US embassy cable - 05GUATEMALA2684

UNCLAS SECTION 01 OF 05 GUATEMALA 002684 
 
SIPDIS 
 
STATE FOR WHA TOM SHANNON 
AID FOR DEPUTY ADMINISTRATOR SCHIECK, AA/LAC FRANCO, DAA/LAC 
MAGAN, LAC/CEN MAXEY, AA/LPA FOX 
DHS FOR SECRETARY CHERTOFF AND AMBASSADOR ARCOS 
NSC FOR KIRSTEN MADISON 
 
E.O. 12958:  N/A 
TAGS: EAID, AEMR, PREF, MOPS, GT 
SUBJECT:  PROPOSAL FOR REBUILDING LIVELIHOODS IN STAN- 
AFFECTED WESTERN HIGHLANDS OF GUATEMALA 
 
 
1.  SUMMARY.  Post requests State and USAID support for a 
two-year program "Rebuilding Rural Livelihoods in Western 
Highlands" to respond to U.S. national interests and assist 
the GOG in the recovery and reconstruction from damages 
caused by Hurricane Stan.  This program responds 
directly to important U.S. interests in Guatemala by 
stemming illegal immigration due to the loss of livelihoods, 
stabilizing a conflictive, lawless border area, facilitating 
CAFTA implementation and MCA selection, and mitigating 
populist pressure and political instability in the next 
elections.  The objective is to help the GOG and private 
sector rebuild the rural economy and hence 
livelihoods, generating better incomes and employment for 
thousands of mostly indigenous families in the poorest and 
most severely damaged rural areas of Guatemala's Western 
Highlands.  The Department of San Marcos would be the top 
priority followed by Huehuetenago, and Quetzaltenango, and 
selected employment-generating areas of Retalahuleu.  This 
program reflects GOG interest in U.S. assistance and 
leadership in stabilizing and revitalizing this remote 
highland area where USAID has unique experience among other 
donors.  It builds upon the emergency assistance provided by 
OFDA and diverted from current health and food aid programs. 
Based upon estimates currently available, the total cost of 
this program will be approximately $50 million over two 
years to be funded in roughly equal parts from re-directed 
or reprogrammed bilateral funding planned for FY06 and FY07, 
and an additional amount of $24 million in DA/ESF funding 
over the same two-year period.  END SUMMARY. 
 
IMPACT OF HURRICANE STAN 
2.  During the week of October 3, 2005, Hurricane Stan 
wrought havoc in Guatemala, particularly in the most 
populated departments where the rural poor are concentrated. 
The serious damage from this storm was triggered by heavy 
and continuous rains, which led to severe flooding and more 
than 900 mudslides, burying entire villages.  At least a 
third of the national territory (about 36,000 square 
kilometers--larger than the size of El Salvador) was 
affected, with varying levels of damage reported in 251 of 
331 municipalities, and in 15 of the country's 22 
departments.  Stan hit the most productive and populated 
areas of the South Coast and the Central-Western highlands. 
The GoG estimates that around 3.5 million Guatemalans (30% 
of total population) suffered either loss of life, property 
or access to basic services.  Hurricane Stan damaged 1,158 
communities and affected some 475,000 persons directly.  The 
human toll of the Storm was 670 dead, 386 wounded and 845 
missing.  Compared to Stan, Hurricane Mitch in 1998 was far 
less destructive in Guatemala, leaving 268 deaths, 280 
wounded, and 121 missing in its wake. 
 
RAMIFICATIONS OF DAMAGE 
3.  The most serious impact of Stan has fallen on thousands 
of poor farmers in San Marcos and other densely populated 
that were already impoverished even prior to the Storm. 
Damage to smallholders in the Western highlands, 
particularly in the Department of San Marcos, was most 
severe:  60% of the corn crop was ruined; farm fields were 
severely eroded; and tertiary, farm-to-market roads were 
blocked by landslides or washed away.  The World Food 
Program recently announced that the lack of food supplies 
outside Guatemala City has now reached critical levels. 
This situation is being aggravated by inflation, which shot 
up in October to an average annual rate of 10.29%, the 
country's highest rate since the beginning of 1997.  Price 
increases will only further impede the ability of affected 
Guatemalans to access food for their families. 
 
4. While the response to humanitarian needs from the 
disaster has been solid, the longer-term economic damage is 
only now being fully appreciated.  The November 8 Damage 
Assessment for Guatemala conducted by ECLAC estimates the 
overall damage and losses to the country to be $983 million 
or 3.4% of the country's 2004 GDP.  (See septel for report 
summary).  The economic impact was highest in terms of the 
country's infrastructure, followed by damage and losses to 
the productive sectors, the social sectors (housing, 
education and health) and the environment.  According to the 
ECLAC Report, 59% of the Storm's damage was to private 
sector assets, but 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.  The disaster represents a blow to the 
government's progress in addressing the country's 
development needs, as scarce tax revenues will now have to 
be spent bringing the country back to where it was pre-Stan. 
Damage to the country's infrastructure was significant -- 
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 (a total 
assessed damage of approximately $450 million) -- will also 
limit Guatemala's full participation in the benefits of 
CAFTA for some time to come. 
 
U.S. NATIONAL INTEREST IN A RECONSTRUCTION EFFORT 
5.  The United States has an immediate and proximate 
national interest in helping to stabilize and rebuild the 
rural, agricultural economy in and around the Western 
highlands that was damaged by Hurricane Stan: 
 
-- The Department of San Marcos is Guatemala's poorest and 
has historically been a conflictive and destabilizing part 
of the country.  It is one of the greatest sources of land 
conflicts and smuggling and is the locus of increasing poppy 
cultivation in Guatemala.  Damage to livelihoods in this and 
other, already-very-poor areas will likely lead to further 
conflicts, trafficking in persons, and drug production as 
strategies for survival. 
 
-- San Marcos is also the greatest source of illegal 
immigration from Guatemala to the United States.  If the 
figures captured in a U.S. Government survey conducted six 
months after Hurricane Mitch--i.e., that 300,000 had left 
Central America for the U.S. in the Storm's wake--are any 
predictor, Hurricane Stan is likely produce a wave of 
Guatemalans and others passing illegally over U.S. borders. 
 
-- If the Berger Government is perceived as not responding 
effectively to the needs of socio-economic revitalization 
after this disaster, discontent may spread, decreasing 
chances of electing another progressive administration and 
increasing the destabilizing influence of populism in the 
country in the 2007 elections. 
 
-- Economic losses leading to a drop in tax revenues and new 
reconstruction expenditure requirements will seriously 
affect the country's social investment goals related to the 
MCA.  Guatemala has some of the worst social indicators in 
the region, yet USAID assistance per capita to Guatemala for 
the period 2005-2007 is the lowest by far among USAID 
programs in Central America.  Post believes the Berger 
government has made significant strides toward addressing 
MCA objectives (see septels), but these now have been 
complicated by the disaster and cost of response. 
 
-- Loss of roads, bridges and other critical economic 
infrastructure will limit the country's ability to fully 
participate in and take advantage of the benefits of CAFTA. 
This will have an impact both Guatemala and the rest of the 
region. 
 
PROPOSED USAID RESPONSE 
6.  Given additional resources, USAID would be able to 
launch a targeted program to support the GoG in rebuilding 
the rural economy in and around the San Marcos region. 
Employment generation is the most urgent need given that 
many families have lost their current crops or their jobs in 
agricultural enterprises on the south coast (many San Marcos 
families migrate to the coast to help with seasonal sugar 
and coffee harvests) and will be facing food shortages over 
the next several months.  Other donors are generally 
directing their resources to social needs (Europeans), to 
major infrastructure (IBRD and IDB), or to more accessible 
regions (Canadians).  The GoG has indicated that USAID 
should focus on rebuilding livelihoods in the more remote 
San Marcos region and surrounding areas, where USAID has 
prior experience and partners acquired through its earlier 
program to support the Peace Accords and current P.L. 480 
Title II programs. 
 
7.  The purpose of this new, crosscutting program would be 
to help the GoG rebuild improved livelihoods in the San 
Marcos and surrounding region by increasing sources of rural 
income and employment.  Specific activities would include 
but not be limited to the following: 
 
-- Restoring rural roads, as highlighted in the ECLAC report 
as a priority, and rebuilding infrastructure (e.g., small 
bridges) to allow access to supplies and markets.  The 
multilateral banks intend to focus on primary and secondary 
roads, but the tertiary roads, critical for access to and 
recovery of those most affected, will largely be left to the 
GOG with support from bilateral donors.  USAID would focus 
its efforts on rural farm-to-market roads in San Marcos to 
help farmers get their products back to market. 
 
-- Rebuilding/improving smallholder farming systems, 
including small irrigation infrastructure (mentioned as well 
as a priority by ECLAC).  This is a parallel priority to 
restoring the product-to-market transportation chain. 
Assistance would include land clearing, replacing/ 
rebuilding animal stocks, small-scale farm infrastructure, 
irrigation systems, and seed recovery, among other possible 
support. 
 
-- Rehabilitating and growing small businesses and agri- 
businesses.  Repair and restoration of rural non-farm 
activities is needed in these areas as well, as is taking 
agricultural activities to the next level where possible. 
This involves expanding existing micro-credit programs for 
business recovery and purchase of capital assets, as well as 
targeted technical assistance to help enterprises expand. 
 
-- Restoring viability of rural farm households.  To 
complement the above, USAID will consider supporting "stay- 
in-school" family grants come January-successfully used 
after Mitch-which will achieve the dual objectives of 
keeping children studying and putting cash in the hands of 
families for food and other basic necessities.  Additional 
assistance could include grant or credit for repairing 
damaged housing and restoring food preparation and cooking 
capacity (e.g., provision of stoves or electrical 
generators). 
 
-- Stabilizing watersheds and controlling erosion.  Much of 
the damage post-Stan is the result of poor watershed 
management practices, exacerbated by lack of flood control 
infrastructure and flood warning systems.  To prevent damage 
to rural roads and farming systems after future such events, 
USAID will support activities to improve watershed 
management and flood control systems.  Among such support 
would be assistance to municipalities and local NGOs in 
sustainable management practices on agricultural land and 
forests, riverbank reinforcement, reforestation, and 
implementation of the practice of payment for environmental 
services wherein "downstream" beneficiaries of watersheds 
pay "upstream" communities to maintain watershed through 
forest and soil conservation. 
 
-- Rebuilding water and sanitation infrastructure.  This is 
one of the most critical and cost-effective interventions 
after a disaster.  Proposed activities include rebuilding of 
community water system infrastructure and latrines, and 
training in proper operation of water systems, water 
treatment and storage, and food handling. 
 
-- Strengthening community and municipal organizations.  All 
of these efforts will require institutional support from 
municipalities and community organizations.  USAID proposes 
to provide through its Local Government Strengthening 
Program, technical assistance to municipalities in San 
Marcos and surrounding areas to help municipal officials 
best manage community reconstruction efforts.  This would 
include guidance to municipal leaders on managing employment 
programs aimed at rehabilitating public works (farm-to- 
market roads, small bridges, road embankments, 
reforestation, etc.), introducing disaster prevention and 
risk mitigation measures, and on accessing state resources 
for reconstruction.  Reinforcing democratic institutions 
during the reconstruction process is a GoG priority. 
 
USAID would implement the above activities primarily with 
current partners; no major new procurements are foreseen. 
Our partners would work with municipalities, NGOs, and 
private sector organizations to develop community projects 
with high labor content to provide families with the means 
to survive until the next harvest. 
 
8.  Several assumptions served to determine the size and 
shape of this proposed program: 
 
-- Other donors, with the exception of the Multilateral 
Development Banks (MDBs), are focusing on humanitarian 
assistance and social services, both in the immediate term 
and likely afterwards; 
 
-- The MDBs (IDB, IBRD) will redirect current or make new 
reconstruction loans for larger-scale infrastructure such as 
major roads, bridges, and utilities (the resource 
requirements for these infrastructure needs in any case go 
beyond USAID's financial possibilities); 
 
-- USAID is the lead donor in Guatemala on rural development 
and has been working closely with the GoG to support policy 
reforms and investments in this area, hence the government's 
request and USAID's comparative advantage; 
 
-- USAID has significant experience implementing Post-Mitch 
reconstruction assistance in Guatemala (for which $28 
million in new funding was provided) and can build on these 
investments and lessons learned; and 
 
-- The consequence of not addressing the economic impacts of 
this disaster, including massive unemployment, will redound 
most directly on the United States through increased illegal 
immigration and crime, and thus it is in our national 
interest to focus on this area. 
 
COST AND SOURCE OF FUNDING FOR USAID PROPOSAL 
9.  USAID calculates that total cost of the proposed program 
would be around US$25 million a year over two years (FY06 
and 07), for a total reconstruction program of $50 million. 
 This budget was arrived at by matching the data on damage 
and losses to assets in the department of San Marcos and 
surrounding areas (e.g., rural roads, watersheds, livestock, 
rural market structures, rural farm structures, etc.) with 
what USAID knows from past experience to be the cost per 
unit of rehabilitating such assets, and determining what 
portion of the damage and losses USAID might realistically 
restore.  For example, 47,000 hectares of watershed was 
damaged in San Marcos alone and at $3,500 per hectare to 
restore, USAID proposes to restore some 1,500 hectares (3% 
of total in San Marcos) for a total activity cost of $5.25 
million.  USAID calculated other areas of intervention 
similarly and when totaled and combined with a percentage 
for management and engineering assistance comes to around 
$50 million over the two-year period. 
 
10. The program would be funded both with redirected 
bilateral funds and resources from USAID's existing 
bilateral portfolio (including reprogrammed food resources 
for food for work programs) as well as with additional 
bilateral funding.  USAID would amend its current five-year 
plan to re-direct about a third of its DA/CSH/ESF resources 
(around $13m/FY) and requests an additional $12 million 
DA/ESF a year over two years, for a total of $25 million a 
year over two years for the program.  The additional funding 
would be necessary both to enable expansion of current re- 
directed programs as well as to launch new programs in rural 
infrastructure, watershed stabilization and farming systems, 
which are not possible under our current strategy and within 
existing earmarks.  Current health, education, alliance, 
enterprise and governance programs would be modified to 
concentrate resources and level-of-effort toward the San 
Marcos region. 
 
11.  Post is of course aware of the planned U.S. private 
sector fund-raising effort for post-Stan relief but assumes 
the funds raised will be channeled privately through grants 
to NGOs.  The program proposed in this cable responds to and 
directly supports the GoG's Reconstruction Plan and its 
specific request that USAID help to re-build livelihoods in 
San Marcos and surrounding areas.  If USAID does not carry 
out this program, the government's reconstruction program 
will still go forward; however, no other donor can be 
counted on to target San Marcos with an eye to stemming the 
illegal immigration, smuggling, trafficking and drug 
production that uniquely affects and concerns the United 
States.  Ambassador Derham will be discussing this proposal 
with colleagues in State and USAID during his consultations 
in Washington. 
 
WHARTON