by the outcome of the January 18 legislative/municipal elections, and had put them behind him as they focused on the "separate" presidential election March 15. While the PDC and PCN candidates dropping out of the presidential race had unified the right, they had also unified the left, and Segovia said Funes still retained the overall advantage. Segovia and the Funes campaign were also meeting with mayors and defeated mayoral candidates from the PDC and PCN to try to swing their support at the local level. ¶4. (C) While stressing that Funes remained a "national unity" candidate, Segovia acknowledged that "legitimate doubts" remained about Funes vs. the FMLN and who would actually control the party. Segovia said that in the final weeks of the campaign, Funes would work to build "confidence that he can govern" and stress his "national unity" credentials, primarily through gathering endorsements from private organizations and business/trade associations. The strategy would not, however, include further outreach to the various chambers of commerce, including the Amcham. With only a few weeks left, Segovia noted, "it was not worth it" to devote time and resources to groups where Funes "was unlikely to receive a single vote." In addition, Funes was planning to hold a public event with around 20 public intellectuals from across the spectrum to discuss ideas and demonstrate his ability to govern. REACHING OUT -------------- ¶5. (C) Privately, Segovia said, Funes had been meeting with senior ARENA figures, including former president Armando Calderon Sol, former foreign minister and presidential candidate and current Ambassador to the OAS Francisco Lainez, founding ARENA member and former Minister of Public Security Hugo Barrera, and former Interior Minister Mario Acosta, to discuss common projects the parties could pursue after the election. Segovia cautioned, however, that the election result would have to be "clean," at least 51-49 or 52-48, for both parties to accept the outcome, regardless of the victor. ¶6. (C) Segovia said that he had been meeting every Monday with a group of "non-ideological" economists, citing only economic/financial consultant Luis Membreno by name, to discuss economic conditions and policy ideas. The economists were split into optimists, who thought that liquidity would be freed up after March, boosting the economy, and pessimists, who thought banks would not be prepared to lend even after March, when increased unemployment and slowing remittances would be dragging down consumption. In the short term, Segovia said, an FMLN government's main concern was unemployment, and they would launch a short-term plan to mitigate the related social issues. Any plan, however, would need to look to address both temporal and structural aspects of unemployment. ECONOMIC PROPOSALS -------------- ¶7. (C) Funds for social programs would be a major problem for the next government, Segovia acknowledged. Nevertheless, he thought the resources were there if implementation improved. He cited the delays in getting Millennium Challenge funds translated into actual projects, and said an FMLN government would work to implement the social program Red Solidaria more rapidly. In addition, they would work to revise the roles of the Central Bank, the state-owned Banco Hipotecario, and the non-bank financial institutions (which include the various microfinance institutions) so they could better help the productive sector. ¶8. (C) On energy policy, Segovia said that they would work quickly to target electricity subsidies. In addition, they would help facilitate stalled private sector projects, like AES's coal power plant, and encourage public-private partnerships. Segovia noted the FMLN was also supportive of biofuels. ¶9. (C) A Funes government would also look to the International Financial Institutions, including the World Bank, Inter-American Development Bank, and International Monetary Fund, for help in creating a better political environment and reduce political polarization. An international conference on El Salvador with the goal of identifying common projects and goals would, Segovia said, be a message more valuable than money. COMMENT -------------- ¶10. (C) The changes in strategy Segovia described reflect two key changes in the campaign. First, momentum shifted towards ARENA after January 18, and the campaign needs to do something to reverse this trend. Second, much of the business community, after flirting with Funes' candidacy, is returning to ARENA. Segovia's economic proposals would likely meet with broad support, but the details on how they would execute and pay for those plans have still not been made clear. Of more immediate and lingering concern to Salvadoran voters; if Funes wins, would he be the one governing the country? We agree with Segovia,s conclusion that if the FMLN cannot convince Salvadoran voters that Funes would be the one calling the shots in the new government they will lose the presidential race. The problem for the FMLN and Funes is they do not necessarily agree among themselves who would be calling the shots, which makes convincing others that much more difficult. BLAU