"reconstruction must not be at the expense of transformation"

Guatemala
Peace and Reconstruction Program
A National Agenda for Transformation

Presentation

I. The Progress Made in Compliance with the Commitments of the Peace Accords

1. Progress in initiated transformations

1.1  Expansion of Democracy
1.2  Reform and Modernization of the State
1.3  Redefinition of National Security and Defense
1.4  The Efforts to build a multicultural, pluriethnic and multilingual Nation
1.5  Modifications in the models for public investment
1.6  Transformation of fiscal policies and practices 5

2.  Obstacles
3.  Progress in established priority areas

3.1  Constitutional Reforms
3.2  Justice and Security of the Citizenry
3.3  Land and Cadaster
3.4  Fiscal Reform
3.5  Participation and Decentralization
3.6  Indemnification Program

4.  Report from the Commission for Historical Clarification
5.  Improvement and Protection of the Environment

II.  Program for Reconstruction

1.  Damages caused by Hurricane Mitch
2.  Program for Reconstruction: An effort to reestablish, develop and strengthen our ftiture as a people and a nation
3.  Evaluation of the goals of the Agenda of the 100 Days
4.  Financing for the Emergency phase and the Agenda of the 100 Days
5.  Activities for the consolidation of the Reconstruction Program

III.  The Macroeconomic Environment

IV. Public Finances

V. The Role of the International Community

1.  The role of the International Coordination
2.  National Agenda for Transformation: a vision that goes beyond the year 2000.

2.1  Status of international cooperation
2.2  Inventory of the Peace Projects
2.3  Reconstruction Program

3.  Activities for accelerating the endorsement of instruments for cooperation and disbursements
4. The future support of the international community
5.  Priorities

Guatemala
Peace and Reconstruction Program
A National Agenda for Transformation

Presentation

This document describes the tremendous efforts being taken by the People and Government of Guatemala to consolidate democracy and promote sustainable development within a framework of compliance with the Peace Accords, giving national priority to the Agenda for Peace, with a complementary character, but not a substitute, for the Reconstruction Program.

The phase for building peace is barely 27 months old. The magnitude, complexity and simultaneity of the changes make them still vulnerable and thus they require strong domestic and foreign support. Within this framework, the support of the international community have been invaluable to the progress and consolidation of the process.

The Program for Peace and Reconstruction represents an opportunity to strengthen and deepen the democratic transformation which has begun in Guatemala, to consolidate the peace process and to make decisive advances in the solution of the most serious social problems of the country. In addition, it constitutes an opportunity to change the direction of the development of our country: to be more inclusive, participative, transparent and democratic.

The peace accords shape the most accurate diagnostic of our recent past and express what we aspire to be in the near future: a society based on liberty, democracy, justice, solidarity and a respect for rights, that will pave the way for progress, the elimination of exclusion and poverty, and which will promote respect for cultural, ethnic, linguistic and ideological diversity among all Guatemalans. In this sense, the peace accords are strategic elements for fundamental transformations needed to build a different, profoundly democratic Guatemala, committed to the integral and sustainable development of its population.

The implementation of the national agenda for transformation, derived from the peace accords and the reconstruction program, has required the will of the government and the involvement of other Institutions of the State to comply with the established commitments and priorities; it has asked for the participation of diverse national social and political forces; and it needs the support, and solidarity of the international community to achieve the best results.

The scene has changed in Guatemala, the transition towards a functioning and participatory democracy. the agenda for peace and the Reconstruction Program provide a framework to be shared between the International Community and Guatemalans, and an opportunity for overcoming the roots of social, economic, ethnic and cultural conflict, as well as the consequences of armed confrontations; not to mention overcoming poverty, extreme poverty, discrimination and social and political alienation which have presented obstacles to and distorted development.

Convinced that peace lies in the democratization and creation of structures and practices which, in the future, will eliminate political exclusion, ideological intolerance and polarization of Guatemalan society, solid bases for profound transformations are being laid which presuppose great efforts. We are talking about changes in socio-economic practices of privilege which are exclusionary, changes in the mode of production and distribution, in the manner of increasing access to opportunity and in the fiscal growth needed to make these things possible.

Alvaro Arzu

I.  The Progress Made in Compliance with the Commitments of the Peace Accords

The Government has incorporated the challenges of the Reconstruction Program into the framework of the Peace Accords comitments, reiterating the national priority for the Peace Agenda and the complementary, but not a substitute character, of the Reconstruction Program.

The Reconstruction Program contributes to the strengthening of peace, because it is articulated within the priority commitments of the Peace Accords that are related to expenditures and investment in the social sectors, the economic infrastructure, protection and preservation of the environment, land administration and order, employment, protection and participation of labor, and the participation of the communities in defining and executing the pollicies that affect them.

The articulation of the Reconstruction Program involving the process of transformation in Guatemala, presupposes the continuation of work to consolidate peace, as well as to preserve the public expenditure goals related to compliance with the peace accords, and also to establish new priorities in the allocation of public expenditures, by identifying those areas most likely to ensure a natural articulation between the priorities of reconstruction and the priorities of peace.

1. Progress in initiated transformations

The goals contained in the Firm and Durable Peace Accord, signed on December 29, 1996, along with the gradual implementation of the I I Peace Accords, especially the 179 commitments of the Timetable for Implementation and Verification of the Peace Accords, initiated the structural transformations in the country.

At the Consultative Group meeting for Guatemala in October of 1998, the Government manifested its will to carry out these transformations, and it once again reaffirms the commitment to continue with the following structural transformations:

1.1 Expansion of democracy

The structural transformations initiated in the country include the end of political exclusion and the acceptance of the Guatemalan National Revolutionary Union (URNG) as a political party in December of 1998, the expansion of opportunities for participation, principally through the establishment of more than fifteen multisectorial commissions concerned with the accords. To date, five of these commissions have presented their recommendations regarding strategic themes for national life--, and constitutional reforms oriented towards strengthening the reconciliation of public policy and the efforts to decentralize the State as the foundations of the new democratic society that is being forged.

The protection and guarantee of human rights for Guatemalans also constitutes a key aspect in the reinforcement of democracy and the rule of law. In recognition of the indisputable progress that has been observed in this area, in February of 1988, the United Nations decided to exclude Guatemala from its list of countries that have human rights violations. As a consequence of these achievements, the international community expressed its conviction that our country is no longer in discord with democratic nations.

In the area of decentralization, The National System of the Councils for Urban and Rural Development (COCECUR) have been strengthened, under the coordination of the Presidential Secretariat of Executive Coordination, with the advice of the Presidential Secretariat of Planning and Programming (SEGEPLAN). The purpose of this is to substitute the centralized and vertical structural support of the central government institutions. The more active role for the Councils for Urban and Rural Development has been given shape in the proposal for reforms to the Law for Councils for Urban and Rural Development.

One may conclude from the preceding that the constitution of full democratic development is a responsibility of all Guatemalans, in which the search for consensus is fundamental and in which it is not enough to merely subscribe to it, but to institutionalize and honor it. Only on the basis of new cultural codes of confidence, tolerance, respect for diversity and social solidarity will our new society be able to move towards full democratic coexistence.

1.2 Reform and Modernization of the State

Greater emphasis has been placed on modernization, decentralization and deconcentration of the public sector. Within the reforms to the fundamental systems of the Executive branch, since January of 1998, important modifications have been made and the Law for the Executive Branch came into force, under which the functions of the Presidency and the Vice-Presidency of the Republic, as well as the Secretariats and Ministries of State and other offices have been redefined. One of the characteristics of the new law is the emphasis it makes on decentralization and deconcentration, as well as the creation and strengthening of regional, departmental and municipal offices of the principal entities of the Government.

This process of modernization of the public apparatus has been accompanied by a proactive policy of systematic training of human resources and the simplification of bureaucratic procedures, the modernization of laws and the fusion or elimination of entities whose functions were duplicated by others.

To all of this may be added the emphasis that has been given to the processes of inter-institutional coordination in order to pave the way for effective working units among the State institutions. What is sought is a scheme of more specifically defined functions for each entity that will permit at the same time greater degrees of coordination.

As part of the modernization of the State, as part of the process of liquidating State assets, the Government of Guatemala sold 95 percent of its shares of the Guatemalan Telecommunications Corporation (GUATEL) and 80 percent of its shares in the Guatemalan Electric Corporation (EEGSA). The majority of the resources obtained through the sale of these State assets was utilized to increase the Budget of State Revenues and Expenditures with the purpose of increasing the coverage of investment programs geared for the priority social sectors and to continue the execution of projects destined for reconstruction and repair of the damages caused by Hurricane Mitch.

1.3 Redefinition of National Security and Defense

In terms of national defense, the goals planned in the peace accords have been accomplished, consistent with the relative reduction of the budget assigned to the Ministry of National Defense, as well as the planned decrease in personnel in the Army of Guatemala. This has been possible in part, thanks to the process of transformation that has been subjected to a permanent internal purging as part of its institutional reforms, and under the authority of the President of the Republic.

Within this framework of transformation of the armed forces, planned in the Program of Government and the Accord for Strengthening Civil Power and Function of the Army in a Democratic Society, the Ministry of National Defense began to deactivate a Special Military Comman , 4 Military Zones and 19 infantry battalions in 1998, 5 of these in the metropolitan area, 3 in Quich6, and I I more in the same number of departments. The Army complied with a 33 percent reduction in its personnel.

As a result of this reduction of the Army, in terms of budget and personnel, of reorientation of its functions, the professionalization and democratic formation of its members, the Government of Guatemala has progressed in complying with the Peace Accords in areas of democratic coexistence.

In 1998 the Ministry of Governance complied with the governmental commitment to provide installations for the National Civil Police (PNC), in order to improve their compliance with their functions, by building 7 new police stations in the department of Guatemala. In addition, in order to improve security conditions in the interior of the country, in 1998, 83 police stations and substations were remodeled in the nine departments which have PNC departments.

The process of institutional restructuring and professionalization of PNC personnel was also continued. These tasks are carried out on the basis of a new doctrine, totally based on the respect for the basic postulates of democracy and the multi-ethnic, pluri-cultural and multilingual character of Guatemalan society.

On the national level, 15 PNC departments are now functioning: 6 of these in the department of Guatemala and 9 in different departments of the country. Up to 1998, there were 8,512 PNC officers in service, which, added to the 3,805 National Police agents and 733 in the Treasury Guard, represent a total of 13,050 officers in the public security forces. In addition, the increase in the police forces was accompanied by the provision of new transportation equipment to all the police stations of the country.

The Academy of the National Civil Police, under the auspices of the Ministry of governance, began in 1998, to train 4,537 new agents, who, when added to those in existence, represent a total of 8, 357 new members trained since the beginning of the Academy's activities. The professionalized training of those civil policemen is gradually transforming the institutionality of public security, making it more adaptable to democratic needs.

All of the preceding is framed within the process of constitutional reform that has been underway, and in which we seek a redefinition of the functions of national defense, domestic security, military and civil intelligence, and the supervision of both of these through a commission of the Congress of the republic.

1.4 The efforts to build a multicultural, pluriethnic and multilingual Nation

According to Legislative Accord 15-99 of the Congress of the Republic, with respect to Popular Consultation, reforms to the constitutional text of articles 1,66 and 143, under which the Government recognizes that national unity arises from the explicit recognition of ethnic and cultural diversity, were approved. The fundamental focus is the battle against discrimination and privilege and the quest for the establishment of respectful and harmonious interethnic relations.

In this framework, support for the Guatemalan Indigenous Development Fund (FODIGUA) has been increased, with the goal of giving majority ethnic groups a financial instrument so that they may attend to their specific needs and promote their own development in an autonomous fashion. In accordance with this objective, FODIGUA, in 1998, financed 278 projects identified by rural communities, and for 1999, an increase in the funding of community projects is anticipated.

Due to profound socio-economic needs which plague the Mayan population, the majority of the resources that FODIGUA relies upon have been destined for improving agricultural productivity and the basic infrastructure for community development.

In addition, efforts are being made to create an Ombudsman's Office for Indigenous Women, the objective of which will be to promote activities for the defense and full exercise of indigenous women's rights, and this will entail administrative and financial independence, and will be composed of an Office of the Ombudsman and Regional Delegations. In the projected increase for the State Budget of Revenues and Expenditures for 1999, which defines the use of the resources resulting from the sale of state assets, $Q2.0 million have been earmarked to start its operations.

Guatemala is living through an intense process of identification and discussion of conceptual, institutional aspects, of human and financial resources, of training and strategies, all geared to the articulation, for the first time ever, of multicultural public policies that portend to replace, in the long run, the historical practices of ethnic and social exclusion. The dialogue between the State and the more diversely represented indigenous populations in the joint commissions created by the Peace Accords is the basis for this new consensual form of building our nation.

These instances are already delivering the reports that will result in the establishment and implementation of intercultural public policies that the indigenous population require. As a response, a critical mass of public officials is being formed, who, because of their competence in their jobs, will be charged with the application of inulticulturality and the integration of its elements into current and future state policies.

1.5 Modifications in the models for public investment

From 1995 to 1998, a significant increase in public investment has been observed and it has been accompanied by substantive modifications inn the models of said investment. It should be noted that it has been oriented towards the priority areas of combating poverty and economic modernization, which has special relevance as an instrument of promoting private investment, and as a result, economic growth.

The investments have been earmarked principally for highway infrastructure, energy, rural development and housing, in an effort to generate conditions for future public and private investments which will generate permanent employment, as well as connecting domestic markets and breaking the physical isolation which has characterized most of the country.

The Government of the Republic has committed itself to focus public investment towards rural development under the Accord on Socio-economic Aspects and the Agrarian Situation and in the Timetable for implementation and Verification of the Peace Accords. The objectives of this commitment will be: to contribute to the generation of employment and revenues in rural areas, especially in those that have the greatest indices of poverty and in which there has been armed violence; to promote the development of social capital and the rebuilding of the social fabric in the rural areas. We seek to foster the promotion of cooperation and solidarity, to establish nets of confidence and to facilitate peaceful resolution of conflicts.

Therefore, in this area, it is important to point out that the traditional models for public investment have been modified in a significant manner. Apart from a ruralization of public investment, with greater focus on the poorest departments and communities of the country in which it has never been present, we have prioritized the allocations to the sectors of highway infrastructure, energy and telecommunications. To that end, we seek to create the conditions for productive private investment which will generate employment as well as connecting markets and ending the isolation in which some regions of the country have been living.

Public investment has emphasized the increase of social expenditures and improvements in the quality of the expenditures. This has translated into an increase in health coverage, education and literacy programs and housing.

The formulation of the General Budget of Revenues and Expenditures of the State for previous years contemplated increases in public investment, with the goal of financing the cost of the commitments assumed in the Peace Accords and the Government Program.

With respect to the geographic distribution of the investment, this has shown increases in the departments with the greatest needs and those most affected by internal armed conflict.

In terms of the budget, the process of decentralization of public investment was supported by introducing regional and community criteria for allocation. To that end, training and orientation activities at the regional and departmental levels were developed.

In this sense, as of 1997, the preparation of the State Budget has been shaped with the participation of the Departmental Councils for Urban and Rural Development, by taking its requirements as priorities for the planning of public investment.

1.6 Transformation of fiscal policies and practices

The Government has committed itself to building the bases for an environment characterized by stability and the recuperation ofeconomic growth. In this sense, the Government promotes a fiscal policy consistent and coherent with the rest of the instruments of economic policy in order to achieve the stability of prices and sustainable growth.

An intensive process to modernize and make public finances healthier and to improve the current tax system has been promoted, with the goal of facilitating and ensuring the payment of taxes, within a mid to long term period.

The Government has asked the Commission for the Accompaniment of Compliance to the Peace Accords to revise and reschedule the tax goals contained in the Accord Timetable, which were reprogrammed for two years and should be completed by 2002, through the Ministry of Public Finance.

In order to comply with the tax goals, the fiscal authorities have made efforts geared towards increasing the collection of taxes which, according to what has been established in the Accord on Socio-economic Aspects and the Agrarian Situation, ought to be increased up to 12 percent of nominal GDP in the year 2002.

In order to increase the tax collections, the Ministry of Public Finance made a commitment before the Commission of Accompaniment of the Peace Accords to carry out certain measures, among which the following stand out:

To promote a broad process of agreement with the political, social and economic sectors of Guatemala, looking towards defining a fiscal policy with a long term view that would eliminate uncertainty by defining clear, efficient and consistent rules. Along these fines, the Ministry of Public Finance has progressed in complying with this commitment, by convening a National Forum for the Fiscal Pact, anticipating that this process of reconciliation might conclude during the first trimester of 1999. The following studies are to be carried out as part of the work of the Forum:

• Methodology for the evaluation of the progressivity of the tax system
• Broadening of the tax base
• Strengthening of the penal sanctions related to fiscal fraud and capacity for investigation and sanctions of the Public Ministry and of the Judicial Branch.

2. Obstacles

The transcendental and profound transformations that have begun in compliance with the Peace Accords have touched upon all of the factors of power and balance of our society. Nevertheless, we see, like any society in transition, popular initiatives affected by confrontational and sectarian traditions, complicated by the presence of actors who sometimes do not take into account the social base and support, but tend towards relying upon financial support that enables them to be protagonists in forums that have no relationship to their supposed constituency.

In a similar fashion, we find ourselves faced with a weakness of civic conscience in general that affects us on several levels, particularly in that of the peace process. The lack of knowledge in fiscal matters results in an attitude in which payment of taxes is ignored.

Another problem that needs to be overcome is related to the continuous opposition by some political groups or non-governmental bodies to initiatives that the Executive Branch promotes. The deep-rooted custom of considering that the only way to have political power is to oppose everything or to assume a posture of shirking responsibility delays the implementation of the Peace Accords in some areas.

To the aforementioned we can add the perception of these same groups that generating consensus means espousing particular interests, even at the expense of sacrificing higher national objectives.

Other difficulties are linked to the expectations and perceptions of diverse sectors regarding the peace process, which are exacerbated by attitudes of the interest groups who, in order not to lose their position, have . dedicated themselves to spreading the word that nothing has changed. In this sense, the perception is maintained that the need to reschedule some commitments has been interpreted to mean non-compliance, and that significant improvements in the living conditions of the population will take place, but not immediately.

Nevertheless, these events have evolved and have been progressively alleviated through the quest for national consolidation, which allows us to comply with the goals and proposals contemplated in the Peace Accords, thereby overcoming the difficulties in order to achieve our objectives as a country.

3. Progress in established priority areas

The combined structural transformations which have already begun are changing our nation. In the mid and long run, progress that today is taking place will create the appropriate conditions for attracting productive investment, for generating employment and revenues, which will improve the level and quality of life of all Guatemalans. In order to ultimately attain the strategic objective of consolidating peace the following areas continue to be worked upon:

3.1 Constitutional Reforms

As part of the compliance with the Accord for Constitutional Reforms and Electoral Rules, signed in Stockholm, Sweden, December 7, 1996, the Congress of the Republic, via Legislative Accord 15-99, approved the constitutional reforms necessary for allowing the initiation of the Modernization of the State, the continuation of the compliance with the Peace Accords, and the facilitation of fraternal coexistence and better understanding of the Guatemalans.

As established by the Political Constitution of the Republic, these must be subjected to the process of referendum, which will definitively determine whether or not they are approved. Said referendum will take place on May 16, 1999, and in order to facilitate the referendum, the reforms were divided into the following four categories:

• Nation and Social Rights, which includes the reforms to articles 1, 66, 70, 94, 110, 135 (sidebar g), 143, provisions 13, 30 and 32. These articles incorporate the recognition that the Guatemalan nation is unified and united; within its unity and integrity, its territory is pluricultural, multiethnic and multilingual. The right of identity for the Mayan, Garifuna and Xinca peoples, as well as their distinct forms of spirituality, their authority, their traditional form of imparting justice, and their indigenous languages are acknowledged. Free health services are also made explicit. In addition, these citizens can opt for military or social service.
• Legislative Branch, which contains the reforms to orticles 157, 164 (penultimate paragraph), 166, 167, 171 (clause n), 173, 176 and provision 28. The reform of these articles is relevant in indicating that the Congress of the Republic will oversee the intelligence units of the State and will have hearings with the ministers designated or named by the President of the Republic. The citizenry will be able to formulate opinions on the initiatives before voting on them, through an invitation that will be published in the Official Bulletin.
• Executive Branch, which includes the reforms to articles 182, 183 (with the exclusion of paragraph r, but reforming sidebar t), 225, 244, 2445, 246, 248, 249, 250 and provision 33, and the reform of the denomination of Chapter V of Title V as well as the additions to Section I and Section Il of the same, contained in articles 33, 34 and 40 of the Reforms to Political Constitution of the Republic of Guatemala. The reforms of these articles highlight the following: A law will regulate the security services of the President and Vice President of the Republic and their respective families, and they will be under the charge of officials and civilian personnel, as of January 14, 2000. The role of the Army as a permanent institution at the service of the State will be redefined, which circumscribes it to the defense of the sovereignty of the State, the integrity of the territory and the protection of its borders. Likewise, the Minister of national Defense will be a civilian. The operations of the Army in the event of a state of emergency will be regulated by the Law for Public Order, and its members on active duty will not be able to hold any public office, except for the Minister of National Defense. It is established that the Civil National Police, under the direction of civil authorities, is the only armed police body with national competency in order to be able to participate in the planning of municipal development. The President of the Republic will not be able to excuse fines and other charges of his constituents.
• Judicial Branch and the Administration of Justice, is referred to in the reforms to articles 203, 204, 205, 206, 207, 208, 209, 210, 213, 214, 215, 216, 217, 219, 222, 251 and provisions 29, 31 and 34. In these articles are highlighted the following: crimes and misdemeanors committed by military personnel will be acknowledged and judged by judges of the normal jurisdiction. It is stipulated that military tribunals will form part of the Judicial Branch and their functions will be circumscribed to crimes and misdemeanors of a strictly military nature committed by military personnel in active service. The State recognizes customary indigenous rights so long as they do not violate fundamental rights defined by the national judicial system. Essential conditions for the administration of justice are established regarding respect for the multiethnic, pluricultural and multilingual character of the population, access of the Guatemalan population to justice in their own language, and the right to free professional counsel to those who cannot afford it. The Law for Judicial Study guarantees the stability, suitability, efficiency and efficacy of judges and magistrates. The Judicial Branch shall be allotted no less than six percent (6%) of the normal revenues of the State. The Congress of the Republic will be able to remove the Attorney General of the Republic, with a majority two thirds vote, or more, of the total number of deputies who are members.

In addition, the establishment of the judicial decree will rely upon its own Council and its own law, as well as on Tribunals of Responsibility charged with overseeing the appropriate performance of its official, under penalty of drastic sanctions in the event of non-comphance. A period of ten years has been granted for the realization of profound changes in the judicial system, which includes as its principal focus the implementation of oral judgement and the judicial decree.

In order to strengthen this branch of the State, a quantity of no less than 6 percent of normal State revenues has been projected for allocation to the Judicial Branch. This represents an increase from 2 to 6 percent of said contribution. The substantive nature of these changes involves all the factors of power and equilibrium of Guatemalan society. The magnitude, complexity and simultaneity of the changes makes them all the more vulnerable and require a sustained domestic and foreign support to give continuity of the process.

3.2 Justice and Security of the Citizenry

The principal causb of insecurity in Guatemala has been rooted in the conditions of extreme poverty that affects a significant portion of the population, as well as the weakness of the state apparatus to respond in an appropriate manner of this problem.

Therefore, the Government of the Republic has given priority to its security policy, since public safety is an essential element for the development of democratic rule and for peaceful coexistence.

in addition, the fight against delinquency and insecurity ought to be approached in an integral manner, from attention to the basic needs via the reallocation of public expenditures, taking into account the generation of investment and employment, to the strengthening of the justice system, of the corrections institutions, and to the state of law in general. The appropriate performance of the institutions in charge of overseeing citizen safety is indispensable to the improvement of the security situation of the country.

The Ministry of Governance in this sense has complied with the governmental commitment to provide installations to the National Civil Police in order for them to improve their operations. During 1998, new stations were built, and other stations and substations were remodeled. This process has also been accompanied by professional training and an increase in the police force, as well as the purchase of new transportation equipment to all police stations in the country.

The Army likewise has given complementary support to the PNC, which has been fundamental in the protection of citizen safety as well as helping this institution with human and material resources.

Although it is clear that delinquency and insecurity continue to figure prominently among the principal problems at a national level and that there remains much to do, it is also true that progress has been made in creating appropriate conditions for personnel, infrastructure, equipment and training to provide for the efficient compliance in the difficult task of preserving law and order on a national level.

3.3 Land and Cadaster

Tenancy, property and land use is one of the most complicated and sensitive topics in Guatemala, due to the historical and socio-economic implications it has. As a consequence, numerous conflicts have arisen that have often ended in violence that makes the problem all that more serious in rural areas.

In the face of this situation, conflict resolution by means of dialogue and negotiation has become a topic of national interest and thus has been included in the agenda of the peace accords as one of its priority points, as seen in the Accord on Socioeconomic Aspects and the Agrarian Situation, signed in Mexico on May 6, 1996. With the purpose of resolving said problem, the Government of the Republic created the Presidential Department for Legal Assistance and Conflict resolution, CONTIERRA, whose primordial objective is constituted in-the promotion of an integral strategy geared towards creating and expanding alternative solution mechanisms in the face of said problem.

As of March 31, 1999, the department has dealt with a total of 335 cases, of which 157 have been considered concluded, and it continues working to find alternative solutions in the remaining 178 cases.

With the purpose of continuing work on resolving conflicts that are still pending final resolution, 45 negotiation units are active, through which the parties involved may resolve their differences. In addition, a dialogue and negotiation unit also continues to be active among representatives of the Private Sector, members of the Chamber of Agriculture and the principal rural organizations united under the National Coordinator of Rural Organizations, CNOC. considered to be a milestone in the agrarian history of the country, taking into consideration the high level of the representatives meeting under the facilitation of CONTIERRA.

In addition, an expansion of the presence of the Department has taken place with the placement of a regional and two subregional offices whose goal it is to expeditiously attend to the problems in the Pet6n.

On the other hand, considering that large sectors of the Guatemalan population is made up of farmers with no land or with insufficient lands, which makes it difficult for them to have access to improved conditions of life, liberty, justice, safety and peace in their development, not to mention compliance to what was established in the Accord on Identity and Rights of the Indigenous Peoples and Socioeconomic Aspects and Agrarian Situation, the Congress of the republic is in its final phase of approving a law for Land Funds, which went though a process of consultation and consensus by rural organizations and farmers. This institution will be created to facilitate access to land and to generate conditions for integral and sustainable rural development through productive hydrobiological, forestry, and agricultural projects. As a result of the budget increase for 1999, which comes from the sale of state assets, $Q200 million, or US$28.6 million have been allocated for the Land Fund.

In relation to the implementation of cadaster in Guatemala, in 1998, the Government of the Republic, through the Ministry of Agriculture, Livestock and Alimentation set the minimum bases to initiate the cadastral process on a national level, with the following agenda:

a) definition of the conceptual strategy to follow;
b) definition of the pilot areas in national territory;
c) definition of financial strategy; and
d) definition of technical and legal strategies.

On the basis of technical and legal criteria, the Government defined as pilot zones for national cadaster the departments of Pet6n, Alta and Baja Verapaz, Zacapa, Chiquimula and Sacatep6quez. Likewise, it was decided to initiate a study of the cadastral records of the National Geographic Institute, taking as an initial reference the municipality of Escuintla.

Because of the magnitude implied by the cadastral task, the Government defined an open-ended financial strategy so that diverse collaborators could participate. In the last months of 1998, the financial strategy for the execution of the pilot projects were fully specified.

In November of 1998, the services of aerial photographers were contracted by means of a short list bidding process carried out with the help of the United Nations Program for Development in Guatemala, and in February of 1999, aerial photographs were taken. Cadastral monographs were completed for three of the pilot municipalities, a pilot study on women in Guatemala was begun, as well as an anthropological study on the perception of property from the perspective of the indigenous culture in Puralhi and Santa Cruz (Achi, Pocomchi and Keqchi), and in an intense strategy of social interaction more than three thousand community representatives of the pilot communities were visited.

In legal matters, a draft for a law of recording cadastral information (RIC) was prepared, and it was presented to the Joint Commission on Rights Related to the Lands of Indigenous Peoples in February of 1999. The Coordination of Organizations of the Mayan People of Guatemala--COPMAGUA- began in March of 1999, along with other sectors of civil society, a process of consultation to gather data for the draft in order to arrive at a consensus with the Government.

As of March, 1999, cadastral information on 1,200 properties in urban and rural zones in Sacatep6quez and Pet6n has been released. The process of geographical placement of urban blocks in all of the municipalities has also been initiated.

3.4 Fiscal Reform

One of the commitments of transcendental importance that plays a determinant role in the viability of a large part of the accords, especially in terms of social, economic, security and administration of justice matters, is that which refers to fiscal policy, in terms of both expenditure and revenues.

The Commission of Accompaniment of the Peace Accords, has given special priority to the implementation of this commitment.

The Commission recognizes the efforts made in the improvement of tax administration, the systems of tax information and legislation, but, nevertheless, considers that there is important ground to cover in this area.

In February of 1998, the Ministry of Public Finance submitted a proposal to the Commission of Accompaniment for the rescheduling of the commitment in the goal for the tax increases. After eight months of intense consultation, which included the highest levels of government, the Commission, through the powers conferred to it by the Peace Accords, agreed on October 16, to reschedule the increases in tax ratio relative to GDP to the year 2002.

Within the framework of rescheduling, the Commission of Accompaniment, which now includes the Minister of Public Finance as an ex-oficio member for matters of rescheduling the tax objectives, deemed it indispensable to promote a broad process of reconciliation with the political, economic and social sectors of Guatemala with the intention of defining a fiscal policy that would allow for a long-term view and eliminate uncertainty by defining clear, efficient and consistent rules. For this reason, a National Forum for the Fiscal Pact was convened to gather opinions and the consensus of the economic, political and social sectors of Guatemala, with the support of experts in the field. That is to say, national consensus regarding what ought to be the fiscal policy of Guatemala in the future, from the year 2000 onwards, is being promoted.

After a series of preparations of a technical nature, the Commission of Accompaniment initiated the process towards formulating the Fiscal Pact as of March 19, 1999.

To that end, a group of Guatemalan professionals, specialists in fiscal and solvency policy were invited to join the Preparatory Commission for the Fiscal pact in order to develop the preparatory process.

In the first place and within the framework of a permanent and systematic process of formal and informal consultations with the aforementioned sectors, the preparatory Commission for the Fiscal Pact drew up a basic document for discussion that seeks to gradually integrate the elements of initial consensus on the matter. Once achieved, opportunity for the most suitable intersectorial reconciliation will be generated, the format of which will also be proposed by the Commission of Accompaniment and consulted with the participants of the process. It is hoped that completion of a basic document and the proposal of a reconciliation methodology will be achieved towards the middle of this year, by developing the following thematic agenda:

1. Meaning of the Fiscal Pact

a.  The concept
b.  Framework of Policies

b.1  National
b.2  International

2.  Principles of the Fiscal Pact

a.  Fiscal Balance
b.  State Revenues
c.  Tax Administration
d.  Public Expenditure
e.  Public Debt
f.   Management of State Wealth
g.  Control and Evaluation (administrative, juridical and political)

3. Reciprocal Commitments of the Fiscal Pact

a.  Fiscal Balance
b.  State Revenues
c.  Fiscal-Contributor Relationship
d.  Tax Administration
e.  Public Expenditure (including the consideration of quasi-fiscal expenditure)
f.   Public Debt
g.  Management of State Wealth
h.  Control and Evaluation (administrative,  juridical and political)
i.   Combating Impunity and Corruption

4. Coordinating Methodology of the Fiscal Pact

a. The Actors
b. Methodological proposal for coordination 

Later, on the basis of both proposals--the basic document and the proposed coordination methodology--a process of negotiation to define more precisely the proposals that will form part of the Fiscal Pact and the establishment of reciprocal commitments will be initiated. This process represents an unprecedented event for Guatemala and it is a unique opportunity to agree nationally upon the fiscal policy of the State, with a vision of the country in the long run and with clear and stable rules.

As of next year, Guatemala will confront the inevitable need to mobilize a large amount of internal resources in order to sustain and augment the current levels of public expenditure and investment and to face up to the tasks for peace and development. To meet this need, a fiscal policy which would ensure the fostering of peace, the compliance with constitutional responsibilities of the State and the promotion of integral and sustainable development will be necessary.

So that the electoral situation that has begun not present any obstacle whatsoever to the full development of this process, the Fiscal Pact offers an important and equal opportunity to all political parties to agree upon, with the society, a fiscal policy that would be implemented by the year 2000. A government must inevitably apply a fiscal policy. This process provides the opportunity for it to be the result of a process of national reconciliation in which the responsibilities are assumed and shared.

3.5 Participation and Decentralization

The Government of the Republic believes that by means of decentralization and citizen participation the democracy will become stronger, and thus it has begun activities to reform the State by focusing on the decentralization and deconcentration of the public sector.

The National System of Councils for Urban and Rural Development have been strengthened, and through the Solidarity Fund for Community Development, activities in support of the regional Councils for development have taken place, such as: training of personnel and granting of funds to eight regions of the country for the purpose of strengthening and perfecting their performance in the allocation and coordination of investments made in the departments of their jurisdictions. It is worthy of mention that, in 1998, the naming of 22 managers and assistants in the 22 Departmental Councils was begun, and also in each one of the departmental councils a delegate for the Ministry of Health has been named. The improvement in the coordination among the Regional and Departmental Councils has provided for greater efficiency in the mechanisms for financing and oversight.

The greater dynamism of the Councils for Development has allowed SEGEPLAN to gradually decentralize the process of planning the investment budget of the State, in compliance with the new functions assigned them by the Organic Law for the Budget and the Executive Branch Law.

On the other hand, the initiative for the law to reform the Councils for Urban and Rural Development with emphasis on the creation of Community Councils for Development is currently on the floor of the Congress of the Republic. Nevertheless, its approval is subject to the ratification of the reform of article 255 of the Constitution of the Republic in a Popular Referendum.

At the local level, the constitutional budget allocation of 10 percent corresponding to the municipalities has been turned over in the strictest and most punctual fashion, and, in turn, Municipal Technical Units have been placed in the municipalities for support. Greater technical training has also been given to officials, including the planning for municipal investment and the management and administration of taxes.

Within sectorial decentralization, the implementation and improvement of systems which have contributed to broadening coverage and bettering educational and health services through the direct involvement of the community in accordance with the principal of State deconcentrations is worth mentioning, such as:

• The Ministry of Education's National Program of Self- Management for Educational Improvement (PRONADE), coordinator of the Committees for Educational Self-Management at the local level (COEDUCAS), for which the Government has continued to increase financing and the establishment of new committees.
• The Integrated System of Health Care (SIAS), which, with the vigorous support of the Ministry of Public Health, operates on levels of primary care (community centers and local health clinics), secondary levels (health centers) and tertiary levels (departmental and national hospitals), has increased the number of health centers and clinics.

3.6 Indemnification Program

In reference to indemnifying and/or assisting victims of violations against human rights, the Government will provide assistance through the coordination of the Secretariat of Peace with governmental measures and programs of a civil and socioeconomic nature, directed in a priority fashion to those who most need it, given their economic and social condition. The Secretariat of Peace will incorporate the pertinent recommendations that the Commission for Historical Clarification formulated in this matter.

Along these lines, pilot programs have been put into place in communities affected by violence. The structure of the community indemnification program and assistance to victims was designed, and it constitutes a response for initiating a systematic compliance to the commitments made by the Government of Guatemala in the Global Accord on Human Rights, numeral 8, signed in Mexico on March 29, 1994, in which is stated "the parties recognize that it is a humanitarian duty to indemnify and/or assist victims whose human rights have been violated"; and, in the Accord on the Bases for the Legal Incorporation of thee Guatemalan national Revolutionary Unit, numeral 19, signed in Madrid, Spain, on December 12, 1996, the following is established: "the principle that any violation against human rights gives the victim the right to make a claim for reparation and places the responsibility for reparations on the State; the state entity charged with the public policy for indemnification and/or assistance to victims of violation's of human rights will take into account the recommendations of the Commission for Historical Clarification."

The Program has a duration of four years; to this date, three pilot programs are in operation in Quich6 and Chimaltenango, Rabinal, Baja Verapaz, as well as Alta Verapaz.

In addition, in the increase of the Budget for Revenues and Expenditures of the State for 1999, for the utilization of resources derived from the sale of State assets, Q18 million were initially allocated for the National Program of Indemnification and/or Assistance to victims of armed internal violence. The project is geared towards the population most affected by human rights violations, with priority to the areas most affected by violence and that currently find themselves in conditions of greatest vulnerability. Q2 million are designated for the Assistance Program to those who were affected by armed internal conflict, through an efficient mechanism that will accelerate compliance with these commitments.

4. Report from the Commission for Historical Clarification

With relation to the Report of the Commission for Historical Clarification, the Government recognizes and values the work carried out by the Commission, as it signifies compliance with "The Accord on the Establishment of the Commission for the Historical Clarification of Violations to Human Rights and Cases of Violence that have Caused Suffering to the Guatemalan People", signed in Oslo, Norway, on June 23, 1994.

In terms of the recommendations to the Commission, the Government reiterates that in everything relative to the peace process, it is guided by the letter and the spirit of the respective accords, and it praises the fact that the majority of the recommendations of   the Commission signify compliance with said accords. The report of the CEH also ought to be an instrument for reconciliation in the country. In the constant quest of that objective, the Government will take into account those aspects of said report which contribute to reconciliation, in the framework of compliance with the Peace Accords.

5. Improvement and Protection of the Environment

Government policy for its different post-Mitch programs and in compliance to the Peace Agenda provides for the integration of management of renewable resources (water, soil, forests and biodiversity) with the productive development of agricultural, forest and hydrobiological resources in an It environmentally friendly" manner. This has the purpose of contributing to the improvement of the quality of life of the rural population that depends directly and indirectly on agriculture and natural resources, thereby calling for a reevaluation of life in the country, progress towards equity, balanced development of the regions of the country and the diminution of structural heterogeneity, which is the expression of underdevelopment and poverty.

The general orientation planned by the Government to reduce the problems of the environment can be translated into the conviction that protection and preservation of nature can not be an obstacle for the integral development of the country. On the contrary, its rational sustainable use will be the basis for the new process of development in Guatemala.

In this sense, the indicated programs have incorporated the management of explicitly renewable natural resources primarily via policies concerning management of rural lands and 'the integral management of

resources in hydrographic basins. Said initiatives will aspire order to prevent disasters caused by erosion in areas whose characteristics, present a high risk, to halt the depreciation of natural capital and to improve the productivity of renewable natural resources, with the finality of adding a dimension of ecological sustainability, in addition to the social and economic dimensions already included in the programs.

The government institutions that will carry out activities in this area are: The National Commission on the Environment (CONOMA), the National Council for Protected Areas (CONAP), the Guatemalan Fund for the Environment (FOGUAMA), the Secretariat of Hydraulic Resources (SRH), the Social Investment Fund (FIS), the Special Commission for Attention to Repatriates (CEAR), the Ministry of Energy and Mines (MEM), the Secretariat of Executive Coordination of the Presidency (SCEP), the Guatemalan Institute of Tourism (INGUAT), the Authority for Sustainable Management of the Lake Atitlin Basin and its surrounding areas (AMSCLAE), the Authority for the Sustainable Management of the Lake Amatitlin Basin (AMSA), the Authority for the Management of the Lake Izabal and Dulce River Basin, the National Institute of Forests (INAB), and the Ministry of Agriculture, Livestock and Alimentation (MAGA).

The activities that these institutions will undertake for the purpose of supporting the governmental strategy are based on two types of policies:

a) Global Policies: geared towards resolving in a horizontal fashion the causes of environmental problems, with activities such as environmental education, applied research, mobilization of the local civil society and orientation towards technical assistance with an entreprenurial mentality.

b) Specific Policies: geared towards the protection and improvement of the environment, with priority given to depletion and pollution of water, air pollution, loss of biodiversity, and degradation and contamination of the soil.

The instruments for developing environmental management that have currently made great progress are:

a) Studies on Environmental Impact
b) Residual Waters
c) Habitational development which help to define criteria to diminish the analysis time for habitational development
d) Noise and Emissions
e) Toxic Wastes
f) Accords for the collection and disposal of used oils
g) Dumping of residual waters
h) Environmental Auditorship that seeks to follow through on the environmental impact studies
i) Popular complaints
j) Visible pollution
l) Management of hospital wastes

II. Program For Reconstruction

Reconstruction has posed some new challenges and difficulties, but it has also presented a valuable opportunity to deepen the consolidation of the peace process in Guatemala and to advance in a decisive manner solutions to some of the most serious social problems of the country, as is the case with extreme poverty, environmental deterioration and the quantitative and qualitative deficit of housing

The articulation of reconstruction with the peace process has provided for a view of reconstruction as an integral process that seeks to rebuild the economic and social environment affected or damaged on sustainable bases and from a mid and long term perspective. In this sense, reconstruction has been converted into a powerful instrument for strengthening the peace process and lays its foundation on a process of integral human development in the country.

The integrated process of reconstruction-transformation has presented the socially viable political option of conciliating the major needs for public expenditure with the major budgetary restrictions arising from a possible reduction in the rate of economic growth in 1999, with respect to the calculations used in the formulation of the budget. Nevertheless, the government, with the approval of the Congress of the Republic, will allocate resources derived from the sale of State assets to attend to the needs of programs and projects in the program for Reconstruction, without neglecting the financing of the accord commitments for the construction and consolidation of peace.

1. Damages Caused by Hurricane Mitch

Mitch left abundant damages in the region of central America, in human lives as well as in physical infrastructure, agricultural production and the environment. A summary of the principal damages caused by Mitch in Guatemala is presented in the following table:

With respect to losses in the agricultural sector, nearly 100,000 hectares of land were damaged, principally those used for the cultivation of coffee and corn, in the regions most affected by this natural phenomenon. In following we present a report of the damages caused in the cultivated areas of the affected regions, as well as the quantity of the losses incurred:

The losses mentioned caused a negative impact on the principal macroeconomic indicators (the estimation of this effect is presented in other chapters of this document). The major damage caused by Hurricane Mitch in Guatemala was concentrated on 19 municipalities, of which 6 were the most 'affected. Nevertheless, substantial damages were also reported in the rest of the municipalities affected with secondary damages. A summary of the departments and municipalities with the most damage is presented below:

In the national sphere, the impact of this natural phenomenon was observed with lesser intensity. Nevertheless, the effects were seen in the entire Republic.

2. Program for Reconstruction: An Effort to Reestablish, Develop and Strengthen Our Future as a People and a Nation

With the purpose of alleviating the situation generated by this natural phenomenon, the Government of Guatemala formulated a Program for Reconstruction based on four fundamental premises:

1. It is additional to rather than a substitute for the Peace Accords.
2. Reconstruction should provide an opportunity to recuperate and improve the infrastructure that was lost as wen as rehabilitate and strengthen productive capacity in order to carry it to higher levels than those prior to the disaster.
3. Maximum priority should be given to those activities geared towards improvement of prevention and the ability to respond on an institutional and community level in the face of any future disaster.
4. A regional focus should be supported that would tend to reestablish intra-regional equilibrium and take advantage of the crisis in order to achieve a strategic repositioning of the region, by including new momentum towards integration.

Taking into consideration these premises, the Program for Reconstruction intends to achieve four fundamental objectives:

1. Normalize living conditions for people who have been left homeless.
2. Rebuild the physical damages caused by the Hurricane.
3. Recuperate and develop the productive capacity of the country.
4. Improve the systems for prevention and the ability for mitigation in the face of any future disaster. Said objectives were separated into two phases:

1. The two first objectives would be completed within one hundred days after November 13, 1998 and would form the "Agenda of the 100 Days."
2. The third and fourth objectives, given their nature of greater scope, include the activities of productive reactivation and of prevention that the current government would be carrying out during the rest of 1999 and which would require particular efforts during the next governments.

3. Evaluation of the goals of the Agenda of the 100 days

With the Agenda of the 100 days, the Government of the Republic set forth the following objectives:

1. To normalize the living conditions of those left homeless, and
2. To rebuild the physical damages caused by Hurricane Mitch.

In order to achieve said objectives, the following goals which were to be completed in a period of 100 days, beginning as of November 12, 1998 and ending on February 20, 1999, were set forth:

1. To channel food, medicine, drinking water, and other basic articles provided by Guatemalans, the government and the international community to all people living in shelters or temporary housing and to the homeless, in order to guarantee that they have food for as long as it is necessary.
2. To provide the entire population who is at risk of epidemic outbreaks with vaccinations, attention to and prevention from diarrhea, cholera, malaria and dengue, and skin infections, by providing the necessary medicines and equipment. Rehabilitation of the network of health services.
3. To provide drinking water to the affected communities, rehabilitating 75% of the water systems (damaged aqueducts, sewers and latrines) and to rebuild 50% of those destroyed.
4. To rehabilitate 75% of the damaged school buildings and rebuild 50% of the schools destroyed.
5. To replace damaged schoolbooks and desks.
6. To provide technical materials and assistance to 80% of the population who were evacuated so that, through mutual help and their own efforts, their homes may be rehabilitated.
7. To rehabilitate all the. roads and bridges of the primary paved highway network and to put into operation the damaged secondary roads.
8. To reestablish the operations of electrical service in the affected areas and to normalize operations of the damaged hydroelectric plants.
9. To support agricultural production and rural employment in the country by rehabilitating 29 irrigation units, 50 artesian irrigation systems and 100 small irrigation units that were affected by the Hurricane.
10. To rehabilitate 1,000 hectares of the lands affected by the Hurricane and which are in the hands of small and mid-sized producers.
11. To evaluate and attend to the environmental damages caused by the Hurricane and to improve the plan geared towards better prevention capability.
12. To support all activities for the reactivation of the economy and the generation of employment in the affected rural areas, as well as to coordinate with the Public and Private Sector to design the National Program for Recuperation and Development of the Productive Capability of the Country.

When the time period was over, the achievements that were made in each of the goals were:

Goal 1
The total number of people who needed to be placed in shelters or temporary housing was 54,725. At the end of the 100 days, it was planned that 100 percent of this population would return to their homes, if it was feasible to rebuild them, or, if not, they would be given help in finding new living quarters.

They were also to be given food, clothing and medicine until this was no longer necessary, with the purpose of guaranteeing that they had enough to eat.

The activities undertaken in this sense consisted of

• Technical assistance and materials were provided to the affected to rebuild their homes through the "Techo-Piso Program".
• For those who were unable to rebuild their homes or be return to their original homes, a solution was provided through the FOGUAVI Plan.
• The Food for Work Program was implemented as a complement to these programs, with the purpose that the affected population should not only resolve their housing problem but also the problem of providing sustenance to their families.

On February 20 of the current year, the situation was as follows:

• A total of 54,195 people were relocated in their own homes or in alternative living quarters, which were provided through the FOGUAVI Plan.
• 530 people still had not obtained this type of help, but were continuing, nevertheless, to receive food, medicines, and clothing in the shelters where they were still living (Zacapa, Sololi, Izabal and Chiquimula).
• With the help of Guatemalans, the international community and the institutions of the Government, medical attention, food and clothing were provided for people living in shelters or temporary housing.
• These programs were complemented by the Food for Work Program, which consisted of providing rations that would guarantee the necessary nutrients for a balanced diet for a family of 5 people in exchange for their labors in reconstruction. The investment employed for this program amounted to US$ 1.4 million, and it was implemented in all of the affected departments, principally in Izabal, Alta Verapaz and Zacapa.

Goal 2
In order to comply with this goal, activities undertaken focused on:

• The execution of the following 10 programs, with which the entire population at imminent risk were covered and which was then extended to the national level:

PROGRAM BENEFICIARIES National Program for Immunizations 7,280,689 Prevention from and Attention to Dengue 1,206,649 Prevention from and Attention to Malaria 6,928,286 Control and Treatment of Zoonosis-like Diseases 2,800,000 Prevention of Diarrhea and Cholera 5,641,619 Prevention from and Attention to Skin Diseases 2,800,000 Rehabilitation of Health Centers 2,800,000 National Program for Social Communication in Health 6,910,000 Logistics and Social Mobilization Program 475,121 Equipment for Ambulatory Treatment 2,800,000 > The Inter-Institutional Commission that grouped together the Ministries of Health and Social Assistance, Agriculture, Livestock and Alimentation, and Defense was created to form the Brigades for Technical Support, the Operative Health Brigades, and the Departmental Councils for Emergency, through which the promotion of integral health activities had effective and efficacious coverage at a national level. The execution of these programs counted on the support of medical students from the Universidad de san Carlos as well as the international community.

• With respect to the support provided by the international community in this area, the United States, Mexico and Cuba provided advice and the development of medical-epidemiological activities in priority areas; they collaborated on the organization and operation of two field hospitals, they functioned as advisers for the network of clinical and microbiological laboratories, and they collaborated on the distribution of medicines, with financial support in the areas of health. The total amount used for these projects was US$ 4.1 million.
• In addition, phyto-sanitary activities were carried out, consisting of vaccinating animals (bovines, porcine, equines, birds and canines), and the incineration of animal carcasses was controlled. With these measures, the risk of contracting contagious diseases spread by animals or through their decomposition was avoided by both people and other animals. The investment used was in the amount of $US 124.4 million.

Goal 3
The subject of drinking water, sewers and latrines is vital in this type of disaster, because their effective operation contributes to preserving the health of the affected population. To that end, the Government of the Republic proposed to habilitate 75 percent of the damaged water systems and to rebuild 50% of those that were totally destroyed.

• A total of 472 water systems were reported to be damaged. Of these, by Febviary 20 of this year, 387 (82 percent) were rehabilitated, and a total of 85 (18 percent) are being repaired now. This means that the 75% goal was surpassed. population that was affected by this achievement was 500,316 people, and the investment employed totaled US$ 1.3 million.
• Investment in materials for the disinfection of drinking water were made, such as calcium and sodium hypochlorate, colloidal silver, chlorine, droppers and plastic bottles, so that the population would be able to have potable water. The amount invested in this project was US$ 0.3 million.

Goal 4
Damages caused by hurricane Mitch also affected educational services. In order to prevent the damages from affecting the normal academic cycle, the Government of the Republic set a goal to rehabilitate 75% of the damaged school buildings and rehabilitate 50% of the schools destroyed. This assumed a significant investment in the area of educational infrastructure.

The results achieved by February 20 of this year were:

• 156 of the damaged buildings (66 percent of the goal set) were rehabilitated. The rehabilitation of 75 percent that was set at the beginning of the Agenda of the 100 days was not met because of the basic inaccessibility of the sites in which the buildings were located.
• With respect to the destroyed buildings, the set goal of 50% was surpassed, and 42 of the 74 buildings reported as destroyed (56 percent) were rebuilt.

Despite the fact that there are still school buildings remaining to be repaired or rebuilt, this has not affected the beginning of the academic year, because Government of the Republic identified alternative buildings in which classes are being given until the remainder are completely rehabilitated. Classes are being given through PRONADE.

Goal 5
A significant amount of textbooks, educational materials and desks were destroyed by Hurricane Mitch. Thus, another goal set was the 100 percent replacement of these materials, and this goal was achieved. The amount invested for this was US$ 1.8 million.

Goal 6
With this goal, the Government of the Republic proposed to help 80 percent of the population whose homes were damaged or completely destroyed by Hurricane Mitch, through the provision of materials and the necessary technical assistance so that they could return to their own homes or find an alternative living solution.

In order to achieve this goal, the Government carried out the following activities and achieved the results described below:

• The "Techo-Piso Program" was implemented in the 18 departments in which it was necessary to help the population with this problem; most of the attention was given to the departments of Guatemala, Izabal and Alta Verapaz, which were heavily affected.
• Materials and tools for building housing were provided to 8,951 families (44,755 people) whose homes were completely destroyed or damaged. As a result, 98 percent of the affected population was attended to, thus surpassing the proposed 80 percent goal. The amount of money used for this was US$4.6 million.
• The "Techo-Piso Program" carried out their project through the FOGUAVI plan, with which they distributed lots to the families whose homes were completely destroyed or who could not return to their original homes because these had been washed away or disappeared. A total of 2,140 families benefited: 1,861 with the acquisition of lots in the departments of Izabal, Guatemala, Zacapa, Escuintla and El Progreso; and the rest with materials for building and improving their homes in Zacapa, Guatemala, Santa Rosa, Jutiapa and San Marcos. The total cost for implementing this Plan was US$ 2.8 million.
• Both programs were complemented by the Food for Work Program, which provided a nutritional solution for the homeless, and the results of which were explained above.

Goal 7
Achievements realized in compliance with this goal were the following:

• With respect to the highway network, as of February 20, 1,878 kilometers of damaged unpaved roads and 2,043 kilometers of the affected paved roads, vehicular bridges, pedestrian walkways, tunnels and suspension bridges were functional. The activities undertaken resulted in optimum conditions for the primary highway network for normal transit and the secondary roads in a state of rehabilitation, and this was accomplished before the end of the 100 days. The total cost of these repairs was US$ 43.9 million.
• Repair of 182 kilometers of unpaved roads, 55 vehicular bridges, 6 suspension bridges, 3 pedestrian bridges, I tunnel, the Motagua levees, the tracks of the Retalbuleu, damages to the rail lines and some dredging work are still pending completion. US$18.5 million have been committed for these projects.

Goal 8
The Government of the Republic committed itself to the reestablishment of the electrical grid that was destroyed as well as the repair of the damaged hydroelectric plants with this goal. Activities taken for these projects had immediate results, such that the population was not affected by the lack of this basic service.

• With respect to the damaged hydroelectric plants, 5 damaged plants were rehabilitated. The amount invested for this was US$ 1.7 million.
• 17 distribution lines were reported as damaged, and these were repaired during the first month of the Agenda of the 100 days, thereby providing the effective operation of this service to affected areas. The amount invested in said repair amounted to US$ 2.3 million.
• An investment of US$ 0.4 million was also required for transport and control of energy in the 3 interconnecting lines between Guatemala and El Salvador, Escuintla-Chiquimula-El Progreso-Jutiapa, and the water pump system at the substation in Guatemala Sur.

Goal 9
The plan for this goal was to rehabilitate 29 irrigation units, 50 artesian irrigation systems and 100 small irrigation units, all of which were affected by the hurricane, with the purpose of putting into operation, in a relatively short time, the large plantations that were damaged and to contribute to the recuperation of the agricultural damages and the lost sources of employment. The results achieved by February 20 of this year were:

• The rehabilitation of 100 percent of the damaged large irrigation units (22), thereby benefiting 18,060 people, with a cost of US$ 0.4 million.
• With respect to the artesian irrigation systems, at the beginning of the Agenda of the 100 Days, a total of 50 were reported as damaged; nevertheless, 114 were rehabilitated, which represents 228 percent of the proposed goal. The beneficiaries of these efforts were 38,640 people. The amount invested was US$ 0.6 million.
• The goal set for rehabilitation of small irrigation units was 100, of which 99 of were reported damaged, were repaired, benefiting a total of 495 small farmers in the departments of Zacapa, El Progreso and Chiquimula, with an investment of US$ 0.1 million.

It is important to point out that the affected communities played a significant role in the achievement of these results through their support of manual labor.

Goal 10
With this goal, the Government of the Republic committed itself to the rehabilitation of 1,000 hectares affected by floods caused by Hurricane Mitch, by undertaking projects of cleaning croplands, draining water, dredging rivers, etc.

• The results achieved substantially surpass those set in that 5,278 hectares (428 percent of the goal) were rehabilitated, through the use of 57 caterpillar tractors and 7 backhoes, at a cost of US$ 1.5 million. A total of 19,848 people were thus benefited. It is expected that production of vegetable, fruit, tobacco and basic grain crops in these rehabilitated lands will generate US$ 33.2 million.

Goal 11
With this goal the Government of the Republic committed itself to strengthening activities for the prevention of environmental damages which might occur.

• In fight of the risk that the increase in the level of the Amatitlin Lake posed for the population, it was necessary to develop a series of activities to normalize the water level, through the excavation of canals that had been filled and which serve as outlet for the lake.
• Activities were initiated to prevent future flooding through strict vigilance in the management of the quarries that exist on the Villa Lobos River. The amount invested was US$ 1.7 million, and 1.6 million people benefited.

Goal 12
For compliance with this goal, the Government is aware that reactivation of economic activity in the rural areas affected by the Hurricane is a mid and long range task, and it initiated some activities that will contribute to its completion, such as:

• A trust was established in the Rural Development Bank--BANRURAL--with which soft loans will be administered with an interest rate of 8 percent and a repayment period of 5 years, with variable grace periods, all with the purpose of giving credit to small and mid-sized farmers for the recuperation of their investments in farming and livestock. As of February 20, a total of 1,877 loans were granted, totaling US$ 4.2 million.
• The destruction of the banana production infrastructure, with a reported 40 kilometers of levees and 68 kilometers of roads and bridges, received special attention, because it put employment of 10,000 workers directly at risk as well as 60, 000 other people who indirectly depend on revenue generated from said crop. A total of 10,000 hectares used for the cultivation of bananas were damaged, the equivalent of 85 percent of all arable land in Izabal (59 percent at the national level). Looking towards a short-term solution to the problem, the Government, in coordination with the banana industry in the affected region, began a plan of reconstruction of the damaged infrastructure, which as of February 20, had benefited 145,500 people.

4. Financing for the Emergency phase and the Agenda of the 100 Days

On October 31, 1998, through Government Decree Number 1-98, ratified by Decree Number 67-98 of the Congress of the Republic, a state of Public Disaster in Guatemala was declared, due to the actual destruction observed and that which could be anticipated as a result of Hurricane Mitch.

In order to quickly and efficiently address the requirements for normalizing the living conditions of the affected population and to rebuild and repair the damaged infrastructure caused by this natural phenomenon, it was necessary to empower the departments and entities of the State that were involved to carry out the purchase and contracting of goods and supplies, labor and services, without going through the standard bidding processes that are referred to in the Law of Purchases and Contracts of the State.

Thus, the purchase and contracting of goods, supplies, labor and services designated to meet the needs of the population affected by Hurricane Mitch were declared to be of national urgency. Government Decree Number 845-98 was approved on November 20, 1998, which empowered the higher authorities of the State departments and entities that were designated to acquire goods and supplies, to contract for services and to carry out the projects immediately and without interruption, which is provided for in exceptional cases that correspond to emergency situations or to rebuilding the basic infrastructure. A total of US$ 91.0 million was distributed for these activities and allocated to the appropriate bodies.

As of February 20 of this year, the investment made by the Government, on the basis of the mentioned Accord, amounted to $US 83.2 million, distributed in the following manner: US$ 15.3 million during the period of emergency and US$ 67.9 million for the Agenda of the 100 Days, used by the designated institutions in the following manner:

It is important to mention the contribution of the international community and the civil society, which amounted to a considerable sum, making a total investment of US$ 110.8 million as of February 20, 1999, contributed in the following fashion: 1.3 percent was given by the civil society (US$ 1.4 million), which in large part was assistance in kind (clothing, food, medication, etc.), 23.7 percent came from the international community (US$ 23.6 million), and the rest was contributed by the Government of the Republic, US$83.2 million (75.0 percent of the amount expended).

In Article 5 of Government Accord Number 845-98, the Ministry of Public Finance is empowered to go before the Congress of the Republic, through the Executive Branch, to negotiate increasing the budget as may be necessary to cover the costs that said accord requires. Thus, a global increase for fiscal year 1999 was presented to the Congress of the Republic, which included approximately US$ 50 million to be allocated to the Program for Reconstruction. This is a response to the fact that the resources coming from the International Community will be allocated to finance the continuation and consolidation of said Program.

5. Activities for the consolidation of the Program for Reconstruction

With satisfactory progress having been made in compliance to the twelve goals set forth in the Agenda of the 100 Days, foundations were laid for the definitive reconstruction of the country. Nevertheless, said agenda still needs to be completed and consolidated. This is so because a minimal part of the goals could not be completed in the allotted time , and because today we see with greater clarity additional activities that ought to undertaken in order to guarantee the sustainability of the accomplishments thus far attained and to create the appropriate conditions for the guarantee of success for the other two programs that are being carried out in the mid-term:

1. The Program for Reactivation and Development of Productive Capability.
2. The National Program for Prevention and Mitigation of Disasters.

These two programs, together with the Program for the Consolidation of the Agenda of the 100 Days, define the content of the reconstruction and prevention phase that begun as of February 21, 199. The activities of the Program for the Consolidation of the Agenda of the 100 Days is differentiated by its character of immediacy and its shorter term goals that provide continuity to the twelve goals already initiated. It introduces activities to alleviate or minimize the effects of Mitch; the other two programs tend to eliminate said effects and create conditions for which, as much as possible, these things might never happen again. In other words, it is necessary to consolidate the activities of the Agenda of the 100 Days in order to absorb the negative impact of Mitch and to begin the other two programs in order to correct infrastructural and management insufficiencies and inefficiencies in the face of this type of disaster.

a) Program for the Consolidation of the Agenda of the 100 Days

The objectives of the Program for Consolidation are:

• To complete the twelve goals contained in the Agenda of the 100 Days in order to normalize in a definitive form the living conditions of the population left homeless by Hurricane Mitch.
• To consolidate the activities begun in the framework of the Agenda of the 100 Days, by totally reestablishing damaged public services and infrastructure.
• To contribute to the success of the program of productive reactivation and reinforcement, and thus to the program for the prevention and mitigation of disasters.

b) Program for Reactivation and Development of Productive Capability

The objective of this program is to establish productive outlines on the basis of territorial order and sustainable management of natural resources, with the application of incentives for technological development, productive infrastructure, training and technical assistance, organization and financing for production and marketing, thereby achieving efficiency, competitiveness and sustainability of the economic activities that are promoted.

c) Program for Prevention and Mitigation of Disasters

Its basic objective is to reduce institutional, social and environmental vulnerability in the face of any occurrence of disaster. A portfolio of projects whose execution is geared to the following topics has been identified:

• To improve the knowledge of threats of natural disasters prevalent in the country as an essential element for early alert and prognosis to the population.
• To strengthen, among other aspects, the legislative, statutory and resource framework for construction, environmental- management, institutional organization and operation, as well as the education and training of those involved so that we might reduce vulnerability and mitigate the effects on the population, the infrastructure and national development.

The total cost of the three mentioned programs are:

III. The Macroeconomic Environment

In 1998 the economic activity measured by the GDP in real terms had a 4.9% growth (4.3% in 1997). When considering the damages caused by Hurricane Mitch, as well as possible actions to offset said effects, it is estimated that in 1999 the GDP growth will be around 3.9%. Peace consolidation, as well as the implementation of structural reforms associated with it, and actions oriented towards improving fiscal and monetary discipline will allow the main macroeconomic variables in the medium term to continue a positive trend, especially regarding economic stability and growth.

Inflation behavior, measured by the variations in the Consumer Price Index (CPI), was consistent with the goals established in the Monetary, Exchange and Credit Policy for 1998. In fact, to December 1998, the inflationary rate was 7.48%, which is within the established goals (between 6 and 8%). It should be noted that a medium term goal has been established for the inflation rate to decrease gradually towards the inflation levels of neighboring countries, that is, a maximum of average annual rate of three per cent by the year 2003.

The objective of the exchange policy is to maintain a competitive and transparent foreign exchange market in which the exchange rate is determined by supply and demand, within a framework of monetary balance. In that framework the central bank--s participation centers, on one part, in the acquisition of foreign currency needed by the central bank, the Central Government and other public sector entitites to cover their obligations in foreign currency; and on the other, in moderating sudden fluctuations in the exchange rate, caused by seasonal or speculative movements in order to restore order in the markets.

The balance of payments at the end of 1988 indicated net international monetary reserves of US$242.6 million because of improvement in the capital account resulting mainly from the resources generated by the sale of State=s assets, as well as by the net official capital transfers, mainly from EDB and CA-BEI.

The deficit in the balance of payments current account in 1998 was the equivalent of 5.4 of GDP, higher than the one observed the previous year (3.6%), resulting from the trade account deficit, mainly with a greater dynamism in imports, which was associated to the growth of the economic activity. Exports, on their part, increased 7.2% compared to 1997 levels.

In 1998 the normal functioning of the financial intermediation was disturbed by two exogenous causes. In the first place, some of the country=s coffee exporting enterprises (affected by the international situation) showed difficulties in the payment of their financial obligations, which hindered the normal flow of resources into the banking system, both from the viewpoint of portfolio recovery as well as external financing flows. In the second place, at the end of October and beginning of November, Guatemala was affected by hurricane Mitch, which caused damages particularly to the country's infrastructure and agriculture.

The effects of the hurricane on the macroeconomic variables was felt, on the one part, on the behavior of price levels since the problems caused by the hurricane in production and distribution of agricultural goods resulted in an important increase in the consumer price index (which later decreased gradually). On the other hand, the need for emergency financial resources to alleviate the hurricane effects had had an impact on the financial flows.

The Monetary, Exchange and Credit Policy approved for 1999 is geared towards the creation of bases to strengthen the confidence of economic agents in the use of the national currency and financial system. In this connction, the objective is to favor a low inflation in the short and medium term; moderate volatility of the financial markets in the short term; and maintain the economic growth on a sustainable basis.

To this end, it is necessary to focus action on at least three aspects that from the qualitative viewpoint, are basic to achieve this strategic objective: a) maintain a monetary program consistent with inflation and economic growth goals; b) try to moderate volatility of short term financial markets by the intervention of inter-bank operations and a close coordination between fiscal and monetary policies; and c) strengthen the public--s confidence in the national financial system.

Regarding the latter, recently the Savings Protection Fund Law was issued, which contemplates the creation of a fund for the protection of the small savers and an intervention mechanism for the banking institutions with financial problems, so as to ensure their orderly exit from the system. Additionally, the monetary authority has proposed reforms to the Banks Law in order to increase capital requirements of the banks and to regulate granting credit to related parties. It is expected that these and other reforms oriented towards the modernization of the financial system be approved by the Congress of the Republic during the year. It should be noted that work continued to be done in the modernization of the financial system by means of a proposal of additional reforms to the regulating framework of the national financial system oriented towards strengthening and increasing efficiency and competitiveness of that system. To this end, the already adopted actions as well as those to lie adopted are being discussed within the context of a program to be negotiated with 1DB.

For the first quarter of this year the goals established by the monetary authority were reached, that is, annual inflation rate measured 3.0%, which was lower than the 6% registered for the same period in the previous year.

IV. Public Finances

The performance of public finances in 1998 was satisfactory, despite the negative concurrence of economic and extra-economic phenomena both of an endogenous and exogenous nature, including the influence of the international economic crisis, the problems of liquidity in the national financial system in the second semester and especially due to the adverse effects caused by the hurricane Mitch.

In this environment, in 1998 tax collections amounted to an annual increase of 14.6 percent, which represented 99.0 percent of the budgeted tax revenues, with the tax ratio continuing to grow for the third consecutive year, to 9.5 percent of GDP. This positive evolution of tax revenues reflects the internal efforts which are being made to comply with the Government Program 1996-2000 and to comply with the commitments made in the Peace Accords, and constitutes a valuable support in confronting the international financial crisis in the best way as well as the emergency caused by Hurricane Mitch.

In order to achieve this positive performance of fiscal revenues, the Government of Guatemala carried out activities oriented towards strengthening the compliance capacity of the State, by putting into force reforms to the tax and penal legislation that were approved in 1997. Likewise, of relevant importance was the initiation of activities in the area of fiscal and collection control that the

Superintendency of Tax Administration -SAT- developed during the last trimester of 1998, thereby initiating changes in fiscal policy that are necessary to give sustainability to programs of public expenditure geared towards the priority social sectors, within the framework of the commitments contained in the Peace Accords. In addition, the administrative changes that were implemented in the most important customs houses of the country are worthy of mention, including regularizing and making clear the procedures for appraising goods and collecting custom duties, thereby providing a platform on which the SAT could implement the transformation of the customs system of the country.

Along these lines, we point out that customs collections for 1998 surpassed the budgetary expectations by 7.88 percent, a result that allows us to see the efforts the Government of Guatemala made in administrative restructuring and control over customs fraud and contraband, within a process of Guatemala's integration in world economic globalization, by means of a customs management that is more efficient and transparent.

With respect to internal taxes, the Government of Guatemala made significant progress in complying with the commitment contained in the Accord on Socioeconomic Aspects and the Agrarian Situation in terms of achieving global progressivity in the Guatemalan tax system, thereby strengthening direct taxation that went into force as of April, 1998 with the new version of the Tax on Mercantile or Agricultural Businesses -IEMA-, a tax whose collection also surpassed the budgetary expectations set for 1998. In addition, the revenues derived from taxes on the distribution of fuels, alcohol consumption, and international air travel tariffs showed significant increases, as a direct result of the reforms made to the laws approved by the Congress of the Republic in 1997.

The preceding not withstanding, it is significant to point out that the Government of Guatemala is aware that compliance with all of the Peace Accord commitments requires profound and continued efforts geared to strengthening the collection of taxes, which would be feasible so long as it is possible to harmonize and empower all sectors of Guatemalan society, combined with the decisive and opportune support of the international community.

In this sense, the modernization and strengthening of tax administration constitutes one of the priorities of the Government of Guatemala as a fundamental basis for the strategy that would provide a solution to the economic and social problems of the country. It is the reason that as of January 1, 1999, the SAT began to fully function as the entity in charge of tax collection and responsible for the correct application of the tax laws and the fiscal control of its contributors, thereby replacing the operations that the General Directorate of Internal Revenues and Customs was managing.

During 1999, the SAT has been showing the first positive results of its management, by restructuring the previous administrative model, employing trained personnel with an emphasis on attention to the public, to good labor practices and professional honesty. In terms of revenue collection, the performance of the SAT has been able to surpass the monthly quotas of collection for the first trimester by 8 percent.

Taking into account the administrative reforms and the positive results derived from SAT management, it is estimated that it will be possible to attain 10. 1 percent of GDP the tax ratio for 1999, supporting in this way the projections that were determined jointly with the members of the Commission of Accompaniment of the Peace Accords for a reprogrammed targeted tax ratio of 12 percent of GDP for the year 2002.

In accordance with the preceding and with the goal of providing sustainability to the public expenditure policy associated with the peace program, the Government of Guatemala has put out a call to the most representative sectors of Guatemalan society for the purpose of drawing up a Fiscal Pact. This forum will focus its efforts on the consolidation of the recently obtained achievements in fiscal matters by means of a search for a long-lasting consensus regarding the principal aspects related to the State's financial policy and it compatibility with the policies of stability and development.

In reference to public expenditure, in 1998, total expenditures reached the equivalent of 12.8 percent of GDP, of which 4.7 percent was allocated to physical investment. This signified an increase of 2 percentage points of GDP as compared to that of 1995. As the year came to a close, and after having to confront the emergency caused by Hurricane Mitch, the financial situation of the Central Government for 1998 showed an executed expenditure of 92.8 percent of the planned amount, the highest of the decade.

As soon as the emergency caused by Hurricane Mitch presented itself, available resources for investment were immediately redirected to carry out the "Agenda of the 100 Days," with which the emergency was confronted without abandoning the compliance of the commitments made in the Peace Accords, nor neglecting the objective of national economic transformation in which is found the central strategy for development of the country. The expenditures allocated for the emergency caused by Hurricane Mitch amounted to about Q188 million in 1998 and were mainly financed with national resources due to the urgency to respond to the pressing needs.

The preceding shows the positive results that redirection and rationalization of public expenditure have had, in particular, by focusing investment towards the priority social sectors.

Despite the redirection of resources because of Hurricane Mitch, the Government maintained its strong commitment to honor the principal fiscal contents of the Peace Accords which can be seen when considering the 1998 expenditures applied to such purposes, which represented 36.8 percent of the budgetary target for the year, and which was distributed as shown in the following table:

Financial operations carried out in 1998 by the Central Government implied generating a fiscal deficit equivalent to 2.2 percent of GDP.

In order to complement the financing of its operations, the Government obtained net external financing of Q. 1,818.1 million. Likewise, in terms of internal financing, the result was a reduction of Q. 18.3 million.

With respect to the sale of state assets, to December 31, 1998 the Government showed extra revenues of US$584.0 million.

The 1999 approved budget continues to focus mainly on the social expenditure related to the Peace Agreements and the country's reconstruction and transformation. In this sense, the Congress approved in December 1998 the revenue and expenses budget for Q19,402.5 million. Later, in April 1999, it approved a budget increase of Q3.037 million to be financed with the revenue derived from the sale of State assets. From these resources, in principle, 25 per cent was assigned to social expenditure; 40 per cent to national reconstruction and transformation; 7 per cent to the Land Fund; and 27 per cent to the payment of the national public debt. The latter, in order to start reducing the Government's financial load of the debt service.

In order to maintain macroeconomic stability, the approved expenditures will be disbursed in close relationship between fiscal and monetary policies maintained throughout the year. Also, as the programmed disbursements agreed with the international community for the implementation of the peace agreements are carried out, and new foreign resources are obtained to complement the Government's efforts in the national reconstruction and transformation process, the use of extraordinary internal resources will be alleviated, which will contribute to maintain stability, and especially to strengthen the country's external sector.

Another effort that is important to point out, not only for 1998 but also for 1999, is the intensification of the policies of decentralization and transparency of the fiscal management of the country. In 1998, important progress was made in the development of the Integrated System of Financial Administration and Government Control (SIAF-SAG), in order to make financial management of the Public Sector more efficient and to make more efficacious controls over the identification of terminal and intermediary products and link them to the goals of the transformation of the country. Along these same lines, it is important to mention that for 1999, aside from putting the system into full operation, it is planned to extend it inside the Congress of the Republic so that the congressmen as well as their advisers might have a means of information for the control over the fiscal management of the Guatemalan State.

Within the framework of compliance with the Accord on Constitutional Reforms and Electoral Rules, reforms were proposed for the Political Constitution of the Republic of Guatemala which would, in some decree, impact osebsem the Mn fiscal matters and which fundamentally pursue, on the one hand, a continuation of the policy of modernization, acceleration and simplification of the tax system, and, on the other hand, would create the ideal conditions for the development of programs of public expenditure geared towards the priority social sectors. In this sense, the proposals are:

• Modification of Article 94 (Obligation of the State regarding Health and Social Assistance). This modification will carry with it juridical certainty in the rendering of these free services.
• Suppression of sidebar r) of article 183 (Functions of the President of the Republic). With this regulation, the function of exonerating fines and charges to contributors who incurred them is given over to the Superintendency of Tax Administration.
• Modification to article 213 (Budget and Administration of the Judicial Branch). The budgetary allocation to the Judicial Branch is increased from 2 percent to 6 percent of the ordinary revenues of the State.
• Modification of provisionary article 13 (Allocation for Literacy). The allocation of I percent of the General Budget of Ordinary State Revenues will be postponed for two constitutional periods after the installation of the new government in the year 2000.

In the event that people of Guatemala endorse these reforms through Popular referendum, the Government will take the necessary action to ensure their full application. In this case, the Minister of Public Finance will design and implement the mechanisms which would neutralize the effects that might arise from the fiscal deficit because of the increase of the budgetary allocations linked to the aforesaid reforms.

1. Includes Q 1,453.0 million of resources from the Sale of State Assets.
2. Inclues Q 806.4 million from the Sale of SWe Assets.

Addendum 1-B
Guatemala: Financial Status of the Central Government 1995-2002
-Percentages of GDP-

V. The Role of the International Community

At the October 18, 1998 meeting of the Consultative Group in Brussels, Belgium, the Government of Guatemala reiterated its commitment to comply with the stipulations of the Peace Accords by mobilizing its internal and external resources necessary for cementing the commitments framed in the Accords. At this time, we reaffirm the political commitment of the Government to continue and to support the processes which have already been initiated. We recognize that the catastrophe which struck our country because of Hurricane Mitch gives us a new challenge: reconstruction, which we believe represents one more opportunity for the Guatemalan people to profoundly consolidate the peace process. In this context, the Program for National Reconstruction intends to advance in a decisive manner solutions to some of the most serious problems of our country, such as extreme poverty, environmental deterioration and the quantitative and qualitative deficit of housing. Likewise, we make reference to a Program for Prevention and mitigation which will allow us to reduce the vulnerability of the country in the face of natural disasters.

in conformance with the preceding, reconstruction is conceived as a process articulated with the peace process, the latter fortifying and supporting the former towards the solution to Guatemala's structural problems. Said articulation frames reconstruction within the priorities and orientations of the commitments included in the Peace Accords that are related to expenditure and investment in the social sectors, economic infrastructure, the protection and preservation of the environment, territorial order and management, employment, labor protection, and the participation of the communities in the definition and execution of the policies that affect them.

The political commitment of the Government to formulate a strategy of concerted transition has its basis in the constitution of the Peace Accords and the Program for Reconstruction as a National Agenda for Transformation, in which efforts are intensified and strong support is required internally as well as externally. The National Agenda for Transformation presents, as priorities for the continuity of the implementation of the commitments framed in the Peace Accords and for the requirements formulated in the Program for Reconstruction including the following: i) Commitments related to housing, health, education, rural development and labor relations that will support the plan for reconstruction of the areas affected by Hurricane Mitch. ii) Pursuit of the Constitutional Reforms, giving priority to the finalization of the legislative and statutory projects mentioned in the Peace Accords that put into operation constitutional reform in the matters of national defense, public safety, and intelligence entities. In this framework, the Government will support the efforts of the institutions that are in charge of preparing the legal projects arising from the constitutional reforms related to the administration of justice. iii) Fiscal Policy Reform, which includes the strengthening of local governments and decentralization, and, in particular, which supports the Commission for the Fiscal Pact and the attainment of a national understanding of this matter. iv) Rural Development and Land, concerned with priority for property use and tenancy of lands.

In conformance to the preceding, the Government will continue to orient its strategy towards strengthening the efforts of reconciliation among the State, the indigenous peoples, rural organizations and women's groups, which will be carried out in the distinct Commissions created by the Peace Accords. Priority will be given to the pursuit of the recommendations formulated by the Commissions and to the execution of the Program of Compensation for Victims of Violations against Human Rights, taking into account the recommendations of the Commission for Historical Clarification.

The Government will continue to make important internal efforts to earmark financial and technical resources towards those areas prioritized in the Peace Accords and in the Program for Reconstruction, which have become the fundamental pillars of the National Agenda for Transformation.

The structural change in the model for public investment signified a modification from the historical models of execution and, as a result, we managed to double it in only two years and orient it fundamentally towards the most vulnerable geographic areas and sectors of the country. In this way, public investment has increased as a key element for building peace, within the fi7amework of macroeconomic stability.

Likewise, the quality of public investment expenditures increased substantially as a result of the prioritization of the allocations in consonance with the goals established in the diverse commitments of the Government, primarily those related to compliance with the Peace Accords, as well as attending to the needs of the community, especially those of rural populations and suburban communities and the departments with the lowest indices of Human Development.

As a result of the meetings of the Consultative group and of the progress made in compliance with the commitments contained in the Accords Timetable, the International Community has maintained a position of respectful and solid support, in both the purpose of monitoring and financing the process of construction and consolidation of peace, and in reacting in an immediate manner to the national emergency that was declared as a consequence of Hurricane Mitch. The support of the International Community has been invaluable. Similarly, the Government of Guatemala has made an effort to work in a coordinated manner with the International Community, thereby making substantial progress in increasing the level and quality of the performance of the investment programs and projects for peace, improvement and efficiency in the management of assistance from the International Community, intensification of the use of resources coming from the International Community in the priority areas of the peace process and in those most seriously affected by Hurricane Mitch. Levels of external disbursements and monitoring of project performance in and efficacious, efficient and transparent manner have also increased.

The Government of Guatemala continues to apply and strengthen two important mechanisms of support and coordination within the Government sector and within non-governmental sectors insofar as concerns the performance of public investment:

• The National System of Pre-Investment Financing -SINAFIP
• The System of Integral Information -SII

1. The Role of International Cooperation

The Government and the people of Guatemala are grateful for and recognize the political support of the international community in thee process of construction and consolidation of peace and the Program for Reconstruction. It recognizes that the support of International Cooperation constitutes a complement to the internal efforts for the achievement of the objectives manifested in the Government Plan and reiterated in the Peace Program. Therefore, we insist on the enormous necessity for the International Community to ratify the pledges of in previous meetings of the Consultative group and to make the use of resources flexible with the goal of accelerating their mobilization.

The reforms of a political nature and in matters of international cooperation during the last 27 months manifestly show the efforts of the Government to integrate Guatemala into the realm of world democracies. This has been translated into a significant improvement in the foreign relations of the country. 1998 was a year of consolidation of foreign policy and of international relations, thanks to the coordination among the diverse ministries responsible for compliance with the commitments contained in the Peace Accords.

The Revised Inventory of the Peace projects (see addendum) geared primarily towards compliance with the priority commitments in the Accords has continued to develop with singular dynamism, by means of a continuous process of validation in relation to the Priorities of the Peace Program as well as the priorities defined by the Executing Units.

The 21.1 percent of the disbursements from International Cooperation programmed for the period 1997-2000 correspond to the financing of the programs for general investment that were being carried out prior to the signing of the Accord for Firm and Lasting Peace. 70.0 percent of the of the disbursements will be used to finance projects included in the revised inventory of the Peace Projects, and 8.9 percent for the Program for National reconstruction.

The increase of International Cooperation disbursements to Guatemala derived from compliance with the Peace Accords and from the results of improving the mechanisms for management, negotiation and execution of programs and projects is evident.

This shared effort has caused the disbursement of resources to increase significantly since 1996, a pattern whose tendency is expected to continue during the years to come. In this manner, external resources in the amount of approximately US$ 425.0 was incorporated into the Project for the Budget of Revenues and Expenditures for Fiscal year 1999.

2. National Agenda for Transformation: A Vision Beyond the Year 2000

2.1 Status of International Cooperation

For the period of building peace, 1997-2002, the international community pledged US$1,900 million and also expressed its will to support the consolidation of peace which is to begin in the year 2003. Of the US$1,900 million pledged in the Consultative group meeting in Brussels in January of 1997, and as a result of a joint effort between the Government of Guatemala and the sources of cooperation, as of March 31, 1999, we have managed to formulate and sign cooperation agreements in the amount of US$1,638.8 million, which represents 86.2 percent of the total amount pledged. As of that same date, disbursements from the same signees amounted to US$703.1 million, the equivalent of 42.9 percent of that subscribed and 37.0 percent of what was offered in Brussels.

A summary of the records regarding the status of International Cooperation in support of the Peace Program, updated to March 3 1, is presented below.

2.2 Inventory of the Peace Projects

The programs and projects that address the different commitments contained in the Peace Accords are also classified in these same four areas of the Peace Program, and they make up the Revised Inventory of Peace Projects. This inventory has been revised and updated, and as of March 31, 1999, it is comprised of 28 programs and 447 projects that constitute the demand for financing from both internal and external sources in order to be able to achieve the objectives of the National Agenda for Transformation.

Of the total number of projects endorsed, 90 have been carried out in the amount of US$ 197.7 million. The area of activity that has the greatest number of 'completed projects is: Strengthening and Modernization of the Democratic State specifically with reference to programs 4.11 Development and Execution of the Peace Program, and 4.9 Municipal Fortification.

The Inventory is supported by the priorities in the Timetable for Compliance, Implementation and Verification of the Peace Accords, through which adjustments have been made on strategic approaches in order to comply with the specifically established commitments, and from the experience itself of implementing the commitments contained in the Peace Accords. The total cost of the identified projects appearing in the Inventory, updated as of March 31, 1999, amounts to US$4,164.1 million. To date, it is estimated that there will be a financial gap of US$2,525.3 million, equivalent to 60.0 percent of the required external resources as described in the addendum.

This gap of $US2,525.3 (60.0 percent) is under negotiation, for which the Government is concentrating its efforts so that, with the help of the international community, this money might be obtained and the number of projects endorsed might increase in the mid term. Therefore, the mechanism for prioritizing projects is in operation, under the jurisdiction and recommendations of the Joint Commissions and of Constitutional Reforms, so that what should be endorsed may comply with the objectives anticipated in the construction and consolidation of peace phase.

In order to accelerate the process of negotiation, the Government of Guatemala is using the National System of Pre-Investment Financing as an instrument of support for the preparation of projects, and the System of Integral Information in order to monitor public investment and ensure that the projects endorsed be considered in the programming of financial resources of the Government, so that they might be executed in the short term.

Those projects whose financial source remains to be defined constitute 20.0 percent of the total cost of the Inventory. These respond to the sectorial priorities of the governmental executing bodies and comply with the commitments assumed in the Accord Timetable. We are working jointly with the executing bodies in order to technically prepare the priority projects in order to make them official.

2.3 Reconstruction Program

The Reconstruction Program is composed of 49 projects, on the basis of which both external and internal requirements for fmancing have been formulated. This fmancing is necessary for consolidating the activities of the Agenda of the 100 Days that will provide for the absorption of the negative impacts of Hurricane Nfitch and will overcome insufficiencies and inefficiencies in the infrastructure and management of this type of disaster.

The total cost of the projects amounts to US$779.1 million, of which US$50.0 million is in negotiation to finance the Program for Consolidation of the Agenda of the 100 Days, which has the purpose of consolidating the activities begun in the framework of the Agenda of the 100 Days, by reestablishing in its totality damaged public infrastructure services. 85.5 percent of the total cost of the Reconstruction program corresponds to requirements for external cooperation, and it is hoped to finance these not only in the current year but also during the periods of the next Government.

3. Activities for accelerating the endorsement of instruments for cooperation and disbursements

Guatemala anticipates that, by the year 2000, as a minimum, disbursement of total resources offered in the Consultative Group meeting of January 1997 will have been effectuated. With that the phase for building peace would be in its final stage. In order to achieve this objective, the Government has reordered its priorities and has been undertaking the execution of the following activities:

• To continue applying budgetary programming efficiently in order to allow projects identified as priorities to have access to sufficient national resources so that there may be no delay in the process of execution.
• To continue using the mechanism of executing public investment at a high percentage, through the Social Funds and the Councils for Urban and Rural Development, since in the last three years they have allowed notable increases in the performance of public investment, earmarking to the areas with the greatest need for investment.
• To apply efficiently the Integrated System of Financial Administration which will allow the Government of Guatemala to decentralize the allocation and administration of resources. Each ministry will execute its own budget with greater efficiency, and this will result in a simplification of processes and will accelerate the disbursements of their allocations.
• To consolidate internal and external coordination in order to accelerate disbursements so that those peace projects might be opportunely carried out.
• To design and establish in the short run reliable indicators of performance that will allow for gauging the progress of international cooperation.
• To continue coordinating activities between the Cabinet for Loans (BANCGUAT, MINFIN, SEGEPLAN, Ministry of External Relations) and the Interinstitutional Commission for the Acceleration of International Cooperation in order to accelerate the negotiation and execution of foreign financing.
• To incorporate the System of Integral 9 Allocation of a specific percentage of Information of the Government of the assistance to finance studies of pre- Guatemala into all of the national investment and design; institutions that manage international cooperation in order to facilitate the 0 Specific support to municipalities in the access of this information to the different regions of the country; international community.
• For negotiation, follow-up and coordination with the international community, the government of Guatemala in coordination with the Ministry of External Relations and the Ministry of Public Finance has installed an office international cooperation that functions in SEGEPLAN with one responsible individual per cooperating member. This program consists of personalized attention for each one of the donors under which the person responsible will facilitate and orient the donor and will serve as a unique liaison for the whole process.

With relation to the capacity of absorption of the recourses coming from international cooperation in support of the peace programs, availability of resources will continue to be guaranteed, and a strict adherence to the execution of the projects and to the pertinent monetary variables will be maintained.

In regard to the aforegoing, Guatemala needs the International Community to give it decisive support in order to adopt reciprocally the appropriate mechanisms and instruments for rapid performance and for the corresponding disbursements and suggests the following to those ends:

• Signing the Framework Agreements which are characterized by a global character for area or inventory for the peace projects;
• Financing of rapid disbursement operations for the larger matters of peace, especially for those fundamental priorities that guarantee continuity of compliance with the peace commitments;
• Greater coordination and communication in relation to support directly given to NGO's in order to avoid duplication of projects and efforts;
• Adequate technical assistance by the international bodies to ensure the rapid compliance to the prior conditions they require.

4. The support of the international community towards the future

The program for disbursements by time periods is presented in the addenda and show the process of execution of the projects of the Revised Inventory of Peace Projects for the next few years.

The period of 1997-2002 has focused on laying the foundations of the new society, based on the commitments scheduled in the Peace Accords. In this period disbursements in the amount of US$1,925.0 are scheduled to be made, a little more than the total resources committed by the International Community in the Consultative Group meeting in Brussels.

During the following period, that of the consolidation of peace, to take place as of 2003, it is anticipated that around US$1,400.0 million will be disbursed and will come from later pledges.

The projection of the external disbursements by year for the next four years is congruent with a vision of the process of construction and consolidation of peace, and considering that the strengthening of internal resources will be a factor that ultimately will guarantee the sustainability of the projects identified in the Revised Inventory of Peace projects. The support of the international community, therefore, has been and is fundamental in the current period of building peace, but its relative importance ought to slowly decrease during the process of consolidation of peace.

5. Priorities

The Government of Guatemala considers that there are fundamental aspects which need to be reinforced in order to ensure a sustained and irreversible peace process during the following governments. With this finality, it proposes to formulate jointly with cooperating sources the most suitable mechanisms for executing the projects and disbursing the resources. As a consequence, we reiterate our petition to the International Community to decisively support the efforts and activities related to the following priorities: i) Reforms to the Political Constitution of the Republic, ii) Reform of the Judicial System and Citizen Security, iii) Access to land and modernization of the System of Records and Cadaster, iv) Fiscal Reform, v) Expansion of participation and decentralization.

Finally, the Peace Accords in Guatemala, during their period of construction (1997-2000) as well as during that of consolidation as of 2003, represent an opportunity and an unprecedented challenge for Guatemalan society. A daunting challenge, due to the

amplitude and complexity of the task undertaken. Nevertheless, the people and the Government of Guatemala, conscious of the historical moment in which the country is living and aware of the firm commitment of accompaniment on the part of the international community feel confident in ratifying our trust that we will be able to complete the specific activities contained in the Peace Accords and to consolidate the reforms that will allow us to promote the harmonious development of the Guatemalan society during the next few years.