Noel Randewich, Reuters, 14 Septemeber 2005

ALIOTO - Poor residents of a Guatemalan shantytown are burning factory waste for cooking fuel as high oil prices hit Central America's already shaky economies, forcing governments to call for international help.

Tortilla maker Eulogia Pescera used to cook with domestic gas, but after prices jumped 30 percent recently, she has switched to cheaper materials.

Pescera and most of her neighbors in the Alioto shantytown that sprawls across hills outside of Guatemala City now buy scrap polyester fabric from nearby foreign-owned clothing factories.

The waste cuttings are the only fuel she can afford to keep her small business running.

"It's coming up on two months since I last bought gas," Pescera said through cloud of toxic-smelling smoke. "Fabric works fine."

Across Central America, where a quarter of the people live on less than $1 a day, the cost of filling gas tanks and generating electricity have soared in recent months in line with world oil prices.

In a region still struggling to recover from civil conflicts in the 1980s and '90s, the energy price spike is bringing back the specter of high inflation -- which generally hits the poor hardest and has over the years sparked social upheavals in Latin America.

Guatemalan inflation is seen jumping to almost 8 percent for 2005, up from 5.8 percent in the year-to-date.

El Salvador's central bank recently said high fuel prices will keep inflation above its 2-3 percent target limit for 2005. Costa Rican prices are expected to rise almost 14 percent this year.

"Poor people are suffering the most. They have fewer available resources and they're living on the edge," said Andres Botran, a recently appointed Guatemalan minister tasked with fighting chronic hunger and malnutrition.

SUGAR-CANE FUEL

Brazilian President Luiz Inacio Lula da Silva offered to show Central American countries how to fuel their cars with sugar.

On a visit to Guatemala, Lula invited Central American governments to visit Brazil and learn how to substitute fossil fuels with ethanol made from sugar cane.

"Brazil is ready to share innovative and clean technology," he told Central American heads of state.

Last week in Nicaragua, Spanish utility Union Fenosa began rationing electricity, causing blackouts in the capital after the Supreme Court forbade it from raising tariffs to keep up with world oil prices, near $63 a barrel on Tuesday.

The Honduran government has ordered service stations to close on Sundays and in order to conserve gasoline.

In Costa Rica, government employees have been told to start work earlier and finish their work day sooner to save electricity, and some drivers in the capital, San Jose, have been ordered to leave their cars at home during rush hour.

Some leaders say the region, studded with volcanoes and lakes, should develop hydroelectricity and geothermal energy projects to reduce reliance on oil.

"We should promote a policy of generating energy with our own resources," said Sandinista opposition leader Daniel Ortega, a former president of Nicaragua.

Guatemala is the only country in the region that produces oil but output is low at some 20,000 barrels per day.

Guatemala, Nicaragua, El Salvador, Honduras and other poor countries in Central America want Mexico and Venezuela, Latin America's largest oil producers, to drastically expand existing subsidy programs meant to soften the impact of fuel prices.

"The energy minister, the president, they're both worried, and they're knocking on doors of producer countries so that they recognize the damaging effect these price rises have on the most vulnerable part of the population," Botran said.

The aftermath of Hurricane Katrina is expected to keep prices for gasoline and domestic gas high on international markets and in Central American countries, which have to rely mostly on imports to meet demand for fossil fuels.

Salvadoran President Tony Saca said regional governments should make it clear that the era of cheap oil is over.

"People should be told the truth, that prices are not going to return to what we had before," he said.

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