A/S FERNANDEZ ENGAGES EL SALVADOR'S ECONOMIC CABINET ON

UNCLAS SAN SALVADOR 000170 SIPDIS E.O. 12958: N/A TAGS: PGOV ENRG PREL EAGR ECON ES SUBJECT: A/S FERNANDEZ ENGAGES EL SALVADOR'S ECONOMIC CABINET ON PATHWAYS, BIOFUELS, AND REMITTANCES ¶1. (SBU) SUMMARY: Assistant Secretary of State for Economic, Energy and Business Affairs, Jose W. Fernandez, visited El Salvador February 3-4, engaging with key GOES officials and private sector organizations. During a meeting with El Salvador's Economic Cabinet, A/S Fernandez discussed a broad range of bilateral issues, including urging El Salvador to host a session at the upcoming Pathways to Prosperity ministerial in San Jose, advancing bio-fuels, and ideas on channeling remittances into more productive uses. In meetings with the private sector, A/S Fernandez highlighted the importance of continued economic engagement with El Salvador and listened to concerns about the deteriorating security situation caused by violent gangs. END SUMMARY. -------------- ECONOMIC CABINET TALKS BILATERAL ISSUES -------------- ¶2. (SBU) A/S Fernandez told the Economic Cabinet the USG is committed to continued economic engagement with El Salvador and the region. Highlighting U.S. - Salvadoran bilateral cooperation, he described CAFTA-DR as an important component in our economic engagement, which also includes MCC, USAID, and other USG programs. A/S Fernandez underscored the role of CAFTA-DR in stimulating economic growth and creating jobs, but acknowledged that more work is needed to help Salvadoran businesses leverage free trade benefits. Minister of Economy, Hector Dada, agreed that El Salvador is not using CAFTA-DR to its full advantage. Dada explained that Salvadorans do not have an "exporting culture" and the GOES will continue working with USAID and the Chilean government in trade capacity building programs. ¶3. (SBU) A/S Fernandez emphasized the importance of "Pathways to Prosperity" and urged the GOES to continue its productive role. He recommended El Salvador hold a session at the upcoming ministerial in San Jose on their conditional cash transfer program (CCT) called "Comunidades Solidarias" and invite the Mexicans and Brazilians to jointly participate in the session. Chief of Cabinet, Alex Segovia, said the Funes Administration recognizes the important contributions of the previous Salvadoran government in Pathways and said they would consider holding a session. ¶4. (SBU) A/S Fernandez suggested countries such as El Salvador, which receive substantial sums of remittances, should examine ways to channel these funds into more productive uses for society. A/S Fernandez acknowledged that the majority of remittances are used for consumption, but noted that the GOES could consider whether the funds could be redesigned as an investment fund. A/S Fernandez explained that in order to function effectively, the investment fund should allow contributors to withdraw funds as needed, provide security in the form of government or multinational institution guarantees, provide a modest return (5 to 6 percent),and provide third-party regulatory oversight. ¶5. (SBU) Segovia mentioned that the GOES has designed a similar proposal that will be unveiled to the public later this month when the government's five-year plan is released. Segovia explained that the GOES plans on establishing an investment fund designed to draw contributions from Salvadorans living abroad that will fund social projects. Segovia is looking for ways to attract investment and use the funds to provide micro-lending or seed capital for small businesses. ¶6. (SBU) A/S Fernandez also raised bio-fuels and highlighted USG interest in continuing cooperation with implementing partners towards the development of a domestic bio-fuels industry. Dada replied that the Ministry of Economy is working through the National Energy Council (CNE) to develop a comprehensive energy policy that will include provisions on bio-fuels. The Economic Cabinet was in agreement that the development of a domestic bio-fuels market is a government priority and Segovia said they will push the Legislative Assembly to approve a 10 percent ethanol mix mandate this year. -------------- PRIVATE SECTOR CONCERNS OVER CRIME -------------- ¶7. (SBU) Meeting with both the general membership of the American Chamber of Commerce (Amcham) and the leadership of the Salvadoran Private Enterprise Association (ANEP),A/S Fernandez highlighted the importance of economic engagement with the GOES and using trade, investment and foreign assistance to foster economic development. While the private sector acknowledged the benefits of CAFTA-DR and USG assistance, private sector concerns over worsening crime and security dominated the conversation in both meetings. During the Amcham event, Amcham President Armando Arias delivered a speech questioning the effectiveness of GOES efforts to curb violence and urging A/S Fernandez to relay the business community's concern to the GOES. Arias' speech and plea for USG assistance received a front page headline the following morning in "El Diario de Hoy", one of El Salvador's most highly read newspapers. ¶8. (SBU) ANEP President Carlos Enrique Araujo told A/S Fernandez the private sector had adopted a wait-and-see approach with GOES attempts to curb violence, but as the situation worsens their patience is running out. Araujo explained that businesses are forced to spend an additional 10 percent on security and worsening crime and violence is making it increasingly difficult to attract foreign investment. Araujo said that ANEP and the business community as a whole are worried about the hard-line FMLN and are willing to support Funes, but he believes the GOES has ignored many of their concerns. Specifically, ANEP has appealed to the GOES to approve transparency laws, telephone monitoring laws and a concrete budget proposal, all of which have languished in the Legislative Assembly over the past eight months. Araujo added the private sector is fine with increasing taxes as long as there is some "give and take" and in their view, it is all take. ¶9. (SBU) COMMENT: A/S Fernandez' visit was another high-level reminder to the GOES that the USG is a committed partner. The GOES Economic Cabinet was receptive to A/S Fernandez' suggestion that El Salvador host a session at the Pathways to Prosperity ministerial. The deteriorating security situation weighs heavily on the minds of the private sector and tensions between the GOES and the private sector are worsening over what steps are needed to improve the situation. ¶10. A/S Fernandez has cleared this message. BLAU