US embassy cable - 04GUATEMALA244

C O N F I D E N T I A L SECTION 01 OF 02 GUATEMALA 000244 
 
SIPDIS 
 
TREASURY FOR OASIA: CHRIS KUSHLIS AND BILL BLOCK 
 
E.O. 12958: DECL: 02/02/2009 
TAGS: EFIN, PGOV, ECON, PINR, GT 
SUBJECT: AMBASSADOR'S CALL ON NEW MINISTER OF FINANCE 
BONILLA:  GETTING A HANDLE ON WHAT SHE HAS INHERITED 
 
Classified By: EconCouns Steven S. Olson for reason 1.5 (d) 
 
Summary 
------- 
1.  (C)  Ambassador called on new Minister of Finance Maria 
Anonieta de Bonilla on January 22.  Bonilla is a former 
banker and executive director at the IMF and IDB and is close 
to economic cabinet coordinator Richard Aitkenhead and new 
tax and customs chief Willy Zapata (septel).  Her immediate 
concern is getting a better understanding of the budget and 
past spending levels.  The Congress has frozen spending at 
2003 levels, the courts have suspended about 10% of her tax 
base, and she has inherited unfunded obligations from the 
previous government.  She nevertheless hopes to be able to 
keep the deficit near 2% of GDP.  She wants to renew the IMF 
Stand-by when it expires, but it isn't an especially pressing 
concern.  She wants to be off the FATF NCCT blacklist to save 
interest costs when Guatemala goes back to the market to 
borrow. 
 
2.  (U)  Ambassador and EconCouns paid a courtesy call on new 
Finance Minister Maria Antonieta ("Toni") de Bonilla on 
January 22. 
 
Getting a Handle on Spending 
---------------------------- 
3.  (C)  Bonilla said that she was still trying to get a 
grasp of the state of the nation's finances.  Her first 
concern was obtaining detailed information on the previous 
year's spending.  The Congress had not approved a budget for 
CY 2004 budget, leaving her with the equivalent of a 
continuing resolution at 2003 levels, while the opposition 
FRG and UNE parties had banded together at the beginning of 
the year to prohibit transfers among accounts (a practice the 
Portillo government used extensively and that rendered its 
congressionally-approved budgets meaningless).  Meanwhile, 
the Constitutional Court had definitively suspended the 
(unpopular) IEMA assets-based alternative minimum tax on 
businesses, and the former government had made binding 
commitments to new spending not contemplated in the 2003 
budget levels she was forced to work with.  Her initial 
calculations suggested a Q.2.5-3.0 billion loss in revenues 
from the IEMA (roughly 10% of the budget), an Q.800 (US$100) 
million additional obligation for compensation to former 
civilian militias (ex-PACs), and additional obligations for 
severance benefits to downsize the military, all on top of 
non-discretional spending that that consumed over 70% of the 
budget. 
 
Deficit Will Grow; New Stand-by Desired but Not Urgent 
--------------------------------------------- --------- 
4.  (C)  Bonilla said it was inevitable that the 2004 deficit 
would be higher than the approximate 1.5% of GDP achieved in 
2003.  She assumed she would find as yet undiscovered 
obligations inherited from the last government on top of the 
ones she already knew about and the IEMA problem.  Without 
action, she could see the deficit quickly approaching 5% of 
GDP.  She would be looking to achieve 2%, principally through 
austerity measures and cutting waste.  She said that 
President Berger had given her 72 hours inform the cabinet 
how much needed to be cut and where. 
 
5.  (C)  Asked, she said she had not had any detailed 
conversations with the IMF and wasn't ready to start 
discussing a renewal of the stand-by agreement.  She said 
that she would want an SBA eventually, but there was no great 
urgency.  Perhaps a Fund monitoring agreement could be put in 
place if there were a gap between one SBA and the next.  Her 
greatest priority was to find areas in the budget where 
wasteful spending could be cut to permit investment in the 
high-impact social programs the Berger campaign had promised. 
 
Interest Rates, Deficit Financing, and the FATF 
--------------------------------------------- -- 
6.  (C)  Bonilla said that significant new bond financing was 
inevitable to cover the continuing deficit and roll over 
maturing debt.  She believed some savings on interest rate 
costs were possible, particularly if Guatemala could get off 
the Financial Action Task Force's blacklist of 
Non-Cooperating Countries and Territories.  Ambassador 
explained that we had tried to encourage others to join a 
technical review before the FATF February plenary and that 
there was a growing consensus that Guatemala was about ready 
to be removed from the list.  However, travel schedules of 
review team members were already fully booked.  Bonilla said 
she had heard the same thing.  She hoped that Guatemala could 
get off the list and go to financial markets before the 
apparent U.S. recovery started driving interest rates back up. 
 
Improving Tax Collection; Abadio On His Way Out 
--------------------------------------------- -- 
7.  (C)  EconCouns asked what the prospects were for 
improving revenue collection by attacking contraband and 
corruption in customs and thereby broadening the tax base. 
Would there be changes in the customs and taxation authority 
(SAT), and if so, were there any names being circulated? 
Bonilla said that President Berger had made clear that he 
wanted the head of the SAT, Marco Julio Abadio, out as 
quickly as possible.  She said she did not know of any names 
being mentioned as possible replacements.  (Note:  Abadio 
resigned the next day in lieu of being fired.  Respected 
former Central Banker Willy Zapata was sworn in to replace 
him on January 27.  Zapata had thought he was moving to the 
Superintendence of Banks (septel).)  Bonilla said that she 
assumed that significantly more taxes could be collected with 
better administration of the SAT and a crackdown on 
corruption and contraband, but she did not yet have an 
estimate of how much additional revenue could be raised with 
current tax rates.  She had not spoken to Abadio (and 
evidently had no wish to do so). 
 
Comment and Bio Notes 
--------------------- 
8.  (C)  Bonilla is friendly, U.S. trained, competent, 
respected, and experienced.  She has served Guatemala as Vice 
President of the Central Bank, Executive Director at the IDB 
and then IMF, was general manager of a small bank (Banco 
Quetzal), and was one of the banking sector's representatives 
on the Monetary Board, which sets the country's monetary 
policy and is the board of directors for the central bank. 
She is also very much the cautious technocrat, unwilling to 
stray far in her comments from the hard data she has in hand. 
 She is close to the presidential coordinator for economic 
policy, former finance minister Richard Aitkenhead, and to 
new SAT Superintendent Willy Zapata.  Zapata and Bonilla were 
classmates at the University of Illinois (where Bonilla 
received her MSc in Economics in 1989), and Zapata and 
Aitkenhead were schoolmates in Guatemala.  It is a strong and 
unified team.  We sense that Bonilla will focus on being the 
accountant and controller with perhaps less of a policy role 
than her predecessor, Eduardo Weymann.  That would not be a 
bad thing.  The new government has a lot of talent and 
experience within its ranks to draw upon, and Guatemala could 
certainly use some concentrated attention on minding the 
books and financial controls after the excesses of the 
Portillo administration. 
 
HAMILTON