US embassy cable - 05GUATEMALA2658

UNCLAS SECTION 01 OF 03 GUATEMALA 002658 
 
SIPDIS 
 
STATE for A/S Tom Shannon and David Lindwall 
DHS for Secretary Chertoff and Ambassador Arcos 
AID For Administrator Natsios, Deputy Administrator 
Schieck, LAC Assistant Administrator Franco 
NSC for Dan Fisk 
 
E.O.  12958;  N/A 
TAGS: EAID, AEMR, PREF, MOPS, GT 
SUBJECT:  ECLAC ASSESSMENT OF HURRICANE STAN'S DAMAGE TO GUATEMALA 
- LOW IN MACROECONOMIC TERMS, HIGH IN HUMAN AND SOCIAL IMPACT 
 
REF: Guatemala 02573 
 
1.  SUMMARY.  An ECLAC study of the impact caused to Guatemala by 
Tropical Storm Stan estimates the total damage and losses to be 
just shy of US$1 billion ($983 million) and suggests that while 
the Storm's impact may have been marginal in macroeconomic terms, 
the impact was devastating for the thousands of poor and 
indigenous Guatemalans affected by the Storm and will continue to 
be so when crop and income losses translate into hunger in the 
coming months.  The report's recommendations for the short-term 
include the continuing need for emergency food assistance, 
restoring productive capacity for the most vulnerable and exposed 
populations, rebuilding housing and closing emergency shelters, 
and repairing local roads and small irrigation infrastructure to 
re-start production and allow products to get to market.  In the 
medium-term, the assessment identifies the need to rebuild and 
establish early warning systems and community-based prevention 
programs, improve watershed management, and develop Central 
American regional risk management instruments.  END SUMMARY. 
 
STAN'S FINANCIAL AND ECONOMIC IMPACT 
 
2. On November 9, an ECLAC team assisted by experts on loan from 
the World Bank, IMF, CABEI and various UN agencies, completed its 
assessment of the damages and economic losses caused to Guatemala 
by Hurricane/Tropical Storm Stan.  (For this Report's purposes, 
"damage" is the immediate impact, and "losses" are effects over 
time).  The following day, joined by the Ministers of Agriculture 
and Public Works and other Government of Guatemala (GoG) 
officials, the ECLAC team presented findings to the international 
community. 
 
3. The ECLAC Assessment (methodology described on website: 
www.eclac.cl/mexico under "disastres") opens with the central 
conclusion that while the macroeconomic impacts of the Stan will 
be minimal, the livelihoods of the most vulnerable --the country's 
indigenous, rural and poor-- will be significantly affected.  The 
study estimates overall damages and losses at just under US$1 
billion ($983 million or 3.4% of the country's 2004 GDP).  The 
economic impact was highest in terms of the country's 
infrastructure (the Ministry of Public Works reports that 26% of 
the country's paved roads were affected, 52% of its unpaved roads, 
45 bridges, and more than 10,000 homes), followed by damage and 
losses to the productive sectors, the social sectors (housing, 
education and health) and the environment, as outlined below: 
 
Guatemala: Summary of Impact 
Sector and sub sector 
Damage 
Losses 
Total 
 
 
Millions of US dollars 
 
Social sectors 
148,9 
Housing 
126,5 
Education 
8,1 
Health 
14,2 
 
Productive sectors 
215,4 
Agriculture 
77,8 
Industry 
56,7 
Trade and commerce 
80,9 
Tourism 
53,4 
 
Infrastructure 
446,9 
Water and drainage 
11,9 
Electricity 
5,1 
Transport and communications 
430,0 
Environment 
40,5 
 
Emergency expenses 
78,3 
 
TOTAL 
983,3 
 
4. The Report notes that the damage from Stan was equivalent to 
39% of the country's gross capital formation.  While 59% of the 
damage was to private sector assets, the public sector will face 
increased expenditures and investments to assist the most directly 
affected and vulnerable populations (some 475,000, or 4% of the 
country's population) to rebuild their lost assets and sources of 
incomes. 
 
5. Guatemalan Central Bank officials suggest that one of the main 
reasons for the limited macroeconomic impact is that greatest 
damage was done to subsistence crops that were about to be 
harvested such as white corn, and to micro-businesses in the 
country's large informal economy (estimated to be 70% of all 
economic activity), which make only a small contribution to the 
GDP.  In many cases, harvests for the more important cash crops 
were already completed before Stan or have more frequent crop 
cycles than basic grains and will thus rebound more quickly.  The 
Ministry of Agriculture reports that 46% of the damage to the 
agricultural sector was to basic grains (white corn, beans, and 
other subsistence crops), 26.4% to export crops, 20% to 
horticultural products, and 7.6% to fruit and other commodities. 
 
GEOGRAPHIC DISTRIBUTION OF DAMAGE 
 
6. The ECLAC Report notes that the Departments of San Marcos, 
Escuintla and Solola, in that order, were most affected by Stan. 
But, in terms of damage as a percentage of contribution to GDP, 
the greatest economic impacts were to Solola (due to tourism), San 
Marcos and Retalhuleu.  The Ministry of Agriculture asesses 
agricultural losses to be greatest in Retalhuleu-nearly 40% harder 
hit than the next most affected department, Escuintla.  And 
finally, in terms of impact per inhabitant, the ranking was 
different yet again with Retalhuleu the hardest hit, followed by 
Solola, and Jutiapa. 
 
ENVIRONMENTAL IMPACT 
 
7. The assessment notes that another critical impact of the Storm 
was to the environment.  This included loss of soil due to 
landslides and the creation of crevices on steep slopes that will 
aggravate pre-existing environmental fragility and further 
increase the risk of damage and loss in the face of future events, 
leading to reduced welfare and postponement of economic growth and 
attainment of the country's development goals. 
 
THE HUMAN IMPACT-THOSE WHO CAN LEAST AFFORD IT HURT MOST 
 
8. While more than a third of the country's population, or some 
3.5 million people, was estimated to have been directly or 
indirectly affected by Stan, the report notes that "...when 
departmental and municipal damage and loss distribution is 
correlated to the indigenous population present in them, it 
becomes evident that the indigenous population suffered in a 
disproportionate way, above its statistical presence in the 
community or the country as a whole."  This is particularly 
significant because the participation of Guatemala's indigenous in 
the ranks of the country's poor and extremely poor is far above 
the national average.  The Minister of Agriculture also remarked 
in a recent meeting with Embassy officials that "...this is not an 
agricultural problem, rather it is a social problem."  He said the 
agricultural losses will be recovered fairly quickly, but "the 
real problem is that there are 25,000 families who are in a state 
of shock, abandonment, and despair..."  That their loss doesn't 
have much of an impact on the GDP, he added, is only a 
confirmation that the people who lost their homes and crops were 
poor and don't contribute much to the GDP. 
 
9. The Report noted that many self-employed indigenous women -- 
artisans, weavers and embroiderers, as well as those who depend on 
cottage industries -- have not only lost their homes but their 
means of production and, in many instances, their stock of work. 
The ECLAC team analyzed losses related to the production of 
embroidered blouses or "huipiles" in four representative 
departments and concluded that the financial impact was $5.6 
million to the 2,600 households dependent upon this economic 
activity. 
 
FINANCING THE RECONSTRUCTION EFFORT 
 
10. GoG officials noted that a gap exists between the $415 million 
assessment of damages by ECLAC and their own funding estimate for 
the National Reconstruction Plan of $368 million.  These officials 
noted, however, that between a first assignation of $368 million 
in 2006 and a complementary amount in 2007, the needs of the 
reconstruction plan could be fully met; they announced earlier 
that this funding would come from a mix of GoG budgetary 
resources, reprogrammed loans and donor assistance, among other 
sources (see reftel on the GoG national reconstruction plan).  The 
report's recommendations for the short-term include the need to 
continue with provision of emergency food assistance, restore 
productive capacity for the mostly highly vulnerable and exposed 
populations, rebuild housing and close emergency shelters, and 
repair local roads and small irrigation infrastructure to re-start 
production and allow products to get to market.  Another priority 
will be to involve the most affected populations in the estimated 
17,000 reconstruction jobs that will be needed, and the report 
recommends that reconstruction efforts be designed to be as labor- 
intensive as possible.  In the medium-term, the assessment 
identifies the need to rebuild and establish early warning systems 
and community-based prevention programs, improve watershed 
management, and develop some Central American regional risk 
management instruments.  The report notes that "Although 
appropriate risk management has been recognized before --after 
Mitch--, given the multi-hazard nature of the county's territory 
there is a need for a more solid and permanent approach to risk 
reduction." 
 
11. In his presentation to the international community, the 
Minister of Public Works placed special emphasis on the 
transparency and accountability measures being built into the 
reconstruction effort.  These measures include the formation of a 
Transparency Council of respected civil society representatives 
and government officials to oversee reconstruction expenditures 
and the use of the internet-based procurement system, 
GuateCompras. 
 
AN OPPORTUNITY TO REDRESS THE COUNTRY'S HISTORIC INEQUALITY? 
 
12. Many commentators have noted that Stan "exposed" Guatemala's 
historic inattention to the precarious poverty in which a majority 
of its mainly indigenous population lives, and highlighted the 
fact that this population's efforts to scratch out a living 
damages the environment puts them at greater risk.  In terms of 
income distribution, Guatemala is the third most unequal country 
in the world, and Stan made clear how such poverty increases a 
population's vulnerability.  The Berger Administration's response 
shows all the right intentions in terms of addressing these 
inequalities and the related multicultural issues, but whether it 
will have sufficient resources or time before it leaves office is 
an open question.  This post-Stan period offers the country and 
its government a window of opportunity and the international 
community should be poised to help them to seize it. 
 
WHARTON