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.



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ECONOMIC CABINET TALKS BILATERAL ISSUES

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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.



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PRIVATE SECTOR CONCERNS OVER CRIME

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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