US embassy cable - 05GUATEMALA47

C O N F I D E N T I A L SECTION 01 OF 03 GUATEMALA 000047 
 
SIPDIS 
 
E.O. 12958: DECL: 01/04/2015 
TAGS: PGOV, PREL, ECON, ETRD, KCOR, KIPR, KCRM, ASEC, SNAR, EAID, GT 
SUBJECT: LETTER FROM GUATEMALA (3) 
 
REF: 04 GUATEMALA 3211 
 
Classified By: Ambassador John R. Hamilton, Reason: 1.4 (d). 
 
1.  (U) This is the third in our planned biweekly series of 
discursive messages on what's ticking in Guatemala. 
 
Generics: Moving to Plan B after Xmas Setback 
--------------------------------------------- 
 
2.  (C) President Berger signed into law Decree 34-2004 on 
December 22, effectively eliminating data protection for 
pharmaceuticals and agricultural chemicals.  This despite a 
furious lobbying effort by the Ambassador, Country Team, and 
a direct call from USTR Zoellick, informing Berger and his 
cabinet of the negative consequences for CAFTA ratification. 
Berger committed to the Ambassador and Amb. Zoellick that, 
although he politically could not veto the legislation, he 
would send fresh legislation restoring data protection along 
with a CAFTA ratification package to the Congress for speedy 
approval in mid-late January.  Investment and Competitiveness 
Commissioner Fernandez told us late Jan. 5 that the 
government had decided that new legislation would be drawn 
directly from CAFTA text, presumably to demonstrate that 
Guatemala is giving only the protection that is absolutely 
necessary and not being forced into anything more.  All of 
this is easy to say, but things won't necessarily go as 
quickly and smoothly as planned in a Congress that shows 
little discipline and has yet to discuss CAFTA seriously.  In 
any event, supporting this process is our new best option. 
 
3.  (C) The press was quick to criticize the U.S. following 
the press release of USTR's position that we could not 
forward the CAFTA for ratification with Guatemala moving away 
from its commitments.  Supposed public health advocates and 
representatives of the local pharmaceutical copying industry 
congratulated the government for its action, claiming the 
U.S. was using CAFTA to eliminate access to generics in 
general through data protection legislation.  Nobel Peace 
Prize laureate and newly minted generics entrepreneur 
Rigoberta Menchu joined the fray with some particularly 
unfortunate rhetoric (e.g., "blackmail," "FTA with an 
anti-human face," "U.S. policies that increase poverty and 
unemployment").  The Ambassador responded by hosting a group 
of seven representatives of major media outlets in an effort 
to educate a seriously misinformed press.  He spent 
additional time with the press on the record at several 
public events where he was approached on the issue. The 
initial outreach appears to have paid off, as subsequent 
articles have shifted a little towards balanced.  EconCouns 
has since been on two radio talk shows and taped a follow-up 
with representatives of generics producers.  More are 
scheduled to clarify facts and drive home our central theme 
that generics and data protection can thrive together, just 
as they do in the U.S.  The host of the first show concluded 
helpfully that it was a "myth" that CAFTA would eliminate 
generics.  In private, we continue to press the GoG to follow 
through with its commitment to both a legislative fix and 
CAFTA ratification as soon as possible.  DUSTR Allgeier will 
visit next week to reinforce the message directly with Berger. 
 
Generics Reveal Dysfunction in the Presidency 
--------------------------------------------- 
 
4.  (C) The headache over generics has highlighted the 
organizational weakness of the Berger presidency, something 
Guatemalans increasingly notice and include in their chatter. 
 Berger can seem like a bold leader with vision when seized 
with a good idea, such as slashing the size of the military 
and airing the details of its budget.  But when he starts off 
with a wrong-headed notion, in this case that data protection 
is somehow creating a health care problem, it can be almost 
impossible to get through to him with facts and a different 
opinion.  Economy Minister Cuevas threw in the towel several 
months ago.  A host of others have tried, including 
Commissioner Fernandez, Ambassador Castillo, and, most 
significantly, Vice President Stein.  Tourism Commissioner 
Kaltschmitt, who has an agro-chemical joint venture with 
Monsanto and understands the subject thoroughly, told us that 
he tried as well, only to get a very Guatemalan (jovially 
vulgar) brush-off from his childhood friend.  What Berger is 
clearly missing is a strong and competent chief of staff to 
vet ideas and initiatives where appropriate throughout the 
Cabinet and distill the elements required for informed 
presidential decisions.  That could have prevented the Health 
Minister's half-cocked (if not larcenous) crusade from 
threatening to derail the CAFTA.  Berger may also need to 
train himself to listen to a competent and hardworking COS, 
but that won't happen until he has one.  The imminent 
transfer of Energy and Mines Minster Roberto Gonzalez to the 
Presidency may help. He seems the sort of person who might 
roll up his sleeves and bring a more systematic approach to 
running the Presidency. 
 
Good Early News on the Fiscal Front 
----------------------------------- 
 
5.  (C) Investment and Competitiveness Commissioner Mickey 
Fernandez told EconCouns Jan. 4 that he had just returned 
from going over preliminary CY-04 budget figures with Finance 
Minister Maria Antonieta "Toni" Bonilla.  The news was "much 
better than expected":  the fiscal deficit for the year 
looked to be in the range of 1.1% of GDP, well below the 
target of 1.7% of GDP.  Many observers had considered 1.7% 
too optimistic.  Fernandez said that better-than-expected 
revenue receipts was the main factor behind the good news, 
without going into any further detail.  He laughed when 
EconCouns noted that this "surprise" was one we had been 
anticipating for months. 
 
6.  (C) The Guatemalan finance team of Bonilla, Government 
Plan Commissioner Aitkenhead, and former chief revenuer 
(newly Superintendent of Banks) Willy Zapata has consistently 
painted a pessimistic scenario for revenues due to a court 
ruling overturning the IEMA alternative minimum tax and only 
limited success with a mid-year tax reform package.  Part of 
this reflects the caution and conservatism that characterizes 
the team, two of whom (Bonilla and Zapata) have spent much of 
their professional lives as central bankers and fully act the 
part.  There is also, however, a bit of gamesmanship in the 
conservatism.  The mantra of taxpayers, led by the business 
elite, has been one of no more taxes until 1) everyone pays 
the current ones and 2) government waste, fraud and 
mismanagement are stanched.  Setting low revenue expectations 
and then exceeding them shows that Berger's team is having 
some success (which, indeed, they are) in meeting the 
taxpayers' first demand.  Reducing the military and 
prosecuting corrupt former officials does the same with the 
second.  We had been witnessing a strong performance in 
improving collections over the course of the year and were 
counting on 2004 revenues exceeding those for 2003, despite 
the loss of the IEMA (04 Guatemala 1765).  We will look into 
this in further detail when the numbers become available. 
 
Closing in on Julio Giron? 
-------------------------- 
 
7.  (U) Ex-President Portillo's former Private Secretary 
Julio Giron was back in the news on Jan. 3, together with a 
picture of a half-million dollar check made out to cash and a 
deposit slip and endorsement showing that the funds had been 
deposited in Giron's account in TotalBank, Coconut Grove. 
The check was drawn on a Miami ABN-AMRO Bank account of 
Comcel Guatemala, the Millicom-affiliated cellular telephone 
service provider.  The press noted that the date of the 
check, Oct. 19 1999, was less that three weeks before 
Portillo's election.  Months later, Comcel received cellular 
band B without a public tender and was exonerated from a 10% 
royalty payable to the vestigial parastatal telephone company 
Guatel.  Comcel's current general manager confirmed the 
authenticity of the check but said he had no information on 
what it was for as documents from the era had been retired. 
Attorney General Juan Luis Florido announced that a special 
prosecutor would be named to investigate the matter. 
 
8.  (C) We first learned of this case in 2002 when helping 
anti-corruption prosecutor Juan Pablo Rios work through an 
elaborate kiting and money-laundering scheme using the 
moribund state mortgage bank (CHN) and a series of banks and 
exchange houses to direct carloads of cash (probably phantom 
military payrolls) to the U.S. accounts of Guatemalan 
government and organized crime figures (02 Guatemala 2901). 
Rios also gave us a copy of the Comcel/Giron documents 
described above, plus similar documents covering two 
additional half-million dollar Comcel payments to Giron in 
November 1999 and January 2000.  Yet another set of documents 
indicates that Comcel paid a million dollars to Cesar Medina 
Farfan, a Portillo crony implicated in the "Panama 
Connection" case, in June 2000.  The million was transferred 
to Giron's account the next day, according to a copy of a 
debit notice.  All of these document copies have been shared 
with U.S. law enforcement.  The good news here is this case 
may finally start to go somewhere within the Guatemalan 
judicial system.  Prosecutor Rios, for all of his energy and 
manifest goodwill, was justifiably unwilling to show all that 
he had to his superiors while the Portillo government was 
still in power due to the links with some of the most 
dangerous names in organized crime.  We gave Attorney General 
Florido copies of these checks about six months ago (on 
receiving the documents, his comment was "it's beginning to 
look a lot like Christmas!"), which leaves us wondering why 
he waited until now to leak.  Florido and leaks have a 
history together. 
 
Holiday Season Travel 
--------------------- 
9.  (U) With the end-of-year shift of focus to holiday 
celebrations, public security loomed large as a topic of 
conversation and government attention.  The government 
mobilized additional police and military personnel (as it has 
done in previous years) to cope with the holiday crowds and 
increased traffic.  Police also increased drunk driving 
checkpoints at the same time that the government lifted 
alcohol sales restrictions (i.e. the late night cutoff on 
alcohol sales) for Christmas Eve, Christmas, New Year's Eve, 
and New Year's Day. 
 
10.  (SBU) In response to criticisms about highway security, 
most notably robberies of Salvadorans visiting Guatemala, 
President Berger took a pre-Christmas drive from the 
Salvadoran border to the capital to inspect police and 
military security measures.  The police have established 
fixed checkpoints and roving patrols on the three principal 
routes from El Salvador.  The Army's Third Brigade 
headquartered in Jutiapa has two thirds of its personnel 
devoted to highway security (with the remainder participating 
in joint police-military patrols in the capital) using fixed 
highway checkpoints, foot patrols along certain highway 
routes, and detachments stationed at, or near, border entry 
stations.  However, despite the security measures, Guatemalan 
authorities were embarrassed when a Salvadoran Vice Minister 
was robbed on the highway during the holiday season.  And 
despite GOG pleas, Salvadoran groups are continuing their 
publicity campaign warning against travel to Guatemala. 
HAMILTON