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World > North America > Guatemala > Economy (Notes)

Guatemala - Economy (Notes)


ECONOMY
After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth over the next several years, until a financial crisis in 1998 disrupted the course of improvement. The subsequent collapse of coffee prices left what was once the country's leading export sector in depression and had a severe impact on rural incomes. Foreign investment inflows have been weak, with the exception of the privatization of utilities. Potential investors, both foreign and domestic, cite corruption, lack of physical security, a climate of confrontation between the government and private sector, and unreliable mechanisms for contract enforcement as the principal barriers to new business. On a more positive note, Guatemala's macroeconomic management was sound under the Portillo administration, and its foreign debt levels are modest. The country subscribed to a standby agreement with the International Monetary Fund (IMF) in 2002, which it extended in June 2003.

Guatemala's economy is dominated by the private sector, which generates about 85% of GDP. Agriculture contributes 23% of GDP and accounts for 75% of exports. Most manufacturing is light assembly and food processing, geared to the domestic, U.S., and Central American markets. Over the past several years, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flowers have boomed, while more traditional exports such as sugar, bananas, and coffee continue to represent a large share of the export market.

The United States is the country's largest trading partner, providing 39.6% of Guatemala's imports and receiving 28.9% of its exports. The government's involvement is small, with its business activities limited to public utilities--some of which have been privatized--ports and airports, and several development-oriented financial institutions.

Guatemala ratified the U.S.-Central America Free Trade Agreement, commonly known as CAFTA, on March 10, 2005 and the agreement entered into force between Guatemala and the U.S. on July 1, 2006. CAFTA eliminates customs tariffs on as many categories of goods as possible; opens services sectors; and creates clear and readily enforceable rules in areas such as investment, government procurement, intellectual property protection, customs procedures, electronic commerce, the use of sanitary and phyto-sanitary measures to protect public health, and resolution of business disputes.

Other priorities include increasing transparency and accountability in Guatemala's public finances, broadening the tax base, and completing implementation of financial sector reforms. These measures attempt to ensure that Guatemala can comply with the standards of the international Financial Action Task Force for detecting and preventing money laundering.

The United States, along with other donor countries--especially France, Italy, Spain, Germany, and Japan--and the international financial institutions, have increased development project financing since the signing of the peace accords. However, donor support remains contingent upon Guatemalan Government reforms and counterpart financing.

The distribution of income and wealth remains highly skewed. The wealthiest 10% of the population receives almost one-half of all income; the top 20% receives two-thirds of all income. As a result, about 80% of the population lives in poverty, and two-thirds of that number--or 7.6 million people--live in extreme poverty. Guatemala's social development indicators, such as infant mortality and illiteracy, are among the worst in the hemisphere. Chronic malnutrition among the rural poor worsened with the onset of the crisis in coffee prices. The United States has provided disaster assistance and food aid in response to natural disasters including Hurricane Stan, which caused extensive mudslides in Guatemala in October 2005.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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