Economy of Guatemala
Encyclopedia
Guatemala
is the most populous of the Central American countries with a GDP per capita roughly one-third that of Argentina, Brazil, and Chile. Coffee, sugar, and bananas are the main products. The 1996 signing of peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and Guatemala since then has pursued important reforms and macroeconomic stabilization. On 1 July 2006, the Central American Free Trade Agreement (CAFTA) entered into force between the US and Guatemala and has since spurred increased investment in the export sector. The distribution of income remains highly unequal with 12% of the population living below the international poverty line. Given Guatemala's large expatriate community in the United States, it is the top remittance recipient in Central America, with inflows serving as a primary source of foreign income equivalent to nearly two-thirds of exports.
Guatemala
's Gross domestic product
for 2000 was estimated at $19.1 billion, with real growth slowing to approximately 3.3%. After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth over the next 10 years.
Guatemala's economy is dominated by the private sector, which generates about 85% of GDP. Most manufacturing is light assembly and food processing, geared to the domestic, U.S.
, and Central America
n markets. Over the past several years, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flower
s have boomed, while more traditional exports such as sugar
, banana
s, and coffee
continue to represent a large share of the export market.
The United States is the country's largest trading partner, providing 36% of Guatemala's imports and receiving 40% of its exports. The government sector is small and shrinking, with its business activities limited to public utilities--some of which have been privatized
--ports and airports and several development-oriented financial institutions. Guatemala was certified to receive export trade benefits under the United States' Caribbean Basin Trade and Partnership Act
(CBTPA) in October 2000, and enjoys access to U.S. Generalized System of Preferences
(GSP) benefits. Due to concerns over serious worker rights protection issues, however, Guatemala's benefits under both the CBTPA and GSP are currently under review.
Import tariffs have been lowered in conjunction with Guatemala's Central American neighbors so that most fall between 0% and 15%, with further reductions planned. Responding to Guatemala's changed political and economic policy environment, the international community has mobilized substantial resources to support the country's economic and social development objectives. The United States, along with other donor countries-especially France, Italy, Spain, Germany,Japan, and the international financial institutions--have increased development project financing. Donors' response to the need for international financial support funds for implementation of the Peace Accords is, however, contingent upon Guatemalan government reforms and counterpart financing.
Problems hindering economic growth include high crime
rates, illiteracy
and low levels of education
, and an inadequate and underdeveloped capital market. They also include lack of infrastructure
, particularly in the transportation, telecommunication
s, and electricity sectors, although the state telephone company and electricity distribution were privatized in 1998. 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, approximately 29% of the population lives in poverty
, and 6% of that number live in extreme poverty. Guatemala's social indicators, such as infant mortality and illiteracy, are successively improving, but remain in low growth and are still among the worst in the hemisphere.
In 2005 Guatemala ratified its signature to the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
between the United States of America and several other Central American countries.
has declared the lack of food and proper nutrition to be a national emergency. Colom stated that the situation is the combined result of a number of factors, including a severe drought
and global warming
, which have reduced the domestic food supply, and the Global financial crisis, which has reduced Guatemala's ability to import food. Colom stated that the government will immediately seek assistance from the international community for emergency food supplies.
A number of international organizations have expressed concern with Guatemala's current economic status in 2009. The United Nations
World Food Programme
(WFP) and the World Bank
reported the following:
Guatemala
Guatemala is a country in Central America bordered by Mexico to the north and west, the Pacific Ocean to the southwest, Belize to the northeast, the Caribbean to the east, and Honduras and El Salvador to the southeast...
is the most populous of the Central American countries with a GDP per capita roughly one-third that of Argentina, Brazil, and Chile. Coffee, sugar, and bananas are the main products. The 1996 signing of peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment, and Guatemala since then has pursued important reforms and macroeconomic stabilization. On 1 July 2006, the Central American Free Trade Agreement (CAFTA) entered into force between the US and Guatemala and has since spurred increased investment in the export sector. The distribution of income remains highly unequal with 12% of the population living below the international poverty line. Given Guatemala's large expatriate community in the United States, it is the top remittance recipient in Central America, with inflows serving as a primary source of foreign income equivalent to nearly two-thirds of exports.
Guatemala
Guatemala
Guatemala is a country in Central America bordered by Mexico to the north and west, the Pacific Ocean to the southwest, Belize to the northeast, the Caribbean to the east, and Honduras and El Salvador to the southeast...
's Gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
for 2000 was estimated at $19.1 billion, with real growth slowing to approximately 3.3%. After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth over the next 10 years.
Guatemala's economy is dominated by the private sector, which generates about 85% of GDP. Most manufacturing is light assembly and food processing, geared to the domestic, U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, and Central America
Central America
Central America is the central geographic region of the Americas. It is the southernmost, isthmian portion of the North American continent, which connects with South America on the southeast. When considered part of the unified continental model, it is considered a subcontinent...
n markets. Over the past several years, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flower
Flower
A flower, sometimes known as a bloom or blossom, is the reproductive structure found in flowering plants . The biological function of a flower is to effect reproduction, usually by providing a mechanism for the union of sperm with eggs...
s have boomed, while more traditional exports such as sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
, banana
Banana
Banana is the common name for herbaceous plants of the genus Musa and for the fruit they produce. Bananas come in a variety of sizes and colors when ripe, including yellow, purple, and red....
s, and coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
continue to represent a large share of the export market.
The United States is the country's largest trading partner, providing 36% of Guatemala's imports and receiving 40% of its exports. The government sector is small and shrinking, with its business activities limited to public utilities--some of which have been privatized
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
--ports and airports and several development-oriented financial institutions. Guatemala was certified to receive export trade benefits under the United States' Caribbean Basin Trade and Partnership Act
Caribbean Basin Trade and Partnership Act
The Caribbean Basin Trade Partnership Act is a law adopted by the U.S. Government in October 2000 to delineate enhanced trade preferences and eligibility requirements for the 24 beneficiary countries of the Caribbean Basin region....
(CBTPA) in October 2000, and enjoys access to U.S. Generalized System of Preferences
Generalized System of Preferences
The Generalized System of Preferences, or GSP, is a formal system of exemption from the more general rules of the World Trade Organization ,...
(GSP) benefits. Due to concerns over serious worker rights protection issues, however, Guatemala's benefits under both the CBTPA and GSP are currently under review.
Economic priorities
Current economic priorities include:- LiberalizingLiberalizationIn general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation...
the trade regime; - Financial services sector reform;
- Overhauling Guatemala's public finances;
- Simplifying the taxTaxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
structure, enhancing tax compliance, and broadening the tax base. - Improving the investment climate through procedural and regulatory simplification and adopting a goal of concluding treaties to protect investment and intellectual propertyIntellectual propertyIntellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
rights.
Import tariffs have been lowered in conjunction with Guatemala's Central American neighbors so that most fall between 0% and 15%, with further reductions planned. Responding to Guatemala's changed political and economic policy environment, the international community has mobilized substantial resources to support the country's economic and social development objectives. The United States, along with other donor countries-especially France, Italy, Spain, Germany,Japan, and the international financial institutions--have increased development project financing. Donors' response to the need for international financial support funds for implementation of the Peace Accords is, however, contingent upon Guatemalan government reforms and counterpart financing.
Problems hindering economic growth include high crime
Crime
Crime is the breach of rules or laws for which some governing authority can ultimately prescribe a conviction...
rates, illiteracy
Literacy
Literacy has traditionally been described as the ability to read for knowledge, write coherently and think critically about printed material.Literacy represents the lifelong, intellectual process of gaining meaning from print...
and low levels of education
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
, and an inadequate and underdeveloped capital market. They also include lack of infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
, particularly in the transportation, telecommunication
Telecommunication
Telecommunication is the transmission of information over significant distances to communicate. In earlier times, telecommunications involved the use of visual signals, such as beacons, smoke signals, semaphore telegraphs, signal flags, and optical heliographs, or audio messages via coded...
s, and electricity sectors, although the state telephone company and electricity distribution were privatized in 1998. 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, approximately 29% of the population lives in poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
, and 6% of that number live in extreme poverty. Guatemala's social indicators, such as infant mortality and illiteracy, are successively improving, but remain in low growth and are still among the worst in the hemisphere.
In 2005 Guatemala ratified its signature to the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
Dominican Republic-Central America Free Trade Agreement
The Dominican Republic – Central America Free Trade Agreement, commonly called DR-CAFTA, is a free trade agreement . Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA...
between the United States of America and several other Central American countries.
2009 Food Crisis
In September 2009, Guatemalan President Alvaro ColomÁlvaro Colom
Álvaro Colom Caballeros is the President of Guatemala for the 2008–2012 term and leader of the social-democratic National Unity of Hope .-Early years:...
has declared the lack of food and proper nutrition to be a national emergency. Colom stated that the situation is the combined result of a number of factors, including a severe drought
Drought
A drought is an extended period of months or years when a region notes a deficiency in its water supply. Generally, this occurs when a region receives consistently below average precipitation. It can have a substantial impact on the ecosystem and agriculture of the affected region...
and global warming
Global warming
Global warming refers to the rising average temperature of Earth's atmosphere and oceans and its projected continuation. In the last 100 years, Earth's average surface temperature increased by about with about two thirds of the increase occurring over just the last three decades...
, which have reduced the domestic food supply, and the Global financial crisis, which has reduced Guatemala's ability to import food. Colom stated that the government will immediately seek assistance from the international community for emergency food supplies.
A number of international organizations have expressed concern with Guatemala's current economic status in 2009. The United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
World Food Programme
World Food Programme
The World Food Programme is the food aid branch of the United Nations, and the world's largest humanitarian organization addressing hunger worldwide. WFP provides food, on average, to 90 million people per year, 58 million of whom are children...
(WFP) and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
reported the following:
- Guatemala has the fourth highest rate of chronic malnutrition in the world and the highest in the Western Hemisphere.
- Approximately 75% of Guatemalans live below the poverty level, which is defined as an income that is not sufficient to purchase a basic basket of goods and basic services.
- Approximately 58% of the population have incomes below the extreme poverty line, which is defined as the amount needed to purchase a basic basket of food.
- Approximately 50% of Guatemalan children under the age of 5 now suffer from chronic undernutrition.
- In the nation's highlands, where many indigenous people live, 70% of children under age 5 are malnourished.