Guatemala

Security Risks Remain High

The outlook for this year’s presidential election has been complicated by the possibility that the current first lady, Sandra Torres, could stand as the candidate for the incumbent center-left UNE. Although the constitution bars the family members of a president from standing for the office, Torres has been granted a divorce from President Alvaro Colom, despite more than a dozen legal challenges filed by various political rivals. The final decision on Torres’ eligibility rests with the Supreme Electoral Tribunal, which is not expected to act in defiance on the court’s decision on the divorce. For now, the front-runner remains Otto Pérez Molina, who finished second to Colom in 2007 as the candidate of the PP. A former general who briefly served as head of security in the administration of President Oscar Berger, Pérez will once again campaign on the failure of successive governments to combat crime, an issue that is perennially among the top concerns of voters. By some estimates, the drug cartels already effectively control as many as seven of the 22 provinces and have bought the support of the local populace by financing social services the state cannot afford. All indications are that the problem is going to get worse before it gets better, as the country’s police force is rife with corruption, and is both outmanned and outgunned by the cartels.

Persistent Fiscal Strains

Colom has attempted to deal with the problem of chronic large budget shortfalls by increasing the state’s tax take. However, proposals to raise the tax on business income from 5% to 6%, hike the tax rate on commercial rents, and impose a tax on mobile phone use have encountered strong pushback from CACIF, a powerful local business lobby. The prospects for successful implementation of tax reforms will dim as this year’s elections draw nearer, and given the high potential for a pre-election spending spree, it is quite likely that the next government will inherit an empty treasury. A string of natural disasters that hit the country in 2010 has contributed to a decline in the domestic availability of food staples, a development that in combination with high global prices for food will contribute to the expansion of the trade deficit, creating a risk of balance-of-payments difficulties in the near term. DR-CAFTA and GSP+ will provide the foundation for a rebound once the US and EU economies enter a period of sustained recovery, but persistent pressure for the government to control spending and tighten tax administration will create a drag on growth over the medium term, and the economy is forecast to expand by an annual average of just 3% through 2016.

Guatemala

Forecast Summary

SUMMARY OF 18-MONTH FORECAST

SUMMARY OF FIVE-YEAR FORECAST

Guatemala

Political Fact Sheet