Guatemala’s Economic Growth Withstands Political Turmoil

Courtesy of STRATFOR (subscription required), a look at Guatemala’s economic strength:

A series of corruption scandals has created political uncertainty in Guatemala. Many top officials have resigned in recent months, and Guatemalan President Otto Perez Molina is being threatened with impeachment. However, any legal action taken against Perez Molina will not be complete until after his term ends. Regardless of Perez Molina’s fate, the scandal will almost certainly ensure strong support for the main opposition candidate, Manuel Baldizon, in the September presidential election. Meanwhile, Guatemala’s relatively strong economic performance will be unaffected by the looming political transition and the fallout from the corruption scandal. The country is poised to become a leader of Central American economic growth in the coming years.


Guatemala has been in the grips of a corruption scandal since April, when it was discovered that the national tax collection agency and customs office had been stripped of an estimated $120 million in tax revenue. Several officials were implicated, including tax collection agency chief Juan Carlos Monzon and then-Vice President Roxana Baldetti. The revelation of another corruption scandal soon followed, in which Guatemala’s Social Security Institute (IGSS) was found to have illegally awarded a $15 million contract to a Mexican pharmaceutical company that was unqualified and that did not meet government standards for kidney dialysis treatments, resulting in the deaths of at least 13 patients. This case led to the arrest of the president of Guatemala’s central bank, Julio Roberto Suarez, and the head of the IGSS, Juan de Dios Rodriguez, a former secretary of Perez Molina.

Since the corruption allegations surfaced, there has been a series of demonstrations in Guatemala, and thousands of people have protested across the country on a weekly basis. These protests, some attracting as many as 60,000 people, have been concentrated primarily in Guatemala City and are largely, though not exclusively, made up of the young, mestizo segment of the population rather than the rural, indigenous segment. Popular demands have provoked resignations, arrests and dismissals within the Guatemalan government, including security, energy and environment ministers as well as the head of the state intelligence agency.

Perez Molina, who was ordered to appear before the Guatemalan Congress for questioning about his alleged role in the IGSS scandal, has also become a target and is facing growing calls to resign. Guatemala has a fractured political landscape consisting of many small parties that must form alliances to be effective. But events have alienated Perez Molina’s center-right Patriotic Party from leftist parties and even other business-friendly parties. Though Guatemala’s Constitutional Court ruled June 17 to uphold Perez Molina’s immunity while investigations are underway, the fate of the Guatemalan president, whose term ends in January 2016, is unclear.

September’s presidential election, in which Molina is not eligible to run because of constitutional term limits, will usher in a change in leadership for Guatemala before any potential criminal proceedings against Perez Molina will conclude. Even before news of the corruption scandals broke, opposition candidate Baldizon of the center-right Renewed Democratic Liberty party held a commanding lead with 30 percent of the vote, 16 points ahead of his nearest rival. In the latest polls taken in mid-June, Baldizon’s support had grown to 34.5 percent, while support for the nearest candidate, Sandra Torres (a member of the center-left National Unity of Hope party and former first lady), only had 12.9 percent. In third place, with just over 10 percent of public support, was comedian and anti-establishment candidate Jimmy Morales, whose popularity has also grown as a result of the corruption scandals. 

Regardless of who wins the election, the next Guatemalan leader will take the helm of one of the strongest economies in Central America. Guatemala’s currency, the quetzal, was the best performer of Latin American currencies in 2014, and the country has seen an average of 3.5 percent annual GDP growth over the last five years. Guatemala’s economy, which relies on commodity exports such as coffee, sugar and bananas and which exports more than 40 percent of its goods to the United States, is projected to grow between 3.6 and 4.2 percent in 2015, making it one of the fastest-growing economies in the region. Guatemala, Central America’s largest economy, also receives more foreign direct investment than any other country in Central America or the Caribbean.

Though Guatemala still contends with issues such as poor infrastructure and violence related to narcotics trafficking, the country’s economy has been able to weather such challenges relatively well. The latest corruption scandals and uncertainty over what will happen to Perez Molina are unlikely to hamper Guatemala’s economic growth, particularly because any legal procedures, if launched, would carry on past the end of his term. Unless he resigns, Perez Molina is unlikely to vacate his office early. His probable successor, Baldizon, has also pledged to continue the market-friendly policies of the current government. Ultimately, Guatemala’s economic integration with the United States and its openness to trade agreements will outweigh its political instability and security problems when it comes to ensuring growth.

This entry was posted on Wednesday, June 24th, 2015 at 8:56 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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