Boozegate: A Revealing Ethical-Political Earthquake

The Fiscal Pact was a positive, unprecedented step. But once signed and ready for implementation, all parties failed it: the executive branch, the legislative branch and private enterprise. Meanwhile, a political and ethical scandal has made even learer the limits and lies in Alfonso Portillo’s project.

Juan Hernández Pico, SJ

Guatemala’s government has been shown up for what it is once again, this time by the tax issue. Neither the executive nor the legislative branch has fulfilled the commitments assumed in the Fiscal Pact. No medium- or long-term priority public spending plan aimed at the country’s human development has yet been included in the proposed budget for next year. The government has not yet begun to deal with big tax evaders in any meaningful way. There are no new bills to penalize tax evasion, particularly sales tax fraud, which may well exceed 50%. And no funds have been allocated for training officials in the superintendence of Tax Administration or raising their salaries to make them less susceptible to bribery. The fiscal pact was not just a tax hike, but also an agreement to plan public spending more rationally, collect existing taxes more effectively, use them more honestly, transparently and efficiently, and reactivate the economy. This framework laid out in the pact is missing from the 2001 budget. Once again, the state has fallen down on the job.

After the pact was signed on May 25, a follow-up commission was set up to work on the tax issue. It reached an agreement on June 20, just hours after the finance minister was to present the first set of tax bills to Congress so that they could be approved and go into effect by July 1, the pact deadline. But the commission’s agreement was given short shrift. The government presented its own tax proposal, which Congress passed on June 27 after major changes were negotiated in yet another commission—sometimes referred to as a "Political Forum"—which is strongly chaired by Vice-President Francisco Reyes.

This left the impression that the government was participating in the discussions with cards up its sleeve, only to pull out the winning one at the moment of truth. In his September 15 speech commemorating the nation’s independence, President Portillo justified it this way: "They say we’re to blame for the fact that the Fiscal Pact hasn’t been implemented, that we were supposed to accept an agreement worked out by the business and social sectors without changing so much as a comma or period. But this is where the people’s sovereignty lies, where things are decided, in the country’s democratically-elected institutions." Winning that hand was a Pyrrhic victory, however, since the pact risks immolation in the fires of dissent and deceit.

Pressures, negotiations
and a scolding

Arduous negotiations over various other taxes still remained, including the tax on the sale of cement, one of Guatemala’s great monopolies; on the preferential cost of electrical energy for industrial use; on the tax exemption for maquila income and the fiscal situation of the free trades zones where these assembly plants operate; on a new real estate tax; on a tax on idle land; on whether or not to increase the sales tax; and on the whole enormous chain of existing privileges and exonerations.
The government, represented by Vice-President Reyes, leaned particularly hard on private enterprise to accept a rate increase of 0.18 quetzals (a bit over $0.02) per kw/hr. for industries using over 300 kw/hrs. Their current rate is 0.66 quetzals, while the rate for less powerful customers, including residences, is two-thirds higher, at 1.10 quetzals. The businesses represented in the umbrella business organization CACIF argue that cheap energy makes their products more competitive in the international market.

At the end of July, in one of those turnarounds typical of President Portillo’s governing style, he publicly reprimanded Reyes. In his speech to present what he called his security and defense "matrix," Portillo confided that "I have not told him this personally, but I want to tell the Vice-President that, as a key actor in the fiscal pact, he has to make our position more flexible, since we have to move ahead more quickly on this project."
The follow-up commission had come to the conclusion that it would not be possible to comply with the commitment to raise the tax burden to 12% of the gross domestic product (GDP) by the year 2001 without increasing the sales tax. The convergence of opinions on this subject was startling in that it included CACIF for private enterprise, the representatives of the collective of social organizations, the Bank of Guatemala, various human rights organizations and even peasant associations. The only difference was one of emphasis: grassroots organizations argued that since the sales tax is regressive, its increase from 10% to 12% should not go into effect until July 2001, by which time the new progressive taxes would already be functioning.
Nonetheless, on July 20, the first vice-president of Congress, Leonel Soto Arangon of the governing Guatemalan Republican Front (FRG), floated the idea of breaking this consensus. "The FRG knows the country’s situation and we know that increasing the sales tax is not the best thing to do in the current circumstances, despite the pressure and the good technical arguments that the financial institutions may have." He argued that preserving social harmony was more important than hitting fiscal targets. For its part, private enterprise offered a 4% salary increase as social compensation while Soto asked for 15%. Few noted that simply increasing the extremely low current rate of sales tax collection might offer a more effective and less painful intermediary solution.

One law approved
another published

Private enterprise did not hold up its end of the bargain either. Few industrial and commercial products deserve high taxes as much as tobacco and alcoholic beverages, since they endanger people’s health and cause accidents, death and irreparable damage. Nonetheless, the liquor and beer monopolies lobbied the government so relentlessly that President Portillo promised to veto the new law if it significantly upped the taxes on their products, which in fact it did. Probably to protect the President from the embarrassment of an open veto, the FRG bench in Congress collaborated with Vice-President Reyes to simply strike the offending tax increase from the already approved law in a clandestine late-night maneuver. The press dubbed this premeditated and arrogant breach of faith Guategate or Guarogate (guaro is booze in Spanish). Some of the biggest and most powerful economic actors in Guatemala were responsible for the scandal, writing the government’s script from the wings, the same unseen spot from which they urged on the army’s excesses during the war. Thus, private enterprise betrayed the pact as well, but in such a way that it could ride out into public view on a white charger and let the government take the rap alone.
The first news of the changes to the Tax Law on the Distribution of Alcoholic Beverages and Soft Drinks did not appear in the media until August 2. The text approved on June 27 established taxes of 20% on distilled and fermented alcoholic beverages, mixes and beers, 10% on wines and ciders and 1% on soft drinks, but the version published on August 1 in Diario de Centroamérica, the official state organ, had the earlier rates: 10%, 4.18% and 0.20%. With that surprising change, the state lost about half of the roughly US$38 million that these taxes were to have brought in, which was 17.6% of the whole new tax package in the law actually approved, calculated in a World Bank study at around $215 million.

Upon learning of the change, the "Unionist" legislators—those who, despite their paradoxical name, have broken with the National Advancement Party (PAN)—asked to see the video and audio tapes and transcripts of the voting sessions. The Legislative Secretariat soon reported that the audio tapes could not be found and the videos had been erased "due to a lack of fresh tapes"—a hard argument to swallow since the congressional archives still house un-erased tapes dating back to before 1998. It was also discovered that the transcripts had been altered—as was the Diario del Congreso—to introduce amendments into each of these two documents. Amendments to an already approved law are supposed to be presented in a session of Congress, with a set number of legislators’ signatures, to provide opportunity for debate and a vote. Not one single deputy other than those of the FRG recalled any such petition being presented in this case.

Ríos Montt: "I wasn’t there"

Congressional president Efraín Ríos Montt explained to the press on August 3 that everything had been done legally, as permitted by the law regulating congressional actions, through a "clear and well-defined amendment." He also explained that the tax rates were modified in response to a proposal from the executive branch. When asked about reports that members of the congressional leadership and the Technical Secretariat had met at 5 a.m. on August 2 to modify the sessions diary, the retired general responded, "I’m sure that I wasn’t there." Days later, political cartoonist Filóchofo, of Siglo XXI, sketched Ríos Montt in his traditional figure as a vampire, but grotesquely distorted by a dagger tagged "Corruption" driven through his shadow.

In subsequent days, the scandal began to take on legal dimensions. First the Unionist bench, led by Representative Anabella de León, submitted to the Public Ministry a formal accusation of "material deceit and ideological falsification" against the FRG bench. Then, on August 10, La Prensa Libre announced that it had in its possession an audio tape from the June 27 congressional session; a journalist had searched for it and actually found it. The tape showed no sign that any amendment had been presented to alter the booze and soft-drink taxes. Two weeks later, congressional representative Leonel López Rodas, the PAN general secretary, requested a Supreme Court preliminary hearing against the Permanent Commission of Congress, which Ríos Montt chairs, and the 21 governing party representatives who actually signed the amendment. Although these legal proceedings will probably not get very far, they could strip the governing party of its majority in Congress.

The Guarogate scandal may also end up toppling the FRG from the pedestal of its presumed moral rectitude, or at the very least irreversibly tarnishing the general’s own image. Questioned by journalists after the audio tape was discovered, Ríos Montt reiterated that "we haven’t altered the law and everything was done following the correct procedures." When asked about the tape, he said he would only answer questions from the Attorney General’s Office, adding that he was being made the victim of political attacks through the press. Feeling cornered, the president of Congress changed his defense from "I wasn’t there" to "they are defaming me." Filóchofo drew him terrified and sweating as a tape recorder spewed out the slogan he has so often repeated, "I don’t steal, I don’t abuse, I don’t lie." All in all, the scandal appears to be an authentic political and ethical earthquake
The Vice-President’s confessionVice-President Reyes’ confession that "I requested the amendment" appeared in the press on August 15. He related that when he arrived at the Political Forum meeting on the afternoon of June 27 with the news that the law raising the tax on alcoholic beverages had been approved, the private enterprise representatives threatened to withdraw from the negotiations still pending on other taxes. Reyes said he promised them that the law would be renegotiated and that he would ask Congress to introduce an amendment, and if that failed the President would veto the law.
Reyes said he called Congress, but could not swear what happened there. He also would not admit whom he had spoken to —"not because I can’t, but to be mischievous." New Nation Alliance (ANN) legislator Nineth Montenegro, Juan Pablo Corlazzoli of the UN mission MINUGUA and Arnoldo Noriega, coordinator of the Commission to Accompany Fulfillment of the Peace Accords, witnessed the Vice-President’s promise to the businesspeople.
With that, Filóchofo characterized the Vice-President as a string puppet with one hand holding his legs and another hand, identified as CACIF, pulling the string of his mouth to get him to say, "I asked for the amendment." The legend says, "New figures appear in the Congressgate case," but the fact is that they are the same ones who always come out of the woodwork when any genuine attempt is made to reform Guatemala’s taxes.

An error or a criminal act?

On August 18, the ANN, whose bench in Congress is headed by former URNG commander Ricardo Rosales, made its position known. According to Nineth Montenegro, to avoid damaging the Congress as an institution—a concern the ANN shares with the FRG in this case—it would be better to drop legal actions against the FRG in favor of a recognition of responsibility by the FRG bench. Rosales said that the ANN will not initiate any new legal action, "but will ask the Supreme Court of Justice and the Public Ministry to reach a verdict duly and promptly on the suits already before them."
The ANN’s ambiguous posture triggered strong dissent. The Center for the Defense of the Constitution said that this kind of crime must be prosecuted officially and publicly for the good of the rule of law in Guatemala. Helen Mack, from the Myrna Mack Foundation, declared that it would be regrettable if the crime were to be protected from the reach of the law. "Congress committed a serious crime," she said. "The cassette is evidence that must be accepted; otherwise it will foment impunity. The strengthening of the rule of law depends on transparency. What they did with this law they can do with anything." Luis Ramírez of the Institute of Comparative Studies in Criminology underscored another issue: "It is an act with grave social impact: how many vaccinations, how many school notebooks, how many shelters will not be provided due to this change of numbers?"

The people’s verdict

Public opinion was far firmer and angrier than the political opposition was. La Prensa Libre published the results of 600 interviews done on August 12-14 in the central area of the country among adults from all socioeconomic levels. Of those surveyed, 92.5% said the media should continue its investigation to the bitter end, 87.8% felt that Ríos Montt and the other FRG members should be judged for their action if they altered the law, and 87.5% said that they should be stripped of their immunity if the Supreme Court concludes that the evidence shows them guilty. Regarding the erasure of the tapes, 85.3% said they believed it was an attempt to eliminate the evidence of their crime, 79.3% said that Ríos Montt should resign as president of Congress if it can be demonstrated that he ordered the erasure, and 78.7% said they did not believe him when he said he "did not act illegally." Finally, 75% think the justice system would be strengthened if Ríos Montt were tried while 53.8% think the Public Ministry and the courts will cover up the case.
These findings highlight the general’s loss of credibility and prestige. If we were to apply to him the definition of a politician that President Portillo himself uses, Ríos Montt would not stand up very well today as a "seller of hopes," although the survey does not indicate how people in the hinterland departments of the country see him.
The most worrisome part of the survey is the scant credibility of the courts and the Public Ministry: only 36.8% of those surveyed think that either are willing to embark on an in-depth investigation. The PAN legislators filed their suit with the Supreme Court precisely because they were annoyed by delays in the investigation that the Public Ministry had assigned to the attorney general. On August 24, the Supreme Court named Appeals Court Judge Eleázar López as investigative judge for that suit. His task, according to the Supreme Court president, was "to determine not the existence of the crime, but whether the action taken by the plaintiffs against the general and other presumably culpable FRG legislators is politically motivated or is based on real facts." If the justices decide there is reason to open a suit, the Public Ministry must act.

That was the cue for the FRG’s counteroffensive. First they managed to get the case out of the Supreme Court’s jurisdiction by appealing to the Court of Constitutionality. They evidently did so because the Public Ministry was more likely to move slowly, leniently and incompetently. At the same time, they decided that all the FRG representatives would defend themselves jointly, making common cause. They would also initiate an offensive against the plaintiffs in an attempt to get their parliamentary privileges withdrawn, and would try to undermine the cassette’s validity and the media’s legitimacy as investigators of the crime.

By taking all these steps, the FRG sought to make it clear that Ríos Montt was not present in the June 27 session where the allegedly altered law was decreed. A way had to be found to save him from the deluge. But the Court of Constitutionality quickly denied the FRG’s provisional appeal, thus allowing the Supreme Court to continue its investigation.

Legal maneuvers
to obstruct justice

By a strange coincidence, several former judges who had been removed from their posts by the Supreme Court for incompetence and corruption presented a request to Congress for a preliminary hearing against the Supreme Court justices for abuse of authority and violation of the Constitution. Fortunately, the congressional board did not take the bait. Sticking with legal procedures, it turned the petition over to a judge to determine if a crime had been committed.

The FRG presented two other petitions, one for a preliminary hearing in the Supreme Court against the PAN’s general secretary, who just happened to be the plaintiff in his party’s case against the FRG before the same court, and the other against another legislator. Its charge in the two cases? That the banking law had been fraudulently altered in 1999, in the previous legislature. It also challenged Investigative Judge López on the grounds that he was a blood relative of the PAN’s general secretary. The Supreme Court immediately named Judge Yolanda Pérez, famed for her rectitude, to deal with the banking law case.
The chain of appeals and other procedures continues to grow. Everything indicates that there will be no verdict until the end of October on the preliminary hearing against the Permanent Commission of Congress and the 21 FRG representatives who signed the amendment cutting the liquor tax. Meanwhile, the investigation turned in by Judge López is lying locked in a safe in the Supreme Court.

Judicial independence at stake

The FRG’s actions have sparked indignation. "I don’t think that any of the FRG’s actions will prosper, but they are delaying the procedures and strengthening the presumption of guilt," said Roberto Villeda, president of the Center for the Defense of the Constitution. "We’ve had enough subterfuge; we’re tired of them delaying justice," challenged Alfonso Novales, former president of the College of Lawyers. Getting even closer to the quick, Helen Mack said she thinks that "the FRG is showing signs of bullying arrogance and is attacking the country’s institutionality. There’s a risk that judicial independence will be made vulnerable by such political pressure."
It is appropriate to recall that this Supreme Court of Justice is the first one elected after a candidate selection based more on curricular competence and honesty than on political allegiances. Some of the resolutions issued by the Courts of Constitutionality and Justice give reason to hope that they may begin to chip away at impunity in Guatemala. The cases of the assassination of Myrna Mack and Ordóñez Porta, in which the accused are high-ranking military officers, provide examples.

The rule of law is indivisible

There is widespread fear that a deal will be struck to put things to rest, in which the charges will be dropped before the courts can issue their verdicts and those responsible can be stripped of their privileges.

This scandal should surprise no one. The way the banking law was dealt with indicates how common this type of fraudulent procedure has been in Congress anytime one bench has an absolute majority. The important thing is that the case reminds us of the importance of a basic principle: the rule of law is not divisible.
It is not enough to hold formally clean elections when the electoral law makes hundreds of thousands, perhaps millions, of Guatemalans living in remote rural villages or at the bottom of urban ravines walk leagues and lose a whole day just to vote. Without an electoral reform, there is no way to demonstrate a desire to deepen democracy. The Historical Clarification Commission cannot be given responsibility for doing the job that its name implies only to have the government drag its feet in carrying out the commission’s recommendations. Progress has been made in recognizing the state’s responsibility in ten cases of notorious human rights violations, although the executive branch still does not acknowledge responsibility in the Myrna Mack case. Nonetheless, there has been no compensation to the victims or their relatives, no financing for exhumations, no investigations into the whereabouts of the disappeared, no introduction of the report Guatemala, Memoria del Silencio into the school curriculum, no serious budget increase for the judicial branch, no reorganization and purging of the Public Ministry, and no progress in the fight against impunity and the strengthening of justice. It does no good to ensure that the peace accords will be state policy if compliance with them continues to lag due to desperate delaying tactics.

Something rotten in...

President Portillo cannot continue skipping appointments with numerous segments of the population, spending entire afternoons away from his office in his favorite restaurants. Nor can he continue driving around in a high-powered, high-cost Mercedez Benz lent by a financial buddy who owns the company from which the Presidential High Command buys luxury pick-ups for the President’s security and who is the major stockholder in two banks in which Guatemala’s Social Security Institute deposits millions behind the back of its own board.

President Portillo cannot do all this and still expect the citizenry to take him seriously. He cannot frequently acknowledge corruption in the National Police then fail to request funds for instructors and programs from countries with police institutions that respect the rule of law in order to reform its members. Instead of this "globalizing of security," Portillo requests changes to the law governing state contracts and purchases that would allow him to sidestep the bidding process to buy more arms that will only end up in the hands of organized crime or be recycled back into the international arms trade. And when a legislator of the caliber of Ramiro De León Carpio, previously Guatemala’s human rights ombudsperson and then President of the Republic, endorses these modifications to the law, it is hard not to think that there is "something rotten in Denmark."

The disillusioning
of the middle classes

In President Portillo’s inaugural speech we thought we saw the strength of a sector of the country’s middle classes that has been handing down "democratic" aspirations to each new generation ever since the democratic revolution of 1944-54. The words of the new President and his newly appointed secretaries in fact reflected the aspirations of those classes, whose development in all areas, especially through education and highly skilled technical training, is essential to reducing poverty and misery. But barely nine months after that speech, we are witnessing not the happy birth of a renewed country but a miscarriage of hope.

Not many people, and particularly few among those middle classes, dare confess today that they voted for Alfonso Portillo and Efraín Ríos Montt ten months ago. That a Congress run by the general could become enmeshed in illegal and immoral tangles such as the alteration of the tax law on alcoholic beverages cannot surprise those who have a historic memory and know that some of the most brutal crimes in Guatemala’s entire history were committed when General Ríos Montt was head of state (1982-83). The fraudulent alteration of fiscal rates on beverages pales beside the terrifying torture and assassination of entire populations. But in building a rule of law, the struggle against impunity for the crimes of the past is as important as the struggle against impunity for the crimes of corruption today.

Just like any other citizen

The Supreme Court seemed to have understood that on September 27 when, based on Judge Pérez’s investigation, it withdrew the right to a preliminary hearing of the PAN legislators signaled in the controversy over the 1999 banking law. Even if it turns out that they acted in accord with the law, they will have to appear in court to clear up the case just like any other citizen, if the Public Ministry accuses them. Will the same thing happen next to the general and the other FRG representatives? Will they, too, have to go to court like any other citizen?
It is troubling but not surprising that this fight does not enjoy executive support, given that the illegal modification of the tax law on alcoholic beverages was made in Congress at the Vice-President’s request. Every Tuesday morning human rights organizations hold a sit-in before Congress to urge the general and the FRG representatives to submit to justice. In a counteroffensive, increasing numbers of the general’s sympathizers take up positions in front of Congress as well, to defend him and "democracy." Some say they are departmental bureaucrats, "obliged" to protest on pain of losing their jobs. The press has also published a communiqué in support of Ríos Montt by members of the former civil self-defense patrols, which were dissolved by the peace accords.

How business people
see the economy

Behind the liquor tax mess is the ultimatum by the CACIF members participating in the tax law negotiations. How can one sign a Fiscal Pact that grants the state a crucial role in social investment and at the same time haggle with the state over the fiscal income needed to finance these investments?
The results of two surveys of private businesspeople carried out in July are not encouraging. Those polled list as positive economic factors the country’s international reserves (US$1.83 billion), the inter-year inflation rate (under 7%), the quetzal’s stable exchange rate (7.75 per dollar) and the recovery of the international price of sugar (from under US$7 per hundredweight two years ago to US$10.43 today). As positive extra-economic factors they mentioned the consensus around the Fiscal Pact and the country’s infrastructure.
They identified as negative economic factors the fact that the economy is contracting (36% called it a recession, 27% a stagnation, 27% a deceleration and only 10% an expansion), the fall in coffee prices, the deterioration of the bank portfolios, the drop in imports in real terms, the contraction of credit to the private sector and uncertainty about the government’s economic policy. To those, they add the following three negative extra-economic factors: lack of personal safety, judicial uncertainty and the negative investment environment.

A month later, in mid-August, the Research and Social Studies Association (ASIES) released the results of another survey on the attitudes of Guatemala’s private sector. Of the 444 businesses of all sizes consulted, 293 (66%) responded that their sales had dropped in the first half of 2000 compared to the same period in 1999, while 22% reported sales similar to last year’s and 12% reported higher sales. The majority thinks that the sales picture will not change.
Only 19% had acquired more machinery and equipment, which is an important investment indicator, and 83% reported that they had received no new loans for such investments. With respect to Portillo’s administration, 26% qualified it as good, 38% as average and 33% as bad. Despite everything, 56% claimed that they had increased their workers’ wages, 32% said wages had not changed and 12% indicated they had reduced wages.

Who speaks of risks
and "poor-dollars"?

No one in Guatemala today believes that the reported single-digit inflation rate is well calculated. The database used to calculate the consumer price index is around twenty years old and everyone’s perception is that the prices of products in the basic market basket have risen more for consumers than is officially accepted. The quetzal exchange rate, stable over the year until mid-September, then began to rise and now stands at 7.88 per dollar.
No business survey asked about investments to improve the skills of the managerial, administrative or sales personnel, much less of the workers. Nor were there any questions about the environmental conditions, and certainly not about the risks facing the hundreds of thousands of people who live in the ravines fringing the capital. Those polled were asked about the contraction in the construction industry but not about the deficit of affordable housing. Would they see these as positive or negative economic factors?
No one polled in these surveys mentioned family remittances as a positive economic factor, even though they have risen from US$350 million annually in 1995 to US$423 million in 1998, according to the Economic Commission on Latin America and the Caribbean (ECLAC). By comparison, coffee exports brought in US$579 million in 1995 and US$581 in 1998. Very shortly, the money sent home to relatives by Guatemalan emigrants will be the country’s primary income source, as has already happened in El Salvador and other countries. But few people thought about these "poor-dollars."
The government’s wage decisions—made by legislative decree without any dialogue with private enterprise and the unions—are also perceived as hindrances to investment. From the perspective of private enterprise, they make it more difficult to hire workers instead of making the labor market more flexible as the anti-Keynesian business bible commands today. There is no mention of the fact that wage increases, which do not even reach a significant minority of the population, almost immediately translate into jacked-up prices for most consumer goods.

Millions in security
and "criminal employment"

CACIF’s new president, Luis Fernando Montenegro, recognizes that personal insecurity is costing private enterprise the equivalent of just under US$180 million a year in security measures such as electrified fencing, double doors, alarms, guards and armored cars. This outlay of money is only about US$36 million less than the newly legislated taxes are supposed to bring in to the state.

The National Statistics Institute reports that the percentage of the population working in Guatemala’s informal economy is continuing to grow, from 49% in 1980 to 54% in 1998. According to ECLAC, 75% of rural homes and 54% of urban ones were below the poverty line in 1997, many of them struggling to survive in extreme poverty. These structural conditions, combined with opportunities for criminal employment in theft; in the trafficking of drugs, weapons and stolen vehicles; in gang crimes and so much other criminal activity go a long way towards explaining citizen insecurity. This insecurity is aggravated even further by the culture of violence instilled during the long years of revolutionary insurgency and the various forms of state terrorism.

State social spending is important to halt this spiral, as is the creation of stable jobs, investments in training workers to improve productivity and just remuneration for work. The CACIF president assured Mexico’s President-elect Vicente Fox on his visit to Central America that "we will be exporting competition in the long run." For that to become true, Guatemalan businesspeople will have to invest within a new framework that embraces risk and efficiency.

In Guatemala, as in other Central American countries, someone will have to break the hellish circle of dehumanization, whose essential spirals are poverty and indigence, violence, insecurity and uncertainty. The state can break it by substantially increasing social spending and making intelligent, honest and transparent use of these expenditures. Private enterprise can break it by paying its taxes and increasing investment in information, knowledge, administration and technology. Working people can break it by striving to get education and training so they can compete for better jobs in the formal economy and be more productive.

"In our interest to reduce poverty"

Even the World Bank is pulling the rug out from under that part of the business sector obsessed with exclusive and exclusionary growth. World Bank president James Wolfensohn said in Prague in September that he believes the issue of poverty in middle-income countries and in Latin America to be "very serious, and less related to growth than to distribution." With respect to so many Latin American countries, he explained that "what we find is that, although there is growth, the distribution between rich and poor is in fact moving in the wrong direction. Our hope is to get the developed countries to recognize that it is in their interest to reduce poverty in the developing countries, because we all live on the same planet and unless we achieve stability and growth in the developing world, we will not have a peaceful world."
If the islands of development made up of Guatemala’s business elite do not respond to this challenge, the country will continue to be violent. A better distribution of wealth is not only a valuable form of solidarity among the country’s citizens but also a way to invest in the security conditions the economy needs. It is a more effective investment than electrified fences and armored vehicles.

Tempting global projects

Demagogy is of no use, particularly if it only serves to cover up corruption and incapacity. In the Central American Independence celebrations, President Portillo stated, "My government’s vision is strategically set on dealing with the challenges of globalization." This vision is what lies behind the signing of the free trade agreement between Central America and Mexico. It also lies behind the urging that the Central American countries stop biting their own tails in border conflicts and get on with integration, for example with the customs union. To that end, Portillo has named former ECLAC director Gert Rosenthal as his ambassador to the United Nations. The visit of Mexico’s President-elect Fox to Central America with his proposal for a development plan "from Puebla to Panama" and the visit of Canadian Prime Minister Jean Chrétien to Guatemala offer a tempting context for developing these ideas.

"Let us govern"

In his Independence Day speech Portillo said, "My government’s project is to build broad avenues for development and opportunities to better ourselves." Despite this positive evocation of Chilean President Salvador Allende’s last speech, Portillo also criticized his adversaries by complaining that "distrust and discrediting are eating away at us." He said he detects signs of "political cannibalism based on the principle that everyone is guilty until proven innocent."
The President thinks that the incorporation of a "culture of political lynching" in the relations between parties and in the journalistic approach of many media condemns democracy to failure. "Some lynch out of desperation and others out of a thirst for power," he opined. Claiming that "I am not here to criticize or accuse anybody," he proceeded to equate the opposition’s criticism with "political lynching," then capped his argument with the following: "It is not fair for businesspeople to tell us how to govern instead of using their creative energy and their capital to create better conditions every day. Let us govern, while you make constructive criticisms and proposals."
The problem is that President Portillo hears all criticism as "campaigns to undermine me" and takes umbrage at proposals—for example, those made around the Fiscal Pact—because they carry with them the aspiration that the government put them to good use by taking advantage of the consensus on them that has cost so dearly.

Who will buy from
the seller of hopes?

President Portillo aimed his strongest barbs at the business elite that backed his predecessor, former President Arzú: "Some don’t like the way we govern; that’s obvious. Who are they? They are the businesspeople who have treated the country as their own patrimony, their own house, who have hidden in the state’s shadow to accumulate fortunes. Those who swindled the country don’t like the way it’s being governed now." According to the polls, however, over 65% of the population doesn’t like it either. The state has always left most of these people defenseless, fighting for survival with their own scarce means, and this time they voted for a "seller of hopes" who gives them more reason for disillusionment with each passing day.

Portillo acknowledged two months ago that he had no choice but to listen to these people’s voices. He also said in his inauguration speech that the "peace accords will be state policy," but MINUGUA relentlessly reminds the state that the rhythm of compliance with the accords is slow and far behind schedule. And it had to be the commission set up to accompany fulfillment of the peace accords that, three days after the President’s speech, retrieved the complex and demanding text of the Fiscal Pact.

The limits of demagogy

Portillo chose Independence Day to announce that "we do not want to continue making the sales tax increase fall on the shoulders of the poorest, those who have the lowest minimum wage in Central America, those who have no jobs." The sentence is perfect and the promise forceful. Within a year or two we will see whether the President can take pride in having lived up to it or will have to back down under pressure from the economic powers that be and find other promises that can make people forget the ones he made today.

In January of this year Portillo claimed that if the assassination of Monsignor Gerardi was not cleared up within 180 days of his taking office, he would resign, but well more than 180 days have passed and he is still there. The words he said in that inaugural speech made people rise from their seats to applaud, but most of those words have not been backed with concrete actions to put them into effect.
The strategy of demagogy usually grows out of ambition, interests and incapacity. And corruption, incapacity and demagogy, which are becoming this government’s habitual ingredients, were the recipe for Guarogate.

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