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Cablegate: A Cafta-Dr Success Story: Time to Start a Business

VZCZCXRO9807
RR RUEHLMC
DE RUEHTG #1154/01 1801408
ZNR UUUUU ZZH
R 291408Z JUN 07
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC 6283
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0669
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 001154

SIPDIS

SIPDIS

STATE FOR WHA/CEN ELIA TELLO AND WHA/EPSC LISA MARTILOTTA
COMMERCE FOR ITA DESK OFFICER MARK SIEGELMAN

E.O.12958: N/A
TAGS: ECIN ECON EIND PGOV DR GT CS HO
SUBJECT: A CAFTA-DR SUCCESS STORY: TIME TO START A BUSINESS
DRAMATICALLY REDUCED; COSTA RICA LAGS


1.(U) SUMMARY. Since CAFTA-DR has been implemented, the number of
days required to register and open a business has been reduced
dramatically -- and the process made less complex -- throughout the
region. The treaty was a motivating or sustaining factor for change
in most of the countries, making the simplification of registering
and opening a business a CAFTA-DR success story. The only country
without reform is Costa Rica, where the treaty has not yet been
ratified. A closer look at some of the stories around the region
reveals the positive impact a treaty like CAFTA-DR can have on the
business climate, and provides a strong reason for the Costa Ricans
to ratify the treaty. This cable was coordinated with the Econ
Sections of Guatemala City, Santo Domingo, and San Jose. END
SUMMARY.

GUATEMALA: 1 DAY TO OPEN BUSINESS (DOWN FROM 30 DAYS)

2.(U) According to the 2007 World Bank Doing Business Index (WBDBI),
which measures statistics from April 2006, Guatemalan business used
to need 30 days to register and begin operations. Efforts to reduce
this number actually preceded CAFTA-DR, but the upcoming treaty
provided an additional reason for completing the reforms as quickly
as possible. According to Emmanuel Seidner, who serves on the
Guatemalan Presidential Commission on Competitiveness, the country
has reduced the complexity of the process with a new one-stop window
("ventanilla unica") for the registry and opening of a business.
This uses a single form and a single bank payment to diminish the
time needed to register a business and pay associated costs.
Initiated in May 2006 by the Economy Ministry, the system allows
payments to be made either in a bank or on-line at
http://www.mineco.gob.gt/ventanillaagil/index .html. Per the American
Chamber of Commerce in Guatemala, every complete registration is now
accepted and a company can begin operations within 24 hours, which
has reduced waiting time for beginning business operations by 97
percent.

3. (U) According to FUNDES, a small and medium enterprise business
association, it used to take about 17 working days to comply with
all 191 steps needed just to register a business with the Business
Registry, the Tax Administration Superintendent, the Guatemalan
Institute of Social Security, the book and machine registration
authorities, and the official record book authorities, among others.
Now it takes one step not only to register the business, but also to
begin operations. According to the 2007 WBDBI it takes an average of
73 days to register a business in Latin America overall, so
simplifying the process and reducing the number of days to register
and start a business to just one puts them at the head of the pack.
From June 2006 when the system started through December 2006, 21,450
businesses have registered, representing a 22.1 percent increase
over the June-December 2005 period.

HONDURAS: 9 DAYS TO OPEN BUSINESS (DOWN FROM 44 DAYS)

4.(U) According to Amilcar Bulnes, the head of the Tegucigalpa
Chamber of Commerce (TCC), there is no doubt that CAFTA was an
integral factor in Honduras's decision to simplify the business
registration process. "CAFTA-DR is the difference between whether or
not an investor chooses to come to Honduras," he stated to EconOff
in June 2007. But he indicated that taking advantage of CAFTA seemed
doubtful after a 2004 PriceWaterhouseCoopers study identified a six
month delay to register a business through a "less than transparent"
process.

5. (U) In preparation for ratification of the treaty in April 2006,
the previous administration of President Ricardo Maduro created the
Technical Secretariat of the Committee for the Simplification of
Business Administration (CSAE) to administer a new National
Competitiveness Program in February 2005. At the time, the Supreme
Court had responsibility for the National Business Registry, which
unnecessarily complicated the process. With executive branch
support, the Supreme Court voted to hand responsibility for the
Registry to the TCC and 23 Property Institutes located throughout
the country. Bulnes notes that the TCC is just the fourth Chamber of
Commerce in Latin America to be given this important responsibility
from the government.

6. (U) According to FIDE, a Honduran business organization, the time
needed to register a business has dropped 96 per cent, from 25 days
in early 2005 to just one-two days in early 2007. Although the TCC
still registers businesses by hand, within two months a delegation
from the Bogota Chamber of Commerce is arriving to implement
software the Colombians have developed to automate the system. This
is expected to result in even greater improvements. While
registering a business still forms just one of nine steps needed to
actually open a business, the WBDBI noted that the time to complete
the process was reduced by 29 percent (from 62 to 44 days) from
2005-2006, the greatest progress of any Central American country.
CSAE and FIDE expect that this year's report will show that the time

TEGUCIGALP 00001154 002 OF 002


has been reduced even further, from 44 to just nine days, due to
further reductions in waiting time for operating permits.

DR: 20 DAYS TO OPEN BUSINESS (DOWN FROM 73 DAYS)

7.(U) In November 2004 USAID, with its contracting partner Chemonics
International, initiated a study measuring the cost and time
required for opening a business in the Dominican Republic. The
conclusions, presented in March of 2005, revealed weaknesses
concerning the lack of communication between institutions and a
generally convoluted process to register a business. In response,
the National Competitiveness Council (CNC) launched an initiative to
reduce the number of days it takes to start a business in the
country and to eliminate bureaucratic inefficiencies.

8. (U) The results have been impressive. The 2007 WBDBI reported
that it took 73 days to start a business in the Dominican Republic
in 2006. Laura del Castillo, the Business Climate Improvement
Specialist at the CNC, says that the number of days has been reduced
to 20 and the number of steps required has been reduced from 10 to
seven. She indicated that the success was due to the concerted
efforts and reforms of three institutions: the National Office of
Industrial Property (ONAPI), the Internal Revenue Service (DGII),
and the local chambers of commerce (in particular, the Santo Domingo
Chamber of Commerce). These institutions used primarily
technological solutions to implement reforms, with the most
significant reduction achieved by ONAPI. It reduced the number of
days to obtain a name registry certificate from 45 to five.

9. (U) In June 2006 -- with implementation of CAFTA-DR only nine
months away -- President Leonel Fernndez issued a presidential
decree creating a committee to integrate the multiple institutions
that work with the establishment of businesses. This committee
proposed a pilot plan program known, as in Guatemala, as the
"ventanilla unica virtual." This would secure, simplify and
centralize the documents and processes required for the creation and
formalization of a business. This "ventanilla" should further reduce
the time it takes to start a business by allowing the processes at
the three institutions mentioned above to be done simultaneously via
an integrated web-based registration system. The pilot program will
launch in August 2007 for the Santo Domingo region and should be
expanded to other major commercial centers within six months.

COSTA RICA: 77 DAYS TO OPEN BUSINESS (NO CHANGE)

10.(U) The story in Costa Rica, the only Central American country
yet to have ratified CAFTA-DR, is very different. The Costa Rica
business climate has not improved for several years. In fact, Costa
Rica was one of only four countries in Latin America whose ranking
worsened in the WBDBI between 2005 and 2006, dropping to 22 out of
33 countries in the Americas. While expectations remain that the new
laws and regulations associated with entering CAFTA-DR into force in
Costa Rica could significantly improve the investment climate, the
current reality is that according to the WBDBI it takes an average
of 77 days to start a business after completing 11 different
procedures. This number has not changed in the last three years.

11.(U) COMMENT. The efforts in the Dominican Republic, Guatemala,
and Honduras to reduce business registration and opening time
clearly show that it is possible to make improvements if the right
incentives are in place. The impending launches of CAFTA-DR gave
countries not only a reason to try to become more competitive, or to
sustain planned reforms, but also -- as the surveys carried out in
the Dominican Republic and Honduras show -- to seek out detailed
information about where their weaknesses were located. The result is
that these countries have used the reform of the business opening
process to their advantage and continue to do so, while Costa Rica
has remained stagnant and fallen in the WBDBI ratings. Ratifying
CAFTA-DR may represent a strong motivation for them to catch up with their neighbors. END COMMENT.

FORD

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