Guatemala

Politics:

• Analysis

  Guatemala politics: Quick View - Murders rose sharply in February

  Event

  The number of homicides in Guatemala, which fell markedly in 2012, rose in both January and February.

  Analysis

  According to official figures, there were 441 murders recorded in Guatemala in February, an increase of 50 compared with the same month of 2012, a year-on-year rise of nearly 13%. The murder rate also rose in January. Addressing public concern over the increase, the president, Otto Pérez Molina-who has made fighting crime a focal point of his policy agenda since taking office in January 2012-indicated that 75% of the murders fell into three broad categories: personal vendettas (32%), organised crime (22%) and gang activity (21%). While promising to put more police on the streets, Mr Pérez Molina also argued that, despite the recent rise in murders, overall criminal activity had continued to decline.

  A marked improvement in the homicide rate in 2012-when it fell to its lowest level in a decade-provided a political boost to the Pérez Molina administration even though the reduction in crime began under the previous government. The reversal of the trend in January and February-which has increased the sense of insecurity among the urban population-has damaged public perception of the administration's ability to contain violent crime. It is generally agreed that a sustained reduction in crime will be necessary before there can be a noticeable impact on private consumption, savings and investment. Estimates of the economic cost of violence and crime in Guatemala are as high as 10% of GDP.

  Violence in Guatemala is mainly fuelled by narco-trafficking-which has also driven up the murder rate in neighbouring Honduras, El Salvador and Belize-and other types of transnational criminal activity.

  March 12, 2013

• Background

  Guatemala: Key figures

  Alvaro Colom Caballeros

  Founder and leader of the centre-left Unidad Nacional de la Esperanza (UNE), Mr Colom won the presidency in the 2007 election after beating Otto Perez Molina (PP) in the second-round presidential run-off vote. An engineer by training and a textile industrialist, he benefited from considerable public recognition (a formidable asset in Guatemalan politics), having come second in the 2003 presidential election representing the UNE, and third in the 1999 presidential election, when he represented the alliance of the Desarrollo Integral Autentico (DIA) and the Unidad Revolucionaria Nacional Guatemalteca (URNG). Having served briefly as vice-minister of economy (1991-92) in the Serrano administration, between 1992 and 1997 Mr Colom presided over the Fondo Nacional para la Paz (Fonapaz, the national foundation for peace), a government organisation aimed at implementing social projects in areas affected by the civil war and at reintegrating former guerrilla combatants into society. He has also been one of the country's main promoters of the maquila (offshore assembly for re-export) industry.

  Otto Perez Molina

  A retired general and the founder (in 2001) and leader of the right-wing Partido Patriota (PP), Mr Perez Molina emerged in 2007 as the closest rival of Mr Colom. He centred his campaign on a tough stance on tackling crime, under a slogan of urge mano dura (a strong hand now). His campaign benefited from the FRG's lack of a high-profile candidate. His detractors have raised concerns over possible links with paramilitary groups during his time at the military intelligence agency, which he headed in the early 1990s.

  Efrain Rios Montt

  Leader and founder of the FRG, a former president of Congress, and former general and military dictator (1982-83). Following the decision in July 2003 of the Constitutional Court to overturn a constitutional bar on former coup leaders seeking the presidency, he was allowed to run in the 2003 presidential election, in which he came a distant third. His paternalistic and moralistic political style still appeals to many voters in rural areas but, given his role in the civil war, he is a divisive figure. Human rights organisations continue to campaign for his indictment and conviction on charges of gross violation of human rights committed during his period as de facto head of the government. However, the decision by the FRG to register the now retired Mr Rios Montt to run for a seat in Congress in the 2007 legislative election, which he won, will see him continue to enjoy immunity from prosecution.

  December 19, 2008

• Structure

  Guatemala: Political structure

  Official name

  Republic of Guatemala

  Form of state

  Unitary republic

  Legal system

  Supreme Court, at the apex of a subordinate court system, elected by the National Assembly for four years

  National legislature

  Unicameral Congress, with 158 members, elected every four years; re-election possible for members and leader of Congress

  Electoral system

  Universal adult suffrage

  National elections

  A former army general, Otto Pérez Molina, won the second-round presidential election run-off held on November 6th 2011 with 53.8% of the vote. The next presidential, legislative and municipal elections are set to take place in September 2015

  Head of state

  President, elected by universal suffrage for a single term of four years; cabinet, headed and appointed by the president

  National government

  Partido Patriota (PP)

  Main political organisations

  Main opposition parties: Unidad Nacional de la Esperanza (UNE); Gran Alianza Nacional (GANA); Unión del Cambio Nacional (UCN); Libertad Democrática Renovada (LIDER); Compromiso, Renovación y Orden (CREO); Encuentro por Guatemala (EG); Visión con Valores (VIVA); Partido de Avanzada Nacional (PAN); Frente Republicano Guatemalteco (FRG); Frente Amplio; Partido Unionista (PU)

  Key ministers

  President: Otto Pérez Molina

  Vice-president: Roxana Baldetti

  Agriculture, livestock & food: Efraín Medina

  Communications, transport & public works: Alejandro Sinibaldi

  Culture & sport: Carlos Batzín

  Defence: Ulises Noé Anzueto

  Economy & trade: Sergio de la Torre

  Education: Cinthia del Aguila

  Energy & mines: Erick Archila

  Environment & natural resources: Roxana Sobenes

  Finance: Pavel Centeno

  Foreign relations: Harold Caballeros

  Interior: Mauricio López Bonilla

  Labour & social security: Carlos Contreras

  Public health & social assistance: Jorge Villavicencio

  Social development: Luz Lainfiesta

  President of Congress

  Gudy Rivera

  Central bank president

  Edgar Barquín Durán

  March 26, 2013

• Outlook

  Guatemala: Key developments

  Outlook for 2013-17

  • Fragile party allegiances will constrain the ability of the government of the president, Otto Pérez Molina of the right-wing Partido Patriota (PP), to advance its legislative agenda.
  • The government's overall stance will remain pro-business and macroeconomic management will remain orthodox. This will support monetary stability and business confidence amid adverse global conditions.
  • GDP growth will pick up to 3.5% in 2013 (from an estimated 3.2% in 2012) on the assumption that international conditions improve modestly. GDP growth will average 3.2% per year in 2014-17.
  • Weakness in the US economy and continuing instability in Europe will make the Banco de Guatemala (Banguat, the central bank) retain an accommodative stance, leaving its policy rate unchanged at 5% until late 2013.
  • Following a dip in 2012, to 3.8%, average annual inflation will rise to 4.4% in the forecast period. Volatile domestic food prices will pose a risk to the Economist Intelligence Unit's forecast.
  • The current-account deficit will widen gradually to 4.8% of GDP by 2017, with the goods trade deficit remaining around 10% of GDP and remittances growing more slowly than in the past decade. Foreign investment will rise.
  • The quetzal is set to continue on an appreciating trend in real terms in 2013-17, owing to high US-dollar inflows, but the rate of appreciation will slow and this trend is likely to be contained by global currency volatility.

  Review

  • After a month-long filibuster on the floor of the Congress by the opposition and an intervention from the constitutional court, lawmakers appointed the chairmen for 47 key Congressional committees, easing legislative gridlock.
  • The government's revenue targets were met in 2012 but it overestimated its own expenditure capacity, executing just 92% of its annual budget. Just five of 23 central government bodies achieved 100% of their spending targets.
  • Remittances from Guatemalans living abroad totalled US$357.9m in January, a year-on-year increase of 17% and the highest total ever recorded in the month of January, supporting the overall economy.
  • Annual consumer price inflation rose to 3.9% in January (from 3.4% in December), driven by rising food and electricity prices, but marked the second lowest January rate of inflation in six years.

  March 26, 2013

Economy:

• Background

  Guatemala: Economic background

  Real gross domestic product by sector
  (% share of GDP)
  	2003	2004	2005	2006	2007
  Agriculture	14.1	14.3	14.1	13.5	13.3
  Industry	26.7	25.9	26.2	26.1	25.8
  Services	59.2	59.8	59.7	60.4	60.9
  Source: Economist Intelligence Unit.

  Download text file (csv format)

  December 19, 2008

• Structure

  Guatemala: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 26, 2013

• Outlook

  Guatemala: Country outlook

  Guatemala: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: During the remainder of his four-year term, the president, Otto Pérez Molina of the populist conservative Partido Patriota (PP), will seek to deliver improvements in security, higher spending on social programmes and sweeping changes to the 1985 constitution. Although the PP is in a stronger position than previous administrations to advance on its legislative programme--owing to a broad alliance in Congress and the weakened state of the opposition--progress will remain vulnerable to extended periods of paralysis as the small libertarian party, Libertad Democrática Renovada (LIDER), continues to employ delaying tactics to block the PP's agenda. The fragile nature of party allegiances and ideological loyalties in Guatemala's fragmented political scene means that legislative paralysis will become a more significant challenge as the forecast period progresses and the PP's broad alliance comes undone. The Economist Intelligence Unit expects this to complicate policymaking and reduce political effectiveness, and so the PP's window of opportunity to pass legislation is likely to close early in the forecast period.

  ELECTION WATCH: The next presidential, legislative and municipal elections are set to take place in September 2015. Although there have been initial indications that Mr Pérez Molina might attempt to remove the constitutional bar preventing him from running for a second term, our forecast is based on the assumption that he will be unable to do so. He will therefore need to groom a successor, but the odds are stacked against the PP. No ruling party has secured re-election in recent history, with Guatemala's political pendulum swinging between conservative governments (such as the PP) backed by the traditional elites and the urban middle classes, and governments backed by emerging elites and rural voters (for example, that of LIDER's Manuel Baldizón). Every candidate defeated in the last 15 years in a second-round run-off, as Mr Baldizón was, has won the presidency at the next election. Sandra Torres, the former first lady (2008-11) and leader of the centre-left Unidad Nacional de la Esperanza (UNE), will be constitutionally able to run in 2015, after she was barred from standing in 2011 for having been married to the incumbent president (despite having divorced). She has begun to rebuild her party, which had all but collapsed owing to defections and criminal investigations involving its leaders.

  INTERNATIONAL RELATIONS: Mr Pérez Molina, a retired army general, will need to continue to show respect for democracy and human rights to compensate for the negative international image of the Guatemalan army, which is tainted by its responsibility for the majority of the atrocities committed during the country's bloody civil war (1960-96). This reputation could become a handicap with European donor nations, as well as the US, with which Mr Pérez Molina seeks closer military co-operation to combat rising crime and drug-trafficking. His push to eventually decriminalise drugs may irk US officials, but the bilateral relationship will remain strong, as both countries have an interest in continued co-operation. This is also true for other Central American countries--the majority of which oppose drug decriminalisation--with which trade ties and security co-operation are crucial.

  POLICY TRENDS: The authorities will implement cautious policies that will help to preserve macroeconomic stability during the forecast period. However, Guatemala will continue to be exposed to swings in the global economy, which remains fragile owing to ongoing recessionary conditions in Europe and the continued lacklustre growth of the US economy. As a result, the Banco de Guatemala (Banguat, the central bank) will retain an accommodative stance, leaving its policy rate unchanged at 5% until late 2013.

  ECONOMIC GROWTH: On the assumption that global conditions improve in 2013, GDP growth will accelerate slightly, to 3.5% (from an estimated rate of 3.2% in 2012), before averaging 3.2% per year in 2014-17 when economic activity will be constrained by low productivity and insufficient (albeit growing) investment. The outlook in the US will continue to be a major driver of Guatemalan growth trends in 2013-17, as it is the country's main export market and source of remittances, which in turn buttress private consumption. Private consumption--which accounts for 85% of GDP--will continue to underpin economic expansion during the outlook period, growing by an annual average of 3.9% per year in 2013-17, owing to firm growth in remittance inflows and rising real wages. Government consumption, driven by spending on security and social programmes, will be given a modest boost by recent revenue-raising measures and will post real growth averaging 7.8% in 2013-17 (up from an estimated 3.9% in 2012). Gross fixed investment growth will remain strong during the outlook period, boosted by public-private partnerships for long-overdue infrastructure upgrades. Growth in real exports will accelerate in 2013 as a result of implementation of the recently signed EU-Central American Association Agreement (EU-CAAA), as well as the existing free-trade agreement (FTA) with the US. However, import growth--driven by increasing demand for fuels, as well as consumer and industrial goods--will continue to outpace that of exports throughout the outlook period, resulting in a negative contribution of net trade to GDP growth.

  INFLATION: Prudent macroeconomic management will keep annual consumer price inflation within the central bank's target range of 3-5% in 2013-17. Headline inflation accelerated in January, to stand at 3.9% (up from 3.4% in December) as food prices rose. We expect it to rise further in 2013 to an average rate of 4.3% owing to further increases in global food prices and demand-side pressures after which it will average 4.4% in 2014-17, within Banguat's target. During the remainder of the outlook period there are risks that inflationary pressures could intensify owing to supply bottlenecks, volatile domestic food prices (resulting from inclement weather conditions or external disruptions) and movements in international oil prices. However, pervasive underemployment will keep wage pressures subdued, despite pressure from public-sector unions--which are not part of Mr Pérez Molina's support base--for wage rises.

  EXCHANGE RATES: We expect the quetzal to sustain a gentle appreciating trend in 2013--to reach Q7.88:US$1 by year-end--supported by remittance inflows and export earnings. Appreciation will be limited, however, by periodic volatility in global currency markets. Our forecast anticipates that the quetzal will remain steady in nominal terms at around Q7.9:US$1 in 2013-14, and depreciate gently thereafter as developed economies recover more firmly and a growing current-account deficit puts pressure on the currency. With Guatemala's inflation rate running ahead of those of its trading partners, this represents a modest appreciation in real, trade-weighted terms. Banguat will continue to make discretionary interventions to smooth sharp exchange-rate fluctuations, aided by a comfortable and stable reserves cushion (which stood at US$6.7bn at end-2012, equivalent to around four months of imports).

  EXTERNAL SECTOR: We estimate that the current-account deficit widened to 4% of GDP in 2012 (from 3.3% in 2011), as a result of lower export earnings owing to slower global growth and weak export prices. The deficit will widen to an average of 4.4% of GDP in 2013-17, owing to a structurally high trade deficit (averaging 10.7% of GDP), a small services deficit (averaging 0.6% of GDP) and a steady income deficit (averaging 3.1% of GDP), of which an increasing share will arise from foreign companies' profit remittances. The transfers surplus will remain sizeable, buoyed by strong growth in remittances. Our forecast assumes that international reserves will increase each year from 2013 to 2017, but the rate of growth will be slower than that of import growth, reducing import cover from 4.2 months in 2012 to 3.5 months by 2017.

  March 28, 2013

• Forecast

  Guatemala: 5-year forecast summary

  Outlook for 2013-17: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2012a	2013b	2014b	2015b	2016b	2017b
  Real GDP growth	3.2	3.5	3.3	3.2	3.3	3.2
  Gross agricultural production growth	3.2	3.2	2.8	3.1	3.3	3.0
  Consumer price inflation (av)	3.8c	4.3	4.6	4.2	4.4	4.4
  Consumer price inflation (end-period)	3.4c	4.4	4.7	4.2	4.4	4.4
  Money market interest rate (av; %)	5.6	5.2	5.7	6.3	6.3	6.3
  Central government balance (% of GDP)	-2.3	-2.1	-1.6	-1.9	-2.0	-2.2
  Exports of goods fob (US$ bn)	10.2	10.4	11.6	12.6	13.8	15.0
  Imports of goods fob (US$ bn)	15.7	16.7	18.3	20.4	22.1	23.9
  Current-account balance (US$ bn)	-2.1	-2.4	-2.5	-3.2	-3.6	-3.9
  Current-account balance (% of GDP)	-4.0	-4.1	-3.9	-4.6	-4.7	-4.8
  External debt (year-end; US$ bn)	16.8	17.5	18.1	18.5	18.8	19.1
  Exchange rate Q:US$ (av)	7.83c	7.86	7.86	7.94	8.06	8.21
  Exchange rate Q:US$ (end-period)	7.89c	7.88	7.89	7.98	8.13	8.28
  Exchange rate Q:€ (av)	10.07c	10.45	10.31	10.09	10.16	10.35
  Exchange rate Q:€ (end-period)	10.37c	10.40	10.30	10.02	10.25	10.42
  a The Economist Intelligence Unit estimates. b The Economist Intelligence Unit forecasts. c Actual.

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  March 26, 2013

View detailed map

Country Briefing

Land area

108,889 sq km; two-thirds mountainous (volcanic), heavily forested in the north, fertile coastal plains

Population

15.1m (mid-2012; Instituto Nacional de Estadística)

Main towns

Population in '000 (2011):

 Guatemala City (capital) & metropolitan area: 3,156

Climate

Subtropical; temperate in highlands

Weather in Guatemala City (altitude 1,480 metres)

Hottest month: May, 16-32°C (average daily minimum and maximum); coldest month: January, 10-28°C; driest month: January, 0.7 mm average rainfall in the last five years; wettest month: September, 263 mm average rainfall in the last five years

Language

Spanish; at least 21 Mayan indigenous languages, plus two non-Mayan indigenous languages

Measures

Metric system; also old Spanish units

Currency

1 quetzal (Q)=100 centavos; average exchange rate in 2011: Q7.79:US$1.

Time

6 hours behind GMT

Public holidays

January 1st; Good Thursday; Good Friday; Good Saturday; May 1st; May 10th (Mothers' Day); June 30th; August 15th (Guatemala City only); September 15th; October 20th; November 1st; December 24th (half-day); December 25th; December 31st (half-day)

January 14, 2013