US embassy cable - 04GUATEMALA3211

C O N F I D E N T I A L SECTION 01 OF 04 GUATEMALA 003211 
 
SIPDIS 
 
E.O. 12958: DECL: 12/17/2009 
TAGS: PGOV, ECON, KCOR, PREL, KIPR, GT 
SUBJECT: LETTER FROM GUATEMALA (2) 
 
REF: GUATEMALA 3071 
 
Classified By: Ambassador John R. Hamilton for reasons 1.5 (b) and (d) 
 
1  (U)  This is the second in our planned biweekly series of 
discursive messages on what's ticking in Guatemala. 
 
Berger Doing Well in One Poll 
----------------------------- 
 
2.  (C)  Compared to media in other countries, Guatemala's 
media do not seem particularly interested in keeping tabs on 
public opinion of how the president is doing.  We recently 
sat down with Felipe Noguera, an Argentine pollster who for 
the last fourteen years has been hired by local magnate 
Dionisio Gutierrez to track Guatemalan public reactions for a 
select, private audience.  As expected, crime and security 
continue to vie with economic issues (jobs, inflation, cost 
of living, etc.) for the public's concern.  The bottom line 
for the Berger administration was positive:  the president 
went from an approval rating of 82% in February to 44% in 
July to 62% in November -- a surprising up tick for Berger 
compared to his predecessors.  Noguera indicated that this 
strong showing could be maintained or even strengthened if 
the public perceived Berger making progress in the short-term 
on crime, followed by health care, education and public 
works.  We could not help but notice that military downsizing 
-- arguably the Berger administration's biggest achievement 
-- was not even a blip in Noguera's soundings. 
 
UNE's Dirty Laundry 
------------------- 
 
3.  (U)  Jaws are still agape over the acrimonious exchange 
of accusations between two UNE leaders (and erstwhile 
friends):  former presidential candidate Alvaro Colom and 
outgoing president of Congress Rolando Morales.  Now that 
their simmering dispute has boiled over in public, Morales 
has left UNE, claiming he was slandered by Colom's 
accusations of corruption (reftel para 6). 
 
4.  (U)  Although Colom made a big splash with sensationalist 
allegations against Morales of influence peddling, payroll 
padding, and wiretapping his telephone calls, he backed away 
from some of these charges when summoned by prosecutors for a 
deposition.  At that point, Colom limited his attack to 
repeating allegations made by Carlos Quintanilla, a Colom 
friend and supporter who owns the company hired by Morales to 
provide private security guards to the Congress.  Quintanilla 
claims that Morales ordered all payments to Quintanilla 
suspended until Quintanilla agreed to pay him kickbacks of 
50,000 quetzales (a little over $6,000) per month. 
 
5.  (C)  The two surprised everyone by agreeing to appear 
together on a radio show.  Morales denied the extortion 
attempt and the wiretapping, and he questioned the 
relationship between Colom and Quintanilla, noting that 
Quintanilla had paid for a recent trip to Spain by Colom.  On 
the question of congressional payroll padding, Morales 
claimed that it was Colom, as UNE secretary general, who had 
recommended the hiring of 84 "advisors."  Morales's steadfast 
and indignant denials that he had taken a lover on a junket 
to Indonesia took a pathetic turn when he lamely conceded 
that "sure, we went to Morocco, but never to Indonesia." 
Morales managed to get in a few digs at Colom's wife, 
reinforcing the impression held by many that she is unduly 
meddling in UNE affairs, promoting her proteges and 
protecting her business interests. 
 
6.  (U)  With Morales's exit from UNE, Colom (who finished 
second in the 2003 presidential election) has one less 
potential rival to his leadership of the party.  The unseemly 
mudslinging, however, did serious damage to both leaders, who 
must be betting that voters will have forgotten this mess 
before the next presidential election in 2007.  It prompted 
the exit from of at least one other congressional deputy, 
Victor Hugo Toledo, reminding us that this year alone UNE 
lost seven of its 33 congressional deputies, beginning with 
Conchita Mazariegos, who told us that, appalled, she left UNE 
(and founded BIEN) after it became clear to her that the FRG 
had channeled campaign funds to UNE.  Guatemalan political 
parties are short-lived; at this rate, UNE could be no 
exception. 
 
PGN Stalemate 
------------- 
 
7.  (C)  The Constitutional Court appears to have stymied 
President Berger's effort to rid himself of the last FRG 
holdover from the previous administration.  The Solicitor 
General (PGN) needs to have the president's confidence since, 
as the government's top legal counsel, he is expected to 
defend state interests and advocate administration policies. 
By a curious quirk of history, however, the PGN's terms of 
office fell out of sync with presidential terms.  The current 
PGN, Luis Rosales, is a former FRG congressional deputy who 
in 2002 was named PGN for a four-year term by Alfonso 
Portillo, who was then president but is now thoroughly 
discredited and on the lam in Mexico. 
 
8.  (C)  Berger and others in his administration clearly 
believe that Rosales, the FRG holdover, is not actively 
pursuing the president's priorities and may indeed be 
sabotaging them.  When Berger sent Rosales a long list of 
questions about his handling (or mishandling) of a long list 
of civil cases involving the state, Rosales correctly 
interpreted the questionnaire to be a preliminary to his 
dismissal.  He then obtained from the Constitutional Court an 
injunction barring the government from firing him.  Although 
the Court's order has legal scholars scratching their heads, 
it has apparently bought Rosales some time while highlighting 
the need to update the PGN's legal mandate. 
 
Military Corruption Cases 
------------------------- 
 
9.  (U)  We mentioned in our last letter the mysterious case 
of Col. Raul Cerna, the missing former finance chief of the 
Presidential military staff (EMP) and key witness in efforts 
to track down the $115 million or more that went missing in 
military hands under the Portillo administration.  While 
Guatemalans are still placing bets among themselves over the 
fate of Cerna, authorities have exhumed a corpse from a local 
cemetery.  The press reported that a dentist identied the 
remains as Cerna's, but, to be sure, a DNA sample has been 
sent to Spain to see if it matches samples provided by 
Cerna's son and father. 
 
10.  (SBU)  The Third Court of Appeals vacated the 
controversial decisions taken by judge Silvia de Leon de 
Miranda in the case of Enrique Rios Sosa, the 56-year-old 
former Army Chief of Staff and Minister of Defense accused of 
diverting $4 million from the coffers of the National 
Mortgage Fund (CHN).  The judge is widely believed to be in 
the sway of the FRG party run by Rios Sosa's father, former 
president Efrain Rios Montt.  The judge, after excluding the 
appropriate prosecutors from the hearing, ordered Rios Sosa 
released on $12,000 bond.  Her decision was widely viewed as 
preferential treatment for Rios Sosa, and prosecutors 
complained to the Supreme Court, which essentially refused to 
question the judge's handling of the case but left the door 
open for an appellate court decision.  Ironically, the Third 
Court of Appeals found that the judge had acted precipitously 
against Rios Sosa, not in his favor.  In the court's opinion, 
prosecutors had not yet presented sufficient evidence against 
Rios Sosa to warrant even the minimal bail set by judge De 
Leon.  Other observers, however, believe that was the point: 
to rush the case through before the evidence was ready and 
thus earn an acquittal.  The Dec. 17 press reports that the 
Supreme Court, upon receiving "a more complete report," is 
now looking at taking action against Judge Silvia. 
 
PDH on a Rampage 
---------------- 
 
11.  (U)  Human Rights Ombudsman (PDH) Sergio Morales has 
scored a couple more dubious victories, getting the 
Constitutional Court (CC) to strike down taxes on gasoline 
and electricity.  This all follows closely his successful 
effort to restore electricity subsidies for "poor" users who 
consume less than 300 KWH per month, a pool that includes 
some Embassy officers.  As a result of the CC ruling against 
the gasoline distribution tax, the GOG is scrambling to cover 
a $250 million shortfall for next year.  The CC ruled that 
the imposition of both the value added tax and a distribution 
tax on fuel violated the Constitution's prohibition of 
"double taxation."  There is room for lawyers to argue this 
point.  The government's current thinking is to raise import 
duties to cover the shortfall until legislation can be passed 
to create a new single tax.  The executive has delegated 
authority from the Congress to raise customs duties but must 
receive the blessing of Central Americas Council of Economic 
Ministers (COMIECO).  At the PDH's behest, the CC also struck 
down a tax on electricity imposed by the Mixco municipality 
to cover the bill for its public lighting, recently enhanced 
in hopes of combating street crime.  We gather that the 
solution to this problem, together with the problem of 
curbing subsidies, will have to await new legislation being 
prepared by the Ministry of Energy and Mines. 
 
12.  (C)  The PDH is appointed by Congress and reports to it. 
 Morales, who is widely believed to have political ambitions, 
has carved out an agenda for the PDH that goes well beyond 
human rights into supposed "social and economic rights," and 
it is in this latter mandate that he acts as a consumer 
advocate.  Even on conventional human rights issues he can be 
reckless in his statements, as he was in the wake of the 
Nueva Linda August 31 eviction when he groundlessly claimed 
there were "mass graves."  Unable to stomach him any longer, 
President Berger on December 16 declared to the press that 
Morales was "mediocre, populist and myopic," noting that it 
was the middle and upper classes who benefit from Morales' 
ill-considered and "bad faith" actions. 
 
Miners vs. Environmentalists:  Advantage Miners 
--------------------------------------------- -- 
 
13.  (C)  While the energy side of the Ministry of Energy and 
Mines suffers the PDH's ventures into the "human rights" of 
energy pricing, the mining side is holding its own and 
starting to build some momentum, but it isn't always easy. 
Vice Minister Carolina Roca had hardly a moment to enjoy the 
resounding success of her international symposium on 
balancing mining and environmental interests (previewed in 
our last letter) before activists blockaded a road in Solola 
Department to prevent transport of a huge sixty-ton crusher 
drum belonging to Canadian-American firm Glamis Gold.  Glamis 
had received permission to remove temporarily a couple 
pedestrian overpasses blocking progress on the road to the 
company's San Marcos site, when a crowd formed to stop the 
work.  Local authorities reportedly were quickly assured that 
all was in order and the equipment was headed elsewhere (the 
locals are said to be jumpy, in part because a rumor of 
dubious provenance asserts that mining in Solola risks 
draining stunningly beautiful Lake Atitlan).  Days later, 
however, the problem persisted, reportedly due to activists 
bussed in from elsewhere.  Moreover, protestors were 
vandalizing the equipment.  Roca told us that the government 
had decided this could not continue, and arrest warrants were 
being issued.  Violence is always a possibility, but the 
government is determined that the project move forward. 
 
14.  (SBU)  With anti-mining attention focused on the West 
and San Marcos, Canada's Skye Resources announced in 
Vancouver December 14 that it was being awarded an 
exploration contract covering the forty-year old (and 
abandoned) nickel concessions of Exmibal in the Eastern 
department of Izabal.  Skye apparently jumped the gun:  Roca 
had told us the local announcement would come on Dec. 16. 
Preventing Exmibal's reopening has for decades been the 
rallying cry of some of the more radical environmental NGOs, 
and they will see its reactivation as an affront by the 
government when they hear about it.  We believe they do not 
yet know that the ministry also intends to open for public 
tender in January a number of new areas for petroleum 
exploration, along with renewing concessions that are due to 
expire.  We reported earlier that Roca, rumored to become the 
new minister, would have her hands full with a crowded and 
controversial ministerial agenda.  More recent rumors suggest 
that she is now slated to become chief revenuer at the SAT. 
 
Sosa Saved by Contracted Validation of his Monetary Policy 
--------------------------------------------- ------------- 
 
15.  (C)  Guatemala's Central Bank (BanGuat) contracted UCLA 
professor, National Bureau of Economic Research collaborator, 
former World Bank Chief Economist for Latin America and 
well-known Chilean Chicago graduate Sebastian Edwards for 
"advice" on Guatemala's monetary policy.  Edwards recently 
delivered his results, with no surprises:  he concluded that 
Guatemala faced no crises but that BanGuat could do better 
with a little more flexibility in addressing exchange rate 
fluctuations while maintaining a "perfected" inflation rate 
target as its central focus.  There was, at first glance, 
something for everybody in the conclusion.  Businessmen and 
government critics of BanGuat were told that they were right 
to be concerned with the quetzal's appreciation and that 
exogenous inflation (such as that caused by oil prices) 
should not be counted against the monetary policy target. 
The big winner, however, was Central Bank President Lizardo 
Sosa, who has been under pressure to resign by Berger.  We 
gather that Berger, in turn, was acting at the behest of Plan 
of Government Commissioner (and former Finance Minister) 
Aitkenhead, who has been pressing for looser monetary policy 
to cause the quetzal to depreciate and monetize some of the 
fiscal deficit.  In the end, Edwards validated Sosa's core 
argument that inflation must be the principal target, while 
exchange rate policy must be limited to stabilizing 
fluctuations, not fighting the long-term trend. 
 
16.  (C)  The press reports that efforts to remove Sosa have 
ceased, at least for now.  Edwards' report successfully 
undercut Berger's ability to portray Sosa's policies as 
errant.  We also hear that Finance Minister Bonilla, Berger's 
choice to replace Sosa, intervened in the end with the 
President to say she would not accept the job if Sosa were 
forced out, as the damage to BanGuat's autonomy and excellent 
reputation would cost the country dearly.  If so, our hats 
are off to Bonilla -- not because we have strong feelings 
about Sosa's abilities (his VP is superb and runs the place) 
but because BanGuat is one of few local institutions that is 
fine as it is and should not be politicized. 
 
IPR and Generics Still Out There 
-------------------------------- 
17.  (C) We're still spending hours per day on the effort to 
convince President Berger that he has to veto recent 
legislation that effectively eliminates data protection for 
pharmaceuticals and agricultural chemicals (reftel para 5; 
Guatemala 3188).  Vice President Stein, Commissioner Mickey 
Fernandez, and a host of others appear to understand clearly 
that a failure to veto would likely doom the CAFTA. 
Fernandez tells us that El Salvador's President Saca raised 
this issue (at USTR's instigation) with Berger and apparently 
made an impression.  Berger and senior administration 
officials were planning to meet to decide what to do late 
December 16 or sometime December 17.  The Ambassador has 
repeatedly warned that anything short of a veto is not going 
to fly. 
HAMILTON