US embassy cable - 05SANSALVADOR2818

UNCLAS SECTION 01 OF 03 SAN SALVADOR 002818 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS TO OPIC/USTDA/EXIM/SBA/IADB 
USDOC FOR SECRETARY GUTIERREZ 
USDOC FOR 7000/ITA/USFCS/DG/HERNANDEZ 
USDOC FOR 4332/ITA/MAC/WH/BASTIAN 
USDOC FOR 3134/ITA/USFCS/OIO/WH/MKESHISHIAN 
 
E.O. 12958: N/A 
TAGS: EINV, ETRD, PREL, OVIP, ES 
SUBJECT: MESSAGE FROM AMBASSADOR BARCLAY TO SECRETARY 
GUTIERREZ 
 
REF: SAN SALVADOR 2787 
 
1. (U) I am looking forward to your visit to El Salvador. 
Your pivotal role in securing U.S. Congressional approval of 
CAFTA-DR gives your visit a special significance; the Embassy 
and the Government of El Salvador also recognize that your 
making Central America the destination of your first overseas 
trade mission shows your interest in a strong U.S. 
relationship with the region.  During your visit, we will 
celebrate our accomplishment in approving CAFTA-DR and 
explore its business potential.  However, it will be 
important also to focus on commitments to specific actions 
that will help lift El Salvador out of prolonged slow growth 
that adversely affects the people of El Salvador and 
potentially puts U.S. interests at risk.  The devastating 
events of early October only further underscore the 
vulnerability of the countries of the region and the need to 
ensure a strong economic foundation. 
 
2. (SBU)  You will find a willing and, I believe, capable 
partner in President Tony Saca.  President Saca understands 
the political importance of showing results from CAFTA-DR, on 
which he has staked his credibility, and the private 
sector-led, market oriented set of policies which ARENA 
governments have pursued since 1989.  Saca can make changes, 
even difficult changes, when necessary; you can help by 
delivering a message on what some of these changes are and by 
taking back to Washington ideas on how we can be helpful.  If 
successful at home, Saca also has the potential to be a 
strong leader in the region. A successful visit next week 
will give President Saca the support he needs to advance our 
common agenda in Central America. 
 
3. (U)  I have been impressed during my 22 months in El 
Salvador at the progress it has achieved and at its 
extraordinary potential for success.  You will see much of 
this when you are here, including good infrastructure and 
signs of economic activity from the street level to 
first-class shopping malls.  However, El Salvador is also a 
country that badly needs more and better distributed economic 
opportunities.  Although it has followed  determined reforms, 
El Salvador is plagued with one of the lowest rates of 
economic growth in Latin America and, in 2004, delivered no 
gains in per capita income growth.  Despite improvements in 
the quality of life (many intangible), new opportunities for 
good jobs are scarce for the bulk of the population; many 
feel menaced by rising crime and a sense of declining 
purchasing power.  The cruel reality is that only by leaving 
El Salvador ) usually to the United States ) do many people 
hope to improve their situation.  In turn, El Salvador has 
become highly dependent on the flow of money that migrants 
send back to maintain their families, an insecure economic 
strategy. 
 
4. (SBU) The United States must recognize the importance of 
this moment.  Specific Salvadoran actions to foment 
conditions for growth and job creation will pay for 
themselves many times over in foregone economic, political 
and social costs by preventing a destabilizing economic 
crisis, more massive emigration to the United States, an 
increase in local and transnational crime, and possibly the 
emergence of an unfriendly government.  To realize the 
potential of this economy, El Salvador urgently needs new 
investment for enterprise development and job creation.  We 
need to ask ourselves, what are we doing, and what more can 
we do?  Following are key actions in the Embassy,s scope. 
 
a.  Effective implementation of CAFTA.  The Salvadoran 
Government appears to be doing what is necessary to have 
CAFTA systems in place when the agreement enters into force. 
We should press El Salvador to lead the region in 
implementation as they did in negotiating the agreement, and 
resist the temptation to water down CAFTA-DR,s market 
opening and institutional strengthening ambitions through 
weak implementing rules. 
 
b. Legislative approval of a Government Ethics Law. The bill, 
drawn up with assistance from USAID several years ago, is an 
important opportunity for the government to build credibility 
with the public, improve government services, promote 
transparency and root out petty corruption which acts as a 
drag on the economy. 
 
c. Salvadoran approval of an updated OPIC bilateral 
agreement.  A modern bilateral will facilitate provision of 
OPIC services, in particular new services for small business, 
which would benefit U.S. investors looking for partners and 
opportunities here.  I hope that we will be able to announce 
progress on this during your visit next week. 
 
d. Effective judicial reform to put an end to slow, 
unpredictable processes and decisions that affect business, 
law enforcement and other decisions.  El Salvador needs 
judicial institutions that are effective in resolving 
business disputes while discouraging inappropriate use of the 
courts to seek commercial advantage.  There are several cases 
pending involving U.S. companies. 
e. Clearer, more consistent rules for and regulatory 
processes are needed.  We would like the electricity and 
telecommunications regulator, SIGET, to move forward on 
implementing a public consultation process announced a year 
ago for new rules and expand the principle of consultation to 
regulatory reforms.  An inadequate consultation process has 
particularly burdened U.S. companies in the electricity 
sector, who are operating under a series of non-transparent 
regulatory decisions driven by a political objective of 
mitigating tariff changes on consumers rather than market 
efficiencies. 
 
5. (U)  There are things that the United States can do, and I 
urge you to make leaders of Ex-Im, OPIC, SBA and TDA widely 
available to look for partnerships and projects with a strong 
growth component.  Our agencies should consider how they can 
help open up access to investment capital and financial 
resources, support infrastructural development, provide 
technical assistance for businesses, promote technology 
adoption, and reduce production and transaction costs? 
 
6. (U)  Growing companies, and especially small companies, 
require capital, but the Salvadoran banking system is not 
meeting their needs.  During their meeting with the banking 
association, the interagency delegation should talk about how 
to develop mechanisms for risk capital, for example by 
expanding the rights of minority shareholders, the value of 
using the local equity market to raise capital; what might 
the USG do to foster guarantee programs to support credit, 
particularly small business?  USAID, for example, has 
initiated a guarantee program and we would be interested in 
learning if there are other options available.  They should 
use the meeting with the MultiSectoral Bank (BMI) or seek out 
other discussions to learn about El Salvador,s plan to 
develop its service industries, including logistical services 
and tourism. El Salvador would like to leverage its 
infrastructure and location to promote shipping and other 
trade related logistics services.  This plan involves 
enhancing the country,s two ports, concessioning airport 
services, rebuilding the railroad and improving Customs 
administration, all activities which Ex-Im, TDA and OPIC can 
support.  TDA,s grant for an electronic trade portal, which 
will be announced during your visit, is a very positive 
development in this area. 
7. (U)  Other targets of opportunity are plans by U.S. 
investors and the government-owend hydropower firm CEL to 
construct new power plants in country, emerging GOES interest 
in biofuels, and interest in natural resource exploitation. 
Large projects like these may exceed the government,s 
environmental, resource management, tendering and other 
abilities; assistance from the USG can help both U.S. 
businesses and ensure the best possible outcome for El 
Salvador. 
 
8. (U)  In the longer term, continued public support here for 
CAFTA-DR, and effective use of the market signals that 
CAFTA-DR will facilitate, requires helping sectors that are 
disadvantaged transition to new activities.  The 
Administration,s commitment to seek funding until 2009 to 
support this transition in the rural sector is important. 
USAID and USDA are already working to support diversification 
into non-traditional, value added products, and quality 
coffee, but we will need to continue strong support in this 
area.  Agricultural sector growth is currently a bright spot 
in part because of recent government programs to help farmers 
with traditional crops, but we need to support the 
agricultural conversion process. 
 
9. (SBU) Lastly, the many Salvadoran companies with export 
potential will continue to seek opportunities in the U.S. 
market, and we are seeing more interest in expansion into 
services markets.  We will look for Administration leadership 
in holding open and, as possible, expanding opportunities in 
the services and government procurement areas following the 
provisions of CAFTA-DR. U.S. support for the economic 
development of El Salvador will be in the best interest of 
the United States.  U.S. participation now in the economic 
development of El Salvador will benefit the United States in 
the future, and costs borne now will help to forestall 
possible higher costs in the future. 
Barclay