Country Paper Guatemala

Table of contents

1. Introduction

2. General Information
2.1. Basic geographical and demographical data
2.2. Historical background
2.3. Political System

3. Economic Policy
3.1. Development policy approach and its problems
3.2. Participation of government in the economy
3.3. Fiscal policy
3.3.1. Taxation
3.3.1.1. Income Tax
3.3.1.2. Annual company tax
3.3.1.3. Value added tax
3.3.1.4. Stamp tax
3.3.1.5. Import taxes
3.4. Monetary Policy
3.5. Social issues
3.5.1. Education
3.5.2. Health
3.5.3. Poverty

4. Economic structure
4.1. Agriculture
4.1.1. Coffee
4.1.2. Sugar
4.2. Industry and manufacturing
4.2.1. Fisheries industry
4.2.2. Apparel industry
4.2.3. Furniture industry
4.2.4. Construction
4.3. Mining
4.4. Oil and gas
4.5. Services
4.5.1. Financial services
4.5.2. Tourism

5. Current macroeconomic situation
5.1. GDP growth
5.2. Inflation
5.3. Unemployment

6. International economic relations
6.1. Foreign trade by main commodities and countries
6.1.1. Exports
6.1.2. Imports
6.2. Current account situation
6.3. Foreign direct investment
6.4. Development aid
6.5. Foreign debt
6.6. Participation in trade areas and customs unions
6.7. Exchange rate policy

7. Major problems of the economy and future perspectives

Annex 1

Annex 2a

Annex 2b

Annex 3

Annex 4

Annex 5

List of Literature

1. Introduction

Since its independence from Spain in September 1821, Guatemala suffered from the several rules which consisted of dictatorships, insurgencies, coups, Guerrilla fights and times of military rule. Only in 1985 the situation began to change and the various governments which followed tried to create a republic of peace, which protects the human rights and fights illiteracy, deficient health and social services, infant mortality, violence and corruption and forces the economical growth.

The economy of Guatemala is the largest in Central America. This report attempts to cover the most important information about the current economic situation in Guatemala and attempts to provide some interesting and necessary background information about the country.

2. General Information

2.1. Basic geographical and demographical data

Abbildung in dieser Leseprobe nicht enthalten^[1],^[2]

2.2. Historical Background

About sixty-five percent of the inhabitants of Guatemala are descendants of indigenous Mayan nations, which were already predominant in Guatemala and the surrounding region long before the Spanish conquerors arrived. In 1523-24 the Mayans were defeated by the Spanish conqueror Pedro de Alvarado. During the following colonial time most parts of Central America came under the rule of the General of Guatemala. On September 15, 1821 Guatemala became independent of Spain and then for a short time belonged to the Mexican Empire and later to a federation called the United Provinces of Central America.^[3]

From 1850 until 1985 the country was ruled by various dictatorships, insurgencies (from the 1960s on) coups, Guerrilla fights and times of military rule with only some periods of representative government.

Finally in 1985, after a long time of debate the Constituent Assembly finished with the draft for a new constitution. Right away General Mejia, the head of state at that time called general elections, which the Christian Democratic Party (DGC) with its candidate Vinicio Cerezo won with almost seventy percent of the vote. Cerezo took office as president in January 1986. The president achieved his goals (end the political violence and establish the rule of law) only partly. The government was not able to eradicate infant mortality, illiteracy, deficient health and social services and rising levels of violence which brought the country in a new period of discontentment.

The next elections were held in November 1990, the new president was Jorge Serrano, in

his term of office he had some success in consolidating civilian control over the army, reducing inflation and increasing real growth from 3% in 1990 to almost 5% in 1992.

In May 1993 Serrano illegally dissolved the Congress and the Supreme Court and tried to restrict civil freedoms on the pretext to fight corruption but his action caused unified,

strong protests by the Guatemalan society and international pressure, therefore Serrano fled the country. The next two presidents De Leon and Arzu started an era of anticorruption and peace process. Agreements on human rights, historical clarification and indigenous rights were signed by the government, like for example the final Peace Accord which was signed in December 1996, it represented the end of Guatemala’s 36-year armed internal conflict. The influence of the military in national affairs decreased.

In the December 1999 elections Alfonso Portillo was elected to be president. He promised to maintain strong relations to the United States, to increase Guatemala’s growing cooperation with Mexico, Central America and the Western Hemisphere. He also promised to continue the peace process, reform the armed forces and strengthen protection of the human rights.

2.3. Political System

Guatemala is a Constitutional Democratic Republic. The constitution was settled in May

1985 and amended in January 1994. It implies a separation of powers among the executive, legislative and judicial parts of government. The president (4-year term) represents the executive power, the 113-member Congress (4-year term) represents the legislative power and the judicial power is represented by the 13-member Supreme Court of Justice (5-year term).

The republic consists of 22 departments with governors appointed by the president, 331 municipalities with popularly elected mayors and city councils.

The major political parties are the Guatemalan Republic Front (FRG), the National Advancement Party (PAN), the New Nation Alliance (ANN) and the Guatemalan Christian Democracy (DCG).

Universal suffrage applies for adults over 18 who are not serving on active duty with the armed forces or police.

The president and vice president are directly elected through universal suffrage and limited to one term. A vice president can run for presidency after 4 years out of office.

The Supreme Court justices, who handle civil and criminal cases are elected by the

Congress from a list submitted by the bar association, law school deans, a university rector and appellate judges.

3. Economic Policy

In 1991 the government of Guatemala introduced a program of stabilization and structural adjustment with the aim to increase the economy’s efficiency through strengthening the balance of payments, controlling inflation and creating the conditions that would force sustainable economic growth.⁶

3.1. Development policy approach and its problems

First of all it is necessary to mention that there are several programs and aims for development policy in Guatemala in theory. Nevertheless, putting these programs into practice is involved with difficulties in most of the cases.

During the 1990’s the development of the economy was influenced by successes and setbacks in the application of such measures as well as by the effects of globalization.

From January 1996 until 1999 under the rule of President Arzu, the government of Guatemala worked for a program of economic liberalization and to modernize the state.

The final Peace Accord which was signed in December 1996 represented the end of Guatemala’s 36-year armed internal conflict and was a major step to encourage foreign investment. An international consortium consisting of the World Bank, the Inter-American Development Bank (IDB), the Central American Bank of Economic Integration (BCIE), the US, the EU, Spain and Germany placed 1.9 Billion USD at Guatemala’s disposal to fulfil the commitments of the Peace Accord. Guatemala was very successful in reducing the inflation down to single-digit numbers and obtaining stable prices.

The economy grew but not in the strong sustained way, which was necessary to fight poverty and marginalization. Instead of an even economic growth, the government tended to adopt overly expansive fiscal and monetary policies which caused imbalances in the external sector (high current-account deficits, loss of international reserves and depreciations of the currency).

As a result the policy stance had to be tightened, and due to this economic growth inevitably slowed. After that followed a period of stop-go policies with an uneven trend of output growth (especially in 1999), which negatively influenced the credibility of policymaking and complicated the decision-making process for economic agents.

The long-term aims of the government are besides economic growth the elimination of private and government corruption as well as bureaucratic inefficiency and the improvement of internal security.

Since December 1999 Alfonso Portillo is President of Guatemala. He promised to continue policy which aims at economic growth. Through the following planks he wants to achieve this aim:

“ - cutting the national budget by 10%;

- strengthening fiscal performance through improvements in tax administration

and the legal prosecution of tax evaders;

- establishing a framework of financial regulation and supervision in order

to lower interest rates and stimulate productive lending;

- revising the state’s concession contracts for basic services, notably

electricity, water, and telecommunications, in order to control rate increases;

- developing a plan to stimulate national and foreign investment, generate

jobs, expand export markets, and accelerate the discussion on free-trade

agreements; and

- promoting jointly with the international community a strategy for credit

and donations. “^[8]

Due to governmental mismanagement the new tax program could not be put into practice until now. The future development of the Guatemalan economy mainly depends on the development of the domestic politics and the development of the peace process which is now at a standstill.

3.2. Participation of government in the economy

The state of Guatemala mainly was and partly is participated in the typical sectors like electricity, telecommunication, oil production and railroad network. Since 1990 in the way to privatization the majority of the state-owned shares in several companies has been sold.

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^[1] Internet: www.tradeport.org/ts/countries/guatemala/wofact.html

^[2] Internet: www.quetzalnet.com/C_profile.html

^[3] Internet: www.tradeport.org/ts/countries/guatemala/bnotes.html

^[4] Internet: www.tradeport.org/ts/countries/guatemala/bnotes.html

^[5] Internet: www.quetzalnet.com/C_profile.html

^[6] EIU Country Profile Guatemala 2000, p. 16 to 17

^[7] Internet: www.tradeport.org/ts/countries/guatemala/ecopol.html

^[8] EIU Country Profile Guatemala 2000, p. 19