FORECASTS OF RISK TO INTERNATIONAL BUSINESS
Turmoil Financial Transfer Direct Investment Export Market
18-Month: High B- B B
Five-Year: High C+ B- B-

KEY ECONOMIC FORECASTS
Years Real GDP Growth % Inflation % Current Account ($bn)
2006-2010(AVG) 3.6 6.3 -1.22
2011(F) 2.8 5.9 -2.30
2012-2016(F) 3.0 6.4 -2.75

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

REGIMES & PROBABILITIES Divided Government 60% Center-Right Coalition 25% Right-Wing Coalition 15%
RISK FACTORS CURRENT
Turmoil High SLIGHTLY MORE Same SLIGHTLY MORE
Investment
Equity Moderate Same SLIGHTLY LESS Same
Operations High Same SLIGHTLY LESS MORE
Taxation Moderate SLIGHTLY MORE Same SLIGHTLY MORE
Repatriation Low Same Same Same
Exchange Low Same Same Same
Trade
Tariffs Moderate SLIGHTLY LESS SLIGHTLY LESS Same
Other Barriers Moderate Same Same SLIGHTLY MORE
Payment Delays Moderate Same Same SLIGHTLY MORE
Economic Policy
Expansion High SLIGHTLY MORE SLIGHTLY MORE SLIGHTLY MORE
Labor Costs Low SLIGHTLY MORE Same Same
Foreign Debt Moderate SLIGHTLY MORE SLIGHTLY MORE SLIGHTLY MORE

SUMMARY OF FIVE-YEAR FORECAST

REGIMES & PROBABILITIES Divided Government 60% Center-Right Coalition 30% Right-Wing Coalition 10%
RISK FACTORS BASE
Turmoil High Same SLIGHTLY LESS SLIGHTLY MORE
Restrictions
Investment Moderate Same SLIGHTLY LESS SLIGHTLY MORE
Trade Moderate SLIGHTLY LESS SLIGHTLY LESS SLIGHTLY LESS
Economic Problems
Domestic High Same SLIGHTLY LESS SLIGHTLY MORE
International Moderate SLIGHTLY MORE Same MORE
* When present, indicates forecast of a new regime

 

Guatemala

Political Fact Sheet

CAPITAL: HEAD OF STATE:
Guatemala City President Alvaro Colom (2008)
CONSTITUTION: HEAD OF GOVERNMENT:
May 31, 1985; amended November 1993 President Colom (2008)
ADMINISTRATIVE SUBDIVISIONS: OFFICIALS:
22 departments and Guatemala City Rafael Espada, Vice President Juan Alfonso De León, Agriculture Guillermo Andres Castillo, Communications, Infrastructure & HousingGeronimo Lancerio, Culture Abraham Valenzuela, Defense Ruben Estuardo Morales, Economy Denis Alonzo Mazariegos, Education Romeo Rodríguez, Energy & MinesLuis Ferraté, Environment & Natural Resources Edgar Alfredo Balsells Conde, Finance Haroldo Rodas, Foreign Relations Ludwig Werner Ovalle, Health & Social Assistance Carlos Menocal, Interior Edgar Rodriguez, Labor
POPULATION:
2010: 14.38 million
AREA:
108,780 sq. km.
OFFICIAL LANGUAGE:
Spanish
STATUS OF PRESS:
free
SECTORS OF GOVERNMENT PARTICIPATION:
agriculture, communications, energy, transportation, utilities
CURRENCY EXCHANGE SYSTEM:
managed float
EXCHANGE RATE:
1/21/2011 $1=8.11 quetzales
ELECTIONS: LEGISLATURE:
Presidential and Legislative Assembly elections are held concurrently every four years; last, September 9, and November 4, 2007; next, scheduled August 2011. Unicameral; 158-member Congress.  Seat  distribution: National Unity of Hope (UNE), 32; Patriot Party (PP), 26; Renewal of Democratic Freedom (Lider), 26; Grand National Alliance (Gana), 24; Guatemala Independent Bloc (BG), 15; Guatemalan Republic Front (FRG), 9; Unionist Party (PU), 6; Union National Change, 4; other, 9; independent, 7.