US embassy cable - 05GUATEMALA2504

UNCLAS SECTION 01 OF 03 GUATEMALA 002504 
 
SIPDIS 
 
FOR DHS FOR SECRETARY CHERTOFF AND AMBASSADOR ARCOS 
      AID FOR ADMINISTRATOR NATSIOS, DEPUTY ADMINISTRATOR SCHIECK, 
     LAC ASSISTANT ADMINISTRATOR FRANCO 
     NSC FOR KIRSTEN MADISON 
 
E.O. 12958: N/A 
TAGS: ET, EAID, SENV, PGOV, KPAO, EAGR, GT 
SUBJECT:  DEVELOPMENT IMPACT OF STAN 
 
REF: A) GUATEMALA 2428 B) GUATEMALA 2418, C) GUATEMALA 2402, 
D) GUATEMALA 2395 
 
1.  Summary: Still gripped with the immediate concerns of 
disaster relief, GOG officials have not yet tallied the 
economic costs of Tropical Storm Stan and the accompanying 
rains that drenched more than one third of Guatemala's 
territory in the first two weeks of October.  Some estimates 
have put the damage between USD 2-3 billion, equivalent to 
around 10 percent of GDP.  Whatever the numbers, the effects 
on human life, property and economic infrastructure are 
devastating.  According to the GOG, an estimated 30 percent of 
Guatemala's 13 million people suffered with loss of life, 
property or access to basic services.  About seven hundred 
have been confirmed killed with close to a thousand more still 
missing.  Disaster related disease and impoverishment are 
expected to claim even more lives.  As the GOG moves from 
relief to reconstruction, the impact on Guatemala's 
development will become clearer.  The storm was a tremendous 
blow to recent progress in the GOG's development plan, 
including ambitious efforts to turn around the long-stagnant 
rural economy.  End summary. 
 
The Economic Damage: Threat to Rural Survival 
--------------------------------------------- 
 
2.  Floods and landslides devastated the southern coast and 
the heavily populated and impoverished Central and Western 
Highlands.  The medium to long-term effects on Guatemala's 
marginal rural economy may be as devastating as the initial 
impact.  Economic activity, particularly in the highlands, 
will suffer from the loss of key infrastructure including 
bridges, roads, telecommunications and energy distribution in 
the short to medium term. 
 
3.  Much of the population of the areas most affected already 
live day-to-day, depending on subsistence crops and informal 
economic activity for their livelihood.  It is unclear how the 
more than 150,000 people made homeless by the storm - some 
just now returning from temporary shelters - will survive the 
coming months.  The Vice Ministry for Housing has requested 
USD 125 million for housing replacement and repair assistance. 
The potential benefits of CAFTA along with the Berger 
Administration's ambitious development plans are at risk as 
key growth sectors such as non-traditional exports, 
agriculture, tourism and transportation services are severely 
damaged by the storm.  An ECLAC-led team is currently 
developing a formal damage assessment, to be completed 
November 8, which will serve as a basis for the government's 
reconstruction plans. 
 
The Macro Picture: Hitting Where it Hurts Most 
--------------------------------------------- - 
 
4.  On paper, Guatemala's macro-economic outlook will remain 
stable as economic losses, primarily in the agricultural and 
distribution sectors, will likely be somewhat offset by 
increased spending on infrastructure and rebuilding efforts. 
With the help of anticipated international assistance, the 
GOG, which had been on track to significantly outperform 
fiscal deficit projections, should be able to increase 
spending on disaster relief and still meet initial deficit 
projections of 1.8 percent of GDP.  However, Guatemala suffers 
from the second worst income distribution in the hemisphere 
and is the most densely rural country in the region.  With 
most people in rural areas (where storm damage was worst) 
getting by on annual per capita income of less than USD 1,000, 
even a temporary loss of income may make life in some affected 
areas unsustainable. 
 
Infrastructure: People and Services Inaccessible 
--------------------------------------------- --- 
 
5.  More than 25 percent of the country's paved roads and 50 
percent of dirt roads were damaged or made inaccessible. 
Seventeen bridges collapsed, leaving large parts of 
Guatemala's rugged countryside unreachable.  Some particularly 
remote areas are still beyond the reach of aid workers. 
Ministry of Infrastructure initial estimates of the costs of 
repairing roads and bridges are over USD 350 million.  The 
energy sector suffered heavily in both generation and 
distribution.  Hydro generators alone suffered well over USD 2 
million in losses, some southern coast thermal generators were 
flooded, and line damage repairs in the distribution network 
are ongoing.  Most of the heavily populated western portion of 
the country was left without power immediately following the 
storm and international grid links to Salvador were cut off. 
It is too early to tell the extent of ongoing economic losses 
as a result of key infrastructure damage.  The impact of this 
damage will undoubtedly increase initial losses in other 
sectors such as agriculture, tourism and transportation as the 
country struggles to rebuild. 
 
Agriculture: Subsistence Crops Threatened 
----------------------------------------- 
 
6.  The Ministry of Agriculture's initial estimates put losses 
at over USD 250 million.  This includes substantial damage to 
major employers such as sugar cane, which lost approximately 
10 percent of the current harvest, coffee, which is reporting 
some USD 14 million in losses, and shrimp and sesame, both 
reporting total losses due to the sensitivity of their product 
to flooding.  Perhaps most worrying but least quantifiable 
economically is the damage to subsistence crops, on which 
Guatemala's most marginal populations rely.  Many rural 
agricultural workers depend on their small corn harvest to 
feed them in between seasonal work on the major cash crops 
such as sugar and coffee.  With less to live on now and 
anticipated losses in seasonal employment, Guatemala's rural 
populations will continue to suffer severe hardship from the 
storm. 
 
Tourism: Growth Industry Hit Hard 
--------------------------------- 
 
7.  The Guatemalan Tourism Institute (Inguat) estimates a drop 
of 100,000 tourists this year at a cost of USD 80 million to 
the industry.  Particularly damaging will be losses around 
Lake Atitlan.  This already poor, densely rural area of Solola 
not only suffered some of the most dramatic damage from the 
storm, including the deadly burying of the village of Panabaj, 
but the economy depends on many micro-businesses that cater 
entirely to tourists.  It is unclear how people will adjust 
even after roads and access are restored, as tourism will 
likely suffer for years to come.  Losses to the bigger tourism 
businesses in the lakeside town of Panajachel alone are 
costing over USD 250,000 per week. 
 
Threat to Medium and Long Term Development 
------------------------------------------ 
 
8.  The Berger administration's ambitious development program 
was based on several key initiatives aimed at bringing the 
long-ignored rural populations into the economic fold.  An 
aggressive international free-trade agenda including CAFTA 
promotion and trade capacity building, along with domestic 
efforts to shift government spending toward education and 
healthcare sought to better prepare the average Guatemalan to 
participate and compete in an open economy.  These efforts 
were combined with localized projects to use infrastructure 
and education to link up small rural producers to the global 
market.  The non-traditional export chamber (Agexpront) along 
with the Ministry of Economy had been having some success with 
local artisans and farmers of specialty crops such as snow 
peas, specialty coffee and winter vegetables.   Efforts at 
improving education, expanding access to credit, reducing 
bureaucracy and otherwise facilitating small business 
development showed great promise for increasing formal sector 
participation in the rural highlands.  Inguat had been 
aggressively pushing sector development in some of the hard- 
hit areas such as Solola, Quetzaltenago, San Marcos and the 
southern coast. 
 
9.  The ambitious goals of the development plan "Vamos 
Guatemala" have not changed, but the economic climate and the 
government's capacity to implement the plan suffered a 
potentially lethal blow by Stan.  With GOG and international 
energy and resources focused on helping people survive the 
immediate effects, their ability to continue to promote 
development is in question.  There is a potential for rural 
economic collapse far worse than that which followed Hurricane 
Mitch and the coffee crisis.  Those crises dramatically set 
back rural development, worsening all major poverty indices, 
and drove a surge in migration to the slums of Guatemala City 
and to the United States. 
 
Rural Destabilization and Migration 
----------------------------------- 
 
10.  Stan was a blow to the part of Guatemala that could least 
absorb it.  The GOG's rural development plan not only lost 
momentum but leapt backwards in some of the most desperately 
poor areas of the hemisphere.  It is unclear how the resource- 
strapped government will be able to rebuild what was lost and 
simultaneously continue to develop the human and physical 
resources needed to put rural Guatemala on a sustainable path 
of job creation.  It is also unclear what impact the disaster 
will have on the political climate and the prospects of a 
like-minded government succeeding the Berger administration to 
provide much-needed policy continuity. 
DERHAM