US embassy cable - 05GUATEMALA867

C O N F I D E N T I A L SECTION 01 OF 03 GUATEMALA 000867 
 
SIPDIS 
 
E.O. 12958: DECL: 04/06/2010 
TAGS: ETRD, PGOV, EINV, GT 
SUBJECT: LETTER FROM GUATEMALA (7) 
 
Classified By: Ambassador John R. Hamilton for reason 1.5 (d) 
 
CAFTA Protests Petering Out... 
------------------------------ 
 
1.  (SBU)  Three and a half weeks have passed since 
Guatemala's Congress ratified CAFTA, without much sign of the 
second wave of demonstrations promised by a number of NGO 
leaders.  It could be that potential demonstrators joined the 
rest of Guatemala in taking Semana Santa (Easter week) off, 
as captured in a political cartoon showing a handful of 
protestors happily asleep on the beach with their anti-CAFTA 
protest signs as "Silent Hawk" Secretary Rumsfeld swoops over 
airdropping "military cooperation," an allusion to the 
Secretary's March 23-24 visit.  Maybe, like the rest of the 
 
SIPDIS 
country, they simply haven't gotten back into the swing of 
things.  They called for a massive turnout on April 1 (not 
known locally as April Fools' Day), but an observer in the 
Presidency quipped that a roughly equal number of street 
vendors showed up at the National Palace looking for 
customers among the protestors.  Leaders of the teachers' 
union had called on members to show up in force, but the 
government reported that only 5% of teachers were absent from 
their jobs nationwide.  With luck, the worst is now behind 
us.  However, as promised, University of San Carlos "Rector 
Magnifico" Luis Leal has filed suit in the Constitutional 
Court challenging CAFTA on grounds that the government and 
Congress pushed it through behind the people's back.  "The 
people" don't seem to be following his script by complaining, 
however, and overturning the overwhelming vote of the 
people's elected Congress seems a stretch, even by the 
standards of Guatemala's disreputable Constitutional Court. 
 
...But Who Paid the Bills? 
-------------------------- 
 
2.  (SBU)  Elite chatter has been recently less concerned 
over demonstrations or possible CAFTA reversals than with 
trying to figure out who is financing the opposition.  From 
full color anti-CAFTA supplements in newspapers before the 
vote, to demonstrators outfitted with identical poles and 
professionally printed banners, to chartered busses bringing 
peasant demonstrators to town from the countryside, there is 
something decidedly not "grassroots" about the matter. 
Rumored backers include European NGOs, agrarian reform 
activists (Plataforma Agraria) who received state funds at 
the end of the Portillo Administration, and Venezuela's Hugo 
Chavez, who supposedly has given to the far-left URNG.  The 
Dutch Ambassador said that labor union leaders told a 
visiting Dutch human rights official that "the Americans" 
were financing them.  Nobody seems to have any substantiation 
for his or her preferred rumor, which conveniently points to 
his or her preferred bogeyman, but the quality of the 
logistics appears way out of proportion to the numbers and 
means of the demonstrators themselves.  We will be looking 
into this further as best we can. 
 
Cleaning out the SAT -- Old Filth or Fresh Rot? 
--------------------------------------------- -- 
 
3.  (U)  Ruling coalition (GANA) deputies called in tax and 
customs (SAT) chief Carolina Roca to testify on allegations 
that customs officials had let 142 containers of finished 
apparel enter the Guatemalan market tax-free.  The 
containers' contents had been manifested as unassembled 
apparel and were given temporary entry under the maquila 
regime, supposedly for assembly and re-export.  Roca 
testified March 30 in a closed session with the deputies, who 
subsequently declared themselves satisfied that Roca was 
taking all appropriate measures.  Most of the people 
implicated were career employees who had already been 
transferred to other jobs or had quit pending the 
investigation that Roca had begun, but attention has centered 
on a senior advisor, Emilio "Gordo" Pacheco, who has supposed 
friends in high places in the Berger Administration.  Pacheco 
and Central Customs Administrator Raul Rosales had reportedly 
ordered lower officials to release the containers.  Roca told 
the press that she had interviewed the lower officials, 
confronted and fired Rosales, and turned the case over to the 
Attorney General's office.  She said that her preliminary 
information did not indicate involvement by Pacheco but that 
she would look further into the matter. 
 
4.  (C)  We've heard mixed reports on Pacheco.  He was 
brought in by former SAT chief Willy Zapata to fill a deputy 
slot as Intendent of Customs, but Pacheco did not meet the 
statutory requirements for educational credentials (an 
Economics degree) and was made an advisor instead.  He was 
schooled with a number of Guatemala's elite kids who, now in 
their mid-thirties, are learning the ways of power.  We have 
found him energetic and on-message with ideas for converting 
Guatemalan Customs from a corrupt toll-booth operation based 
on physical inspection to a modern, computerized and 
information-driven system that minimizes personal discretion. 
 At the same time, we have heard rumblings about favors 
sought and given when he worked in the late 1990s as a 
prosecutor against the Moreno smuggling organization, now 
better known as the Ortega Menaldo organized crime 
organization.   For the moment, we'd be willing to give him 
the benefit of the doubt if Roca decides to stand by him and 
charges are not brought.  For her part, there's not the 
slightest indication that she has done anything other than 
handle this case correctly. 
 
PriceSmart vs. PriceSmart/G 
--------------------------- 
 
5.  (SBU)  Bulk retailer PriceSmart is engaged in a nasty 
legal battle with the minority partner in its Guatemalan 
stores (PriceSmart/G) that threatens serious harm to 
Guatemala's attempts to build a reputation as a safe place to 
do business.  The root of the problem appears to be a 
disagreement over the royalties payable by PriceSmart/G to 
PriceSmart USA for use of the PriceSmart brand.  The local 
partner, a dual U.S. - Guatemalan national with a 34% stake 
in PriceSmart/G, claims that PriceSmart USA has used improper 
accounting techniques to take more royalties off the top than 
allowed by the contract.  PriceSmart USA denies the charge 
and filed for arbitration.  PriceSmart USA further claims 
that the local partner, who was elected to a two-year term as 
PriceSmart/G president in 2002, filed trumped-up criminal 
charges against the U.S. directors to prevent them from 
attending a November 2004 board meeting, where the local 
partner would have ceded the presidency.  The local partner 
then held an illegal board meeting to reconfirm his position 
as president, according to PriceSmart USA, and then 
authorized close to $2 million of promissory notes payable to 
himself.  When PriceSmart/G failed to pay those notes, the 
local partner sued and had the company placed in receivership 
and an associate named as receiver.  The local partner then 
announced to PriceSmart employees that he had taken over.  At 
this point, PriceSmart USA decided to file criminal charges 
of its own.  PriceSmart USA has been in touch with the Deputy 
Secretary, the U.S. Congress, and Embassy.  Embassy has been 
 
SIPDIS 
in contact with President Berger, Attorney General Florido, 
and Commissioner for Investment and Competitiveness Mickey 
Fernandez to press for a quick and equitable resolution of 
the conflict.  The GoG, in turn, appears to understand that 
this case, on the eve of CAFTA ratification hearings in our 
Congress, is a crucial test of the Guatemalan judiciary's 
ability to manage investment disputes. 
 
6.  (SBU)  There are signs that matters may be improving and 
that criminal complaints by both parties may soon be dropped. 
 We gather that the local partner seeks to sell his stake 
back to PriceSmart USA and may have thought that he could 
improve his bargaining position by playing legal hardball, 
Guatemala style, on the advice of his attorneys.  His team 
apparently did not expect to play pros on something other 
than a Guatemalan sandlot.  PriceSmart USA put its side of 
the story on record when it filed an 8-K form with the SEC to 
report an incident with a material bearing on its financial 
well-being.  That was promptly reported in some detail by the 
"San Diego Union" on March 25, with the Guatemalan partner in 
the role of the villain.  The news hit Guatemala's "Prensa 
Libre" on March 28, and the "Union" story was reprinted in 
"El Periodico" the following day.  The same day, the local 
partner's attorneys contacted PriceSmart USA's attorneys to 
say they had been ordered to drop criminal charges if 
PriceSmart USA would cease its "public attacks" on their 
client. 
 
7.  (C)  There is a lesson for Guatemala here with CAFTA on 
the horizon.  Guatemalan businessmen are accustomed to courts 
that are incompetent or can be bought, and they avoid the 
spotlight of the press, which isn't routinely reliable and 
raises their profile in a poor security and high-kidnapping 
environment.  Most are honest and seek only to get by, while 
others may be predators.  However, everybody learns to play 
by some version of jungle rules, manipulating public 
institutions when possible rather than counting on them to 
work.  That is not the way of the future.  It's worth noting 
that it wasn't the legal challenges or calls to important 
people that seemed to turn the tide in this PriceSmart 
affair, but something as simple as an 8-K filing -- a public 
document presented, on penalty of perjury, to a U.S. 
regulatory body and picked up by the press -- that seems to 
be stopping the problem in its tracks.  It would be nice to 
think that something similar would happen with a public 
document filed with a Guatemalan authority, but that is a 
goal and not yet an accomplishment. 
 
PAN Ousting Ailing Lopez Rodas, 
Vies to be the Party of Business 
-------------------------------- 
 
8.  (C)  PAN Secretary General and 2003 presidential 
candidate Leonel Lopez Rodas was hospitalized for 
complications resulting from hypertension, according to press 
reports.  He is said to be improving but is still in 
intensive care.  PAN contacts tell us privately that Lopez is 
being forced aside so that the party can be rebuilt for the 
2007 elections and that his health condition is probably 
related.  Lopez kept the party alive at the grassroots level 
after Portillo defeated Berger in 1999 and Berger walked 
away.  Berger then took most of the remaining PAN members to 
his GANA coalition when he was persuaded to run again and 
Lopez refused to cede the PAN presidential candidacy for the 
2003 elections.  Lopez is reportedly despondent; he firmly 
believes he single-handedly saved the party and in all 
likelihood feels deeply betrayed by his former friends and 
allies. 
 
9.  (C)  Former PAN First VP of Congress Ruben Dario Morales 
and fellow longtime PAN loyalist and Deputy Mario Vasquez 
tell us that wealthy businessmen led by sugar and rum baron 
Alejandro Botran have decided that the GANA coalition will 
never gain traction as long as former banker and Presidential 
Coordination Secretary Eduardo "Guayo" Gonzalez is the 
anointed dauphin.  The other pretender to the title of "the 
party of business," Arzu's Unionistas, is too closely 
associated with the supremely arrogant Arzu for the taste of 
many businessmen.  Arzu's baggage includes his blind spot for 
his businessman son Roberto, who is widely considered to be 
irredeemably corrupt.  It's still early in the game, but we 
hear from any number of observers that Berger's GANA is going 
to have a hard time unifying as a party as long as Gonzalez 
is seen as its future candidate, leaving the field wide open 
for creating the Guatemalan version of El Salvador's 
center-right and pro-business ARENA party, the holy grail of 
Guatemala's business elite. 
 
Creative Jurisprudence 2, Common Sense 0 
---------------------------------------- 
 
10.  (SBU)  Two recent rulings by Guatemala's courts 
illustrate how far Guatemalan jurisprudence has veered from 
effective rule of law and common sense.  In the first case, 
four justices of the Constitutional Court determined that a 
ruling not to lift the parliamentary immunity of a 
congressional deputy constituted a "matter that has been 
judged," and that any subsequent trial on facts of the 
supposed crime would constitute double jeopardy.  It was lost 
on nobody that the plaintiff in the case was FRG 
congressional leader Aristides Crespo and that the four 
judges who ruled for him were the same four who cleared 
General Rios Montt to run as FRG candidate for President in 
2003.  Crespo was excluded from the trial concerning the 
violent "Black Thursday" demonstrations because of his 
congressional immunity; the CC has effectively ruled that he 
therefore was found innocent.  A dissenting CC judge termed 
the ruling "abominable," and various commentators noted that 
the effect would be to make immunity permanent rather than a 
means to defer prosecution of sitting legislators except for 
the most serious crimes.  In the second case, a criminal 
judge ruled that three gang members charged with murder could 
refuse to provide DNA samples under constitutional 
protections against self-incrimination.  On that theory, one 
supposes they could refuse to be photographed, fingerprinted, 
or appear in a lineup before witnesses.  We knew it already, 
but the courts have a long way to go here. 
 
HAMILTON