Guatemala, which gained its independence in 1821, serves as the northern bottleneck of the Central American isthmus. Its history has been defined by political and military struggles that not only stunted human capital and economic growth, but left lasting marks on domestic social relations, as well as international relations. After 36 years of open civil conflict ended in 1996, a more democratic government began looking for strategies to develop a healthy and fair economy. While Gross Domestic Product has surged at times, international economic shocks, a poor domestic security environment, and continued incidences of corruption hamper efforts to gain momentum towards growth.
 Banco de Guatemala. (2015). Guatemala en Cifras. Retrieved from: http://www.banguat.gob.gt/Publica/guatemala_en_cifras_2015.pdf.  International Monetary Fund. (2014). World Economic Outlook Database. October 2014 Edition. Retrieved from: http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/index.aspx.  Ibid.  Instituto Nacional de Estadística de Guatemala. (2013). Caracterización República de Guatemala 2012. Retrieved from: http://www.ine.gob.gt/sistema/uploads/2014/02/26/L5pNHMXzxy5FFWmk9NHCrK9x7E5Qqvvy.pdf.  Ibid.  Ibid.  Ibid.
Guatemalan history and, indeed, the history of Central America were typified by the rise, reign, and dispersion of the Mayan Empire. While artefacts suggest that humans first inhabited the region now known as Guatemala as early as 12,000 BC, evidence of advanced societies does not appear until around 100-200 AD. Prior to this turning point, early inhabitants of Mexico and Central America subsisted in hunter-gatherer societies with limited political and economic organization. However, their means of subsistence and ability to accumulate wealth, was rapidly reshaped by a relatively compressed experience of the Neolithic revolution, due to the successful domestication of potatoes, corn, squash, and other crops.
Centuries later, the result was a highly centralized society with complex religious, cultural, and political life. A network of dense urban centers grew, relying heavily on the conversion of rainforest to farmland to support massive populations. Furthermore, within these cities an elite class developed, possessing material wealth and sweeping political power. It was this successful generation of surplus capital that provided for the construction of infrastructure projects, including massive pyramids that remain iconic symbols of the Classical Mayan era.
Mayan society flourished for centuries until the very rapid dissolution of many of its cities around 900 AD. While scholars have created models and collected evidence from genealogical markers to ancient pollen in lakebeds, there is sufficient opacity in the historical record to conclusively explain their collapse. However, among the most likely theories is a confluence of a regional drought and political strife. Furthermore, recent studies suggest that this drought may have been produced by the very aggressive slash-and-burn agricultural practices that had initially led to the social development of the Maya.
While Mayan civilization would never project itself over the region in the same manner as it had in the period from 250-900 AD, many cities, particularly in the North, continued to thrive after collapse. Other ethnic groups eventually began to reform along similar geographic and political lines. Many other centers simply devolved into more localized city-states. This trend continued amidst relative stability until the advent of Spanish Conquistadors.
The first arrival of Christopher Columbus marks the beginning of a period of complete upheaval of native societies from Florida to the southern tip of South America. The encouraging success of Columbus’s first landfall led to three subsequent voyages, the fourth of which brought the first Europeans to Central America, and into contact with the Maya.
Subsequently, a series of military expeditions were led inland in pursuit of treasure and royal subjects. Although civilizations in Guatemala were aided by being relatively decentralized compared to earlier centuries, they would not withstand the conquistador’s sword and the diseases it carried. Campaigns by Hernán Cortés, Francisco Montejo, and others brought the remaining political structures under Spanish rule. This process was more-or-less completed by around 1550, less than 60 years after Columbus first made landfall in the Americas.
Spanish rule in the Americas extended from the North-Western United States to the Northern reaches of South America. This territory was administered as “New Spain” by the Viceroyalty of New Spain (1519-1821) (Virreinato de Nueva España). In the early 1600’s, the Captaincy General of Guatemala was established as a sub-unit of New Spain, encompassing present-day Guatemala through the Central America isthmus to Costa Rica. As Spanish rule was distinctly homogenous considering the size and geographic diversity of the territory, present-day Guatemala experienced colonialism with many parallels to its near neighbors.
The Encomienda system of governance and rule is one such feature. Across much of New Spain, Spanish individuals associated with the colonization project were assigned or allotted native communities from which they could demand labor and material tribute. In return, they were obligated to instruct the natives in Spanish language and Christianity. This system was particularly effective in Northern Central America, where geography and the legacy of the Classic Mayan civilization left dispersed, but dense clusters of natives to conscript. This system was in force for centuries, based on the export of mineral resources, agricultural products, and locally produced commodities, such as fabrics.
Independence and the First Century of the Republic
Moving into the 19th century, amidst waning Spanish naval power, the entirety of the Spanish Empire began to erode. The relative strength of other colonial powers and developing independence movements laid a path for New Spain’s secession. A major development came when Mexico and Central America declared independence as the First Mexican Empire in 1821. Three years later, the United Provinces of Central America (UPCA) peacefully seceded from the Mexican Empire. This political entity persisted until 1839, when the provinces of Honduras, Costa Rica, El Salvador and Nicaragua, along with Guatemala seceded from UPCA amidst violent civil conflict. The resulting five independent states and their boundaries have existed largely unchanged to the present-day.
The first years of Guatemalan independence failed to produce a semblance of a democratic nation. Rafael Carrera, the first president of the new republic, ruled until his death in 1865 as the supreme and perpetual leader of Guatemala. Like most early Central American presidents, he faced the project of establishing a unified national identity there had existed none. The case of Guatemala constitutes an unsuccessful in this effort and the consequences of a weak national identity. Specifically, early Guatemala produced weak civil society organizations and an over-endowed federal government, collectively yielding a nearly uninterrupted century of autocratic rule.
From 1871 to 1898, General Justo Rufino Barrios served as President, immediately succeeded by Manuel Estrada Cabrera, who ruled until 1930. The rule of both men, especially Estrada Cabrera, was bolstered by revenue from agricultural exports. The United Fruit Company (UFCO) was established in Guatemala in 1901 to complete several public service functions. It was gradually given various land concessions, where it was able to export massive banana crops virtually tax-free, by bribing public officials across many sectors and levels of government. This money was commonly used to support an overgrown military, the pillar of autocratic stability in early Guatemala.
Cabrera’s successor, Jorge Ubico, followed the same mode of rule, but increasingly began to leverage American interests in a democratically oriented Guatemala with open trade policies. In return for American support of his regime, Ubico granted UFCO prime agricultural land and the United States government the right to build military bases in Guatemala. Halfway through the 20th century, democracy in Guatemala remained a farce, as Ubico administrated one of the most oppressive regimes in the country’s history.
In 1944, Ubico was forced from office amongst a popular protest against labor conditions and land access amongst other grievances. While a successor was soon put in place, a trio of military leaders removed him and would briefly serve as a ruling coalition. In 1945, democratic elections took place and were won by a wide majority by Juan José Arévalo. Seeking to redress the issues that led to the ouster of Ubico, Arévalo pursued several social and economic reforms, including setting up a social security system, redistributing land to landless peasants and assigning more resources to education and health. However, there were many attempts to overthrow him. Despite being initially US oriented, this relationship quickly spoiled. His refusal to grant licenses for foreign development of natural resources, the redistribution of some UFCO holdings, and implementing a new labor code drew the two countries into staunchly opposing positions. Arévalo held the presidency until 1951.
Most of Arévalo’s reforms were succeeded by Col. Jacobo Árbenz, who took office in 1951. Following Arévalo’s approach to land reform, in 1952 Árbenz passed an agrarian reform that enabled him to create a network of agrarian councils. The main objective of these councils would be to conduct expropriations of uncultivated land on estates with the area bigger than 672 acres (2.7 Km2). The land was supposed to be allocated to individual families and the compensation for the expropriated land would be according to the tax declaration value of these lands in particular. The presidency of Árbenz was also focused on investing in physical infrastructures, such as highways, the construction of a new port and a new electric power generation plant. In that time the United Fruit Company, through its subsidiaries, had the monopoly control in both the railway as well as in the port. It is worth noting that Árbenz’s presidency political freedom was extended, allowing the communist party to participate in politics.
In 1954, a group of armed Guatemalan exiles commanded by Col. Carlos Castillo Armas, and backed by the U.S. Central Agency of Intelligence (CIA), invaded Guatemala. The Guatemalan army refused to resist to coup and Árbenz was forced to resign. The new military government led by Castillo Armas disbanded the legislature and arrested communist leaders.
Guatemalan Civil War (1960-1996)
The Guatemalan Civil War, which lasted thirty-six years (1960 – 1996), engaged the government, right-wing paramilitary organizations, and left-wing insurgents. In 1958, Col. Castillo Armas was murdered, and Gen. Ydígoras Fuentes took power. His regime was notably autocratic and repressive. In response to that this, a group of military officers unsuccessfully revolted in 1960. Subsequently, several went into hiding in the countryside and neighboring countries to prepare an insurgency campaign. This group constituted the nucleus of the forces that mounted armed insurrection against the government for the next 36 years.
In 1966, Dr. Julio Cesar Mendez Montenegro took office and shortly after he ordered a major counterinsurgency campaign that started to defeat the guerrilla in the countryside. However, the guerrilla gained international attention through to their attacks in Guatemala City. To mention just a few, the guerrilla assassinated the U.S. Ambassador in 1968 and burned down the Spanish Embassy in 1980, resulting in 37 deaths, including high ranking Guatemalan former government officials and embassy personnel.
Among the factors that sustained the Guatemalan Civil War is the chronic status quo of inequality and social exclusion, inherited from the colonial period. For example, in 1964, in Quiché, the department most affected by the civil war and where almost 100% of the population is Mayan, 90% of households did not have access to water and 97% lacked electricity. Another central factor that played a relevant role in the Guatemalan Civil War was the global Cold War tensions. It is well known that throughout the armed confrontation, insurgent groups adopted Communist orientations to court Soviet support, while the U.S. government backed most of the actions taken by the military.
The period between 1960 and 1978 was relatively peaceful, until the worst period of the war began in 1979 and lasted until 1984. From 1985 until 1996, when peace accords were signed, violence declined. Due to the human rights violations committed by the state against civilian population, a considerable number of children left orphaned and abandoned, while many families and entire communities lost property and their means of survival.
During the worst period of the war (1979-1984) 90% of the total human rights violations were committed. The estimated number of people killed or disappeared during the years of the civil war was roughly 200,000. Similarly, 500,000 people or 8.3% of the 1983 population were displaced, and many Mayan villages were destroyed. Of the cases of human rights documented by the Commission for Historical Clarification (CEH) –sponsored by the United Nations- 83% of the fully identified victims were Mayan, and 17% were Ladino. ,
Between 1962 and 1970, victims were mainly peasants, members of rural union organizations, university and secondary school teachers and students, and guerrilla sympathizers. Between 1971 and 1978, military operations were more selective and were conducted in geographically dispersed areas. Victims included community and union leaders, catechists, and students. During the most violent and bloody period of the entire armed confrontation, 1979 to 1984, military operations were mainly conducted in Quiché, Huehuetenango, Chimaltenango, Alta and Baja Verapaz, the south coast, and the capital.
The years of the Civil War also brought major economic consequences. Increasing military spending diverted public resources away from health and education, leaving social development all but abandoned. This resulted in the deterioration of health and education conditions in the entire country, but particularly in those areas most affected by the confrontation. The Commission for Historical Clarification (CEH) estimates that the economic consequences of the war were severe. Taking only the 10-year period 1980-1989, the CEH estimates that the total direct quantifiable costs were equivalent to zero production for almost 15 months, which represents around 121% of Guatemala’s GDP in 1990. The majority of the costs resulted from the loss of the active labor force during those year, especially in rural and conflictive areas. Many were murdered, disappeared, and forced to abandon their daily productive activities to be recruited by paramilitary forces or guerrillas. The destruction of physical assets, including private and community property, as well as infrastructure loses, such as bridges and electrical towers, also represented considerable loses. Many Mayans particularly located in the west and northwest of Guatemala suffered the most in terms of the total destruction of family capital.
Human Capital Consequences of the Civil War in Guatemala
The most complete attempt to quantify the consequences on human capital of the armed conflict in Guatemala was done by Chamarbagwala and Morán (2011). They examine the magnitude of the war’s effect on years of schooling and grade completion using the 2002 National Population Census and the distribution of the number of human rights violation and victims across departments in Guatemala. They examine the schooling outcomes of three cohorts. The first cohort was represented by those with school age during the relatively peaceful period (1960-1978); in the second cohort they included those school age during the most severe period of the war (1979-1984); and the third cohort is conformed by those who were school age during the final years of the war (1985-1996).
They find a strong negative impact of the civil war on the education of especially rural Mayan males and females, supporting the conclusion that poverty and social exclusion among the most vulnerable groups were reinforced by the internal armed conflict. For example, rural Mayan males that were school age during the three periods under study in departments where most of the human rights violations occurred completed 0.27, 0.71, and 1.09 years less of schooling, respectively. Likewise, the same calculation for rural Mayan females resulted in 0.12, 0.47, and 1.17 years less of schooling, respectively. For males these represented declines of 6, 15, and 23% given an average of 4.66 years of education for this group of the population; while for females these represented declines of 3, 12, and 30% given an average of 3.83 years of education for this group of the population.
In fact, in general, the 36-year-long civil war appears to have intensified gender, regional, sectoral, and ethnic disparities in human capital accumulation. For example, individuals born between 1920 and 1983 have on average 2.27 years higher of schooling in the 17 lowest war intensity departments compared to the top five high war intensity departments; this group also has 3.74 years higher of schooling in urban areas than rural areas; and 3.15 years higher among non-Mayan than Mayan people. Gender differences are evident with female education lagging behind male education across the country, but especially in the high war intensity departments and among Mayans.
Ending the Civil War
Democracy returned to Guatemala after de facto president General Óscar Mejía allowed an election for a Constituent Assembly to draft a democratic constitution. Nine months later a new constitution was drafted, and it took effect immediately. Vinicio Cerezo, a civilian, won the elections with a 70% of the vote. Cerezo’s priorities were to end the political violence and establish the rule of law. The military returned to provide internal security, still fighting armed insurgents. However the Cerezo’s government had two coup attempts, but military leadership supported the constitutional order.
In 1990 presidential and congressional elections took place and in 1991 Jorge Serrano took office. He lacked Congressional support and had to enter into a tenuous coalition. Serrano had some success in consolidating civilian control over the army, and after replacing some senior officers, he persuaded the military to participate in peace talks with the insurgents. However, Serrano illegally dissolved Congress and the Supreme Court and tried to restrict civil freedoms, allegedly to fight corruption. However, this found strong internal and international opposition. Serrano in 1993 had to leave the country.
Following the 1985 constitution, Human Rights Ombudsman, Ramiro de Leon had to complete Serrano’s presidential term. To “purify” Congress and the Supreme Court, de Leon asked for the resignations of all members of the two bodies. This was part of a package of constitutional reforms that were approved by popular referendum in 1994. In August of that year, a new Congress was elected to complete the unexpired term. De Leon undertook this with the hope that Congress will abandon the corruption that characterized its predecessors.
Under de Leon, the peace process speeded up. The government and the insurgents signed agreements on human rights (March 1994), resettlement of displaced persons (June 1994), historical clarification (June 1994), and indigenous rights (March 1995). A significant progress was also made on socioeconomic and agrarian agreements.
In 1996, Álvaro Arzú won tight presidential elections and under his administration, peace negotiations were concluded. The peace accords ending the 36-year internal conflict were signed in December 1996.
Conflict and Violence
Guatemala, in particular, is one of the most violent countries in the Central American region and in the world. In 2006 the entire population of Central America (El Salvador, Guatemala, Honduras, Costa Rica, Nicaragua, and Panama) was approximately the same as that of Spain, but while Spain in that year registered 336 murders -less than one per day, Central America recorded 14,257 murders, almost 40 per day (World Bank, 2011). Furthermore, in 2013 Guatemala reported an average of 101 murders per week.
The government of Guatemala has however reported a drop in the homicide rate from a peak of 6,498 in 2009 to 5,515 in 2012. Translating these figures in relative terms, this means that in 2009 Guatemala saw 46.3 murders per 100,000 people; in 2010 the rate fell 41.4, and in 2011 it dropped again to 38.5. In 2012 it declined to a third consecutive year, to 34.2.
However, these estimates are likely conservative due to record keeping practices. The Government of Guatemala and international organizations most commonly use statistics provided by the National Civil Police (PNC in Spanish), which does not record a homicide if the victim left the crime scene alive and later dies as a result of the injuries of the attack. In fact, the homicide rate from the INACIF (Instituto Nacional de Ciencias Forenses de Guatemala), the Guatemala’s state agency responsible for tracking all deaths in the country, is 8-16 percent higher than the ones reported by the PNC. In 2012 and 2013 the reporting discrepancy reached a peak of 16%.
The most common threats to security in Guatemala are robberies, organized crime, extortion, kidnapping, gender-based violence, street crime, and corruption, as well as violence perpetrated by state agents. Lately, the use of motorcycles for armed robbery has been very common. In an attempt to fight against this, local authorities have passed a law requiring motorcycle riders to wear orange vests and display the license plate on those vests. This law also states motorcycle riders to drive on the right-hand side of the road only; but enforcement has lagged. Robbery reported to the authorities is substantially lower than that recorded through victimization surveys, which indicates a serious lack of citizen confidence in the police and justice system.
Under these figures, Guatemala, as the rest of Latin America, is facing a paradox: although the economies in the region have shown an annual average growth of 4.2 percent during the past 10 years (2004-2013) and have significantly reduced both poverty and unemployment levels, rates of violence and crime are still high. This implies that homicide rates are not linearly correlated with poverty or inequality. Therefore, this phenomenon is much more complex than just higher-growth remedies. A prevalent explanation of this relationship is that it is evidence of several factors, starting with the inability of local officials to enforce a secure environment inexperience and poor remuneration.
However, United Nations Development Programme special report identified at least four potential dimensions to explain high rates of violence and crime in Guatemala in particular, as well as the rest of Latin America.
The first one is the economic-structural dimension. Latin America is characterized as a region with high rates of labor informality, meaning low quality and under-paid jobs, and insufficient social mobility. These features, in the context of the consumer-driven economic growth, have generated “aspirational crimes”. Surveys to inmates in many of the prisons in Latina America reveal that most of them were working and at the same time were committing crimes. Many of them started to work as children (under 15 years old). The aforementioned study argues that low quality jobs and low salaries can be accounted as drivers to supplement their income by illegal means, such as robbery.
Secondly, there is a social dimension in the increased rates of crime and violence in the region. Families have been going through structural changes, such as the significant increase in single-parent households, and the accelerated urban growth has demonstrably eroded the social fabric. In 30 years the percentage of births in households headed by single mothers has doubled, from 7.3% in 1970 to 15% in 2000. This fact also reflects the incidence of paternal abandonment or absence. Single mothers are characterized by belonging to the younger sect of the population with lower education and income levels. In the same dimension, even though the Latin America region has managed to increase literacy levels and children’s access to primary school, high drop-out rates persist, paired with deficits in the quality of education, and lack of job opportunities.
The third dimension is the accessibility to major crime-drivers, such as weapons, alcohol, and drugs. A survey conducted by the Organization of American States (OAS) shows that in Central America 78% of homicides are committed with firearms; 25% to 60% of the inmates admitted having a weapon when they committed a crime. Between 42% and 67% of the inmates stated that they had access to weapons before turning 18, and that they got the weapons from the police. Another fact is that drug consumption tends to be high among people that have committed crimes, but has not be proven with certainty that drug consumption is a driver of crime; therefore a more intuitive channel can be attributed to drug trafficking, the intention to control distribution zones and routes, and so on.
Lastly, the lack of capacity of the State—police forces, judges, prosecutors, and prisons—to adequately address security challenges is probably the most important dimension of all. Under the assumption that security is a public good, and the State has the primary and fundamental responsibility for its provision, professionalization and effectiveness of the police force in Guatemala still a challenge. Political dimensions, inherited institutional barriers, and few meaningful incentives have been obstacles to police reform and establishing accountability. This has led to a negative perception by the population of the police. In fact, in Guatemala 60% of the people believe that the police are involved in crimes, and only 25% believe the police protect people from crime. This is reflected in the countries high ratio of private security guards with almost 900 per 100,000 inhabitants.
The high incidence of crime and violence in Guatemala also leads to higher transaction cost and more uncertainty to investors, and, therefore, this act as an obstacle to enterprise development. By looking at the latest World Economic Forum’s Competitiveness Global Report, the perception of the business community in Guatemala is that the cost of crime and violence is high enough that it is the third highest in the world. The country with the highest perception of business costs of crime and violence is Venezuela, followed by Jamaica, and Guatemala.
Guatemala has a population of 15.4 million as of 2013, and in the last five years (2013-2009) its population growth rate has been 2.45%, the highest in the Central America region. The country consists of 22 administrative departments. The most populated is the department of Guatemala (3.3 million), which comprises the capital city, Guatemala City; while the least populated is the department of El Progreso (163.537 inhabitants). The population density in Guatemala is estimated at 142 people/km2.
Out of the total population, 51.5% live in rural areas, and 48.5% live in urban areas. Besides the department of Guatemala, the second department with more people living in urban areas is Sacatepéquez with an 83.2% of urbanization rate. By contrast, the department with more people living in rural areas is Alta Verapaz with 77.3%.
Guatemala has a relatively young population with a median age of 17 years old and more than 51% of the population with less than 19 years old. As a matter of fact, 28% of the population is less than nine years old. On the overall population, women outnumber men (51.2% vs. 48.8%). However, at the base of the population pyramid, men outnumber women; in the subset age 0 to 19 there are 2.6% more men than women, and from age 20 on, the number of women is higher than men. In the rank of age 65 and above there are 13% more women than men. In all, less than 3% of the population is above 70 years old; a figure that is consistent with the life expectancy at birth of 72 years old.
According to the 2002 Census, the predominant ethnic group in Guatemala is European descendent and Mestizo (mixed Amerindian-Spanish, in local Spanish, called Ladino), accounting for 59.4% of the population. The rest (40.6%) is self indentified as Mayan descendent (indigenous). The predominant Mayan descendent groups are K’iche, Kaqchikel, Mam, and Q’eqchi.
The official language is Spanish. However, there are 23 other officially recognized Amerindian languages; the most important are Quiche, Cakchiquel, Kekchi, Mam, Garifuna, and Xinca.
Historically, after the colonization of Spain, the dominant religion in Guatemala was Christianity. A 2010 survey conducted by the Pew Research Center’s Religion and Public Life Project found that approximately 95% of the population in Guatemala is Christian, of whom 59% are Catholic, and 36% are Protestant. The survey also found that approximately 4% of the population professes no religious affiliation and the remaining 1% includes adherents of Buddhism, Hinduism, Islam, Judaism, or Mayan religions.
For Further Reading:
Guatemala en Cifras: this document provides an in-depth cross section of demographic data and establishes a clear picture of the Guatemalan population.
As a country that closes the northern edge of Central America (with Belize), Guatemala is each a country of origin, transit and final destinations for migrants in one of the largest migration corridors in the world. In order, emigration is the dominant flow in the country, followed by internal, cross-border and transcontinental migration. Every day more than 300 migrants leave the country looking for opportunities in different directions. However, eventually more than 200 of those 300 are forced to return from the United States and Mexico. Still after years of emigration, approximately more than 1.5 million people inside Guatemala are able benefit from remittances from those who made the journey successfully.
The first flow of immigrants from Guatemala, mainly to the United States, started in the late 1950s and early 1960s, these groups helped establish a network that later on was key foothold for subsequent migration. This first flow was stimulated by the new developments in infrastructure such as roads, trains and airports, and also the extension of fixed phone lines; but more importantly there was a strong presence of American firms in Guatemala during those years. This wave of immigrants settled in cities such as Los Angeles, Miami, Chicago and New York. By the end of the 1960s there were almost 14,500 Guatemalans registered with permanent residence in the United States.
During the 1970s the flow of migration to the United Stated increased, due to worse economic prospects, and the significant human and material consequences of the 1976 earthquake. Between 1970 and 1979 the number of Guatemalans that lived legally in the United Stated increased to almost 24,000.
Two factors were importantly responsible for the flow of migration to the United States during the 80s; first, the external debt crisis that hit most countries in the region; and second, the intensification of the internal armed conflict. During those years Guatemala experienced various forms of human movement. Many migrated as refugees, others were granted asylum, others were forcibly exiled, while at the same time international, internal, and intraregional migration also increased. Between 1980 and 1990 almost 60,000 permanent residences were granted to Guatemalan immigrants and the Census Bureau of the United States confirmed that 137,418 Guatemalan were living in the United States.
In the 1990s many structural economic reforms were implemented due to the macroeconomic imbalances of the previous decade; with this, the welfare state in Guatemala had to be restructured. Many social benefits were revised, but poorly, leaving many without basic social assistance (health, education and housing). On the other side, strong economic growth in the U.S. during those years demanded more unskilled labor force to fulfill vacancies in sectors such as construction, retail and services, as well as in agriculture. These two factors brought many Guatemalan immigrants to the United States. The 2000's U.S. Census showed that more than 370,000 Guatemalans were living in the U.S.
The number of immigrant arrivals to the U.S. from Guatemala surged importantly in the first decade of 2000s. More than 670,000 Guatemalans arrived to the U.S. during those years, which meant an increase in the rate of immigration of more than 180% compared to the previous decade. By 2010, the Census Bureau of the U.S. showed that 1,044,209 Guatemalans were living in the U.S.; however, only 178,050 had a permanent residence status. By 2010 the estimated number of Guatemalans that were living outside the country was 1,637,119; which represented an 11.4% of the total population. The main departments where immigrants come from are Guatemala (19.4%), San Marcos (10.5%), and Huehuetenango (8.4%).
Similarly, information gathered from Guatemalans deported from the U.S. shows that 49% of immigrants to the U.S. had secondary-level courses, but not completed; 38% either completed primary education or had some courses; while only 11% finished high school, 1% had college-level studies and 1% had no education.
Among the causes for migration, better economic opportunities and better job situation were the main factors these individuals cited for migrating. The increased rate of crime and violence during the last ten years can also be a push factor, but it is not well represented in theses surveys, completed by the International Organization for Migration.
The former two causes can be illustrated by looking at the insufficiently low economic growth of Guatemala. Over 25 years (1990-2014) its average per capita economic growth rate was only 0.7% annually, meaning that in real terms the welfare gains for the population have been marginal. Also, as developed in other parts of this report,
Guatemala (in terms of the size of its economy) has one of the highest percentages of informality in the world, while nation-wide the informal labor market represents almost 75% of the total occupied labor force. In rural areas this percentage is even higher reaching almost 85% of the total active working population. As in most cases, low salaries, no employment benefits, tax evasion, and small and unproductive firms characterize employment in the informal sector.
Partly in response to this instability, remittances are an important source of income for Guatemalans since it impacts not only receiving families, but also it has important macroeconomic implications. Workers outside the country have been sending a large amount of money to relatives to the extent that it has become the biggest source of foreign currency for the country. In fact, according to the latest figures (2008-2013), remittances in Guatemala represent on average 10% of its GDP (Graph 1), it surprases foreign direct investment in a scale of almost 5 to 1, and these inflows have been key for the major increases of imports. The U.S. is the primary source of remittances; according to the Bank of Guatemala, in 2013, 99.7% of the total remittances had the U.S. as the sender country; and despite the great recession, remittances have been growing in nominal terms, increasing from $3.9 billion in 2009 to $5.1 billion in 2013.
Graph 1. Guatemala: Net migrants' remittances as a percentage of GDP
Source: Bank de Guatemala and IMF.
According to the most recent available household survey on employment and earnings (ENEI 2014 in Spanish), the economically active population in Guatemala is 6.2 million, where 64.1% are men and 35.9% are women. Amongst total population aged 15+(10 million individuals), labor force participation rate is 62%. In total, 28.5% of the economically active population ages between 15 and 24, while 71.5% ages 25+.
The total working population accounts for 5.9 million. Agriculture remains the largest source of employment in Guatemala with nearly 32% of the total labor force. Commerce (27%) and manufacturing (15%), in that order, are the other two most relevant sources of employment in the country. Moreover, the dominance of the informal sector in Guatemala is striking. Nearly 70% of the labor force works under the umbrella of the informal economy. The continued concentration of workers in agriculture and the informal sector suggests that the Guatemalan economy has considerable room for improvement with respect to structural formations.
According to figures from the two most recent household surveys, the labor market in Guatemala can be described by the following characteristics:
- The labor force participation remains relatively constant. Two out of every three working age individuals (ages 15-64) are working or looking for a job.
- Unemployment rate remains low, at around 2 percent of the individuals in the labor force.
- Informality has changed very little; its incidence remains high since it affects 64 percent of the workers.
- Agriculture and commerce exhibit relatively high levels of informality (around 75 percent), and services the lowest (45 percent).
- The distribution of employment across sectors exhibits small changes. Although agriculture is still the main source of employment, its relative importance has (modestly) declined from 35 percent to 29 percent of the working population. This change has not been in favour of any particular sector. Manufacturing, commerce, construction and services have each become a little more important as sources of employment.
- The structure of occupations has changed little, working as private employee remains the main form of occupation, followed by independent or own-account workers; together they account for two thirds of total employment.
Labor productivity, judged by earnings, shows positive results, albeit slow signs of progress. Labor earnings have increased 5 percent between 2000 and 2006. As hours of work have decreased over this period, productivity measured by hourly earnings has increased at an average of 3 percent per year. In other words, changes in hourly earnings can be decomposed into changes in hours of work and changes in earnings. Two thirds of the increase in this measure of productivity is due to hours and one third is due to earnings.
Agriculture has been the leading sector in terms of productivity improvements. Earnings have evolved differently across different sectors of the economy. Agriculture continues to be the sector yielding lowest average earnings, but returns are increasing at a healthy rate (3 percent per year on average over 2000-2006). Earnings in commerce have improved at a similar rate as in agriculture.
While returns in manufacturing are growing, the improvement is only half of that in agriculture and commerce. In the services and construction sectors, earnings have fallen at an average close to 2 percent per year. 
Real GDP growth rate for the Guatemalan economy has averaged 3.6% for the period 2010-2014; specifically for 2014, the Central Bank of Guatemala estimated a 4.2% growth rate spurred by private consumption, but to a lesser extent by investment and government consumption. For 2015 and 2016 the IMF estimates a 4.0% and 3.9% growth, respectively, and a long-run rate of 3.8%. Since 2010 there is an upward trend in growth, but insufficient to delcare a general change of course. On average, yearly the per capita growth rate of the economy has been only 1.01%, a dismal figure, given the current rates of poverty.
Macroeconomic policies have been relatively conservative in the last few years, helping to minimize inflation; and the macroeconomic outlook of Guatemala shows hints of improvement. However, a more medium to long-term analysis of the IMF shows that potential economic growth of Guatemala is still limited by low investment in physical and human capital, and by the negative consequences of crime and insecurity. This perpetuates high levels of poverty and inequality, which in-turn is a central obstacle to a higher economic growth and more inclusive development process.
In order to support equitable growth, increasing high-quality public spending is critical, but this raises the biggest challenge Guatemala’s government constantly faces, boosting public revenue, while at the same time strengthen expenditure management to safeguard macroeconomic stability. In addition to the benefits of reducing poverty and hunger, effective policy actions have the potential of not only improving social indicators and human capital, but also they would have direct impact on productivity, and which is key to competitiveness, sustainable growth and integrating vulnerable groups into Guatemala’s social fabric.
Poverty and Inequality
Guatemala is a country characterized by high incidences of poverty and extreme income inequality. This situation is more severe in rural areas and among the indigenous population.
Based on the latest 2011 National Survey of Living Conditions (ENCOVI, in Spanish), in Guatemala 53.7 percent of the population live below the poverty line, and 13.3 percent are considered extremely poor. In rural areas, extreme poverty affects 21.1 percent of the population while in urban areas it affects 5.0 percent. A rural resident is more than twice as likely to be poor than an urban resident, as the incidence of total poverty in the former is 71.4 percent and 34.9 percent in the latter., 
Drawing data from the 2009-2010 National Survey of Family Income and Expenditures (ENIGFAM, in Spanish) and by using international poverty lines (extreme poverty: US$ 2.50 ppp per capita/day and total poverty: US$ 4.00 ppp per capita/day), the incidence of total poverty, for market income, is 57.6 percent while extreme poverty is 35.9 percent. In rural areas extreme poverty affects 51.4 percent of the population, comparing to 19.2 percent in urban areas, and 52.6 percent of the extreme poor are indigenous while 24.5 percent are non-indigenous. Although the indigenous population represents around 40 percent of the total population, 60 percent of the extreme poor are indigenous.
In terms of total poverty, 76.3 percent live in rural areas, compared to 36.9 percent who live in urban areas; and 77.6 percent is the incidence of total poverty for the indigenous population, while it is 43.5 percent for the non-indigenous. In addition, the Gini coefficient for household per capita income in Guatemala is 0.522 –in a scale of 0 to 1, where 0 means perfect equality and 1, perfect inequality. Comparing these figures with the results for Latin American countries, Guatemala is among the most unequal countries, in terms of income, and has the highest poverty rates in the region (Graphs 2, 3 and 4).
Using national poverty lines calculated by the National Bureau of Statistics of Guatemala, the current poverty rates in Guatemala do not represent major improvements comparing to the results of two past surveys that took place in the last decade. In 2000, the incidence of total poverty was 56.0 percent and of extreme poverty was 15.7 percent, just about three percentage-points less than in 2011. However, comparing 2006 and 2011, the total poverty rate increased from 51.0 percent to 53.7 percent, while the extreme poverty rate slightly decreased (Table 1).
Graph 2. Gini Coefficients in Latin American Countries
Source: SEDLAC (CEDLAS and the World Bank).
Note: Year of the survey in parenthesis. No recent data available for Bahamas, Belize, Dominica, Guyana, Haiti, Jamaica, Suriname and Venezuela.
Graph 4. Total Poverty Rates in Latin American Countries (US$ 4.00 ppp per capita/day)
Source: SEDLAC (CEDLAS and the World Bank).
Note: Year of the survey in parenthesis. No recent data available for Bahamas, Belize, Dominica, Guyana, Haiti, Jamaica, Suriname and Venezuela.
Table 1. Poverty and Extreme Poverty Headcount Ratio in Guatemala, 2000, 2006 and 2011
Source: ENCOVI 2000, 2006, 2011- National Bureau of Statistics, Guatemala.
The increase of total poverty observed in recent years at the national level is primarily driven by the increase of poverty in urban areas, while rural areas have slid as well. Taking into account the results of the survey conducted in 2006 and comparing them with the ones taken in 2011, in urban areas total poverty has increased from 30.0 percent to 34.9 percent, almost five percentage-points more. In rural areas, overall poverty has also increased, from 70.5 percent to 71.4 percent (Table 2).
Table 2. Poverty and Extreme Poverty Headcount Ratio in Guatemala by Area of Residence, 2006 and 2011
Source: ENCOVI 2006, 2011- National Bureau of Statistics, Guatemala.
Guatemala is administratively divided into 22 departments, grouped into eight regions. Table 3 below shows the poverty and extreme poverty rates for all of them, and also by the area of residence (urban and rural). According to this poverty profile, there are some regions where poverty is more severe than in others.
For example, by analyzing only the extreme poverty rates in rural areas, it is worrisome that there are departments such as Alta Verapaz (Northern region) where the percentage of population living in extreme poverty is near half of the population. In that department, 47 percent of the population is extremely poor. This translates to more than 550.000 people in that department that do not have sufficient resources to feed themselves properly. It is not surprising that in this same department almost 90 percent of the population is considered poor, the highest incidence of total poverty among the departments in Guatemala.
In the same way, in red we identify the regions in which at least one of their departments simultaneously shows incidences of extreme and total poverty above the national average, i.e., 13.33 percent and 53.70 percent, correspondingly. Eventually all the regions, but the central and the metropolitan –which comprises Guatemala City and surrounding areas- have at least one department whose incidences of extreme and total poverty are above national averages. In fact, out of the 22 departments only 5 (marked in blue in Table 3) have extreme and total poverty rates below the national averages, which means that more than 76 percent of the departments in Guatemala are in desperate need of effective poverty alleviation strategies.
This evidence implies a tremendous challenge for both the public sector and local private organizations to implement locally-designed programs targeting the poor. However, as it will be analyzed later on this document, one of the serious problems of Guatemala is the limited capacity of its public sector to execute social programs due to mismanagement of resources and low tax revenues.
Table 3. Poverty and Extreme Poverty Headcount Ratios in the Regions and Departments of Guatemala classified by area of residence, 2011
Source: ENCOVI 2011- National Bureau of Statistics, Guatemala.
Correlates of poverty in Guatemala
In 2009, the World Bank carried out an investigation to identify the most important household characteristics associated with poverty in Guatemala.
This in-kind poverty profile of the country was done by taking into consideration all household characteristics at the same time, while the impact of individual characteristics on consumption per capita —the wellbeing indicator— can be isolated, and the results would show the impact of each variable after controlling for the other variables included in the analysis. Bear in mind that, first, the statistical relationships are not strictly determinants, but correlates of poverty; and second, the conclusions are limited to the variable included in the analysis and no inference can be made on other variables not used, such as, other observables characteristics or cultural and historical aspects.
The results can be summarized as the following:
- Geographic location is statistically correlated to poverty. Living in the capital city, Guatemala City, and the Metropolitan Region increases consumption; the contrary happens when living in rural areas.
- Ethnicity also plays an important role. Being indigenous and having a male household head is associated with lower consumption levels independently of the area of residency.
- In comparison with household headed by males, female-headed households are associated with higher levels of consumption.
- Consumption in households with children under six years old of age is lower than in households with older children.
- Comparing to another type of jobs, household heads working in agriculture are associated with lower levels of consumption, regardless of the place of residency.
- Education is the variable most positively correlated with consumption level of the household. In fact, completing primary education has as much impact as living in the metropolitan areas. The correlation gets higher as the level of education increases. This holds true independent of the area of residency.
The educational system in Guatemala has three levels: pre-primary (two levels, age 5 to 6 years), primary from 1st to 6th grade (age 7 to 12 years), and secondary, which includes lower secondary school (básicos) from 7th to 9th grade (age 13 to 15 years) and high school (diversificado) from 10th to 11th/12th grade (age 16 to 17/18 years). The University of San Carlos (USAC) is the sole public university in Guatemala, while ten other private universities provide higher education as well. The Technical Training and Productivity Institute (INTECAP in Spanish), a decentralized entity, provides technical training for current and prospective workers. The Ministry of Education of Guatemala is in charge of primary and secondary public education.
According to the latest figures, the literacy rate in people ages 15 and above is 78.3 percent. For females, this rate is lower (72.4 percent) than for males (84.8 percent). In comparison to the Latin American region, Guatemala lags behind. On average the total literacy rate for the same age group is 92.4 percent, where 91.8 percent is for females, and 93 percent is for males. Comparing only to the countries in the Central America sub-region, Guatemala shows one of the lowest results in this area. In Costa Rica the total adult literacy is 97.4 percent, in Panama is 94 percent, in El Salvador is 85.5 percent, and in Honduras is 85.4 percent.
Disaggregating the literacy rate for adults (ages 15 and above) by departments inside Guatemala, the department that shows the highest literacy rate is the one that comprises the capital city, Guatemala City, with 90.4 percent. In contrast, in the Department of Quiché only 57.7 percent of the population knows how to read and write. As it has been shown before, Quiché is one of the departments with the highest poverty rates, where almost 70 percent of the population lives in the rural area, and the vast majority is indigenous.
On the other hand, by 2011 the total net enrollment rate for primary education in Guatemala was 92.8 percent, with higher rate for boys (93.3 percent) than for girls (92.3 percent). Surprisingly this rate reached its highest in 2009 with 97 percent, but it fell in the subsequent years. This net primary enrollment rate is pretty much the same as the average in the Latin America region (92.2 percent), with little differences between boys and girls. In fact it is a bit higher than in Costa Rica (91.9 percent), Panama (91.2 percent), and Nicaragua (91.8 percent); but less than in Honduras (94 percent), and in El Salvador (93.4 percent).
However, it is worth noting that in Guatemala the net intake rate in primary is only 54.3 percent while on average in Latin America it is 72.9 percent. In terms of the Central America sub-region, the rate in Guatemala is amongst the lowest. In fact, in Costa Rica this rate is 85.1 percent; 62.0 percent in El Salvador; 71.2 percent in Honduras; and 64.6 percent in Nicaragua. In a similar way, the primary school completion rate in Guatemala lags behind in terms of most of its sub-region peers and in terms of the average of Latin America. The completion rate for primary education in Guatemala is 87.7 percent; 94.8 percent on average in the region; 95.2 percent in Costa Rica; 97.7 percent in Panama; and 100 percent in El Salvador and in Honduras.
The situation of secondary education in Guatemala is even more worrisome. The total net enrollment rate for secondary education in Guatemala in 2011 was only 46.4 percent, with boys showing a higher rate (48.3 percent) than girls (44.5 percent). These numbers contrast with the ones for Latin America as a region, which on average shows a total net enrollment rate for secondary education of 72.7 percent, with girls (75.1 percent) showing a higher rate than boys (70.4 percent). Comparing only with the countries in the Central America sub-region, Guatemala seems to be in a worst position in this area in regard to Costa Rica (72.9 percent), Panama (76.4 percent), and El Salvador (61.6 percent); and it seems to show similar numbers with respect to Nicaragua (45.4 percent).
According to the latest available figures that correspond to 2007, the gross enrollment rate in tertiary education in Guatemala is 17.8 percent; with similar rates for females and males. In 2002, this rate was only 9.5 percent. Compared to a regional average 43 percent in Central America, Guatemala lags furthest behind and with the lowest performance of all its neighbors. In Costa Rica it is 46.7 percent; in Panama it is 41.8 percent; in El Salvador it is 25.4 percent; in Honduras it is 20.4 percent.
There are both public and private schools in Guatemala, some of them subsidized by the State, as well as education centers run by cooperatives. Enrollment in private primary schools as a percentage of total enrollments in primary (public + private) is 10.2 percent; which is less from what it is observed on average in the Latin America region (17.9 percent), but close to the rate observed in the rest of the countries in Central America (11.3 percent). However, the difference seems significant in the rate of enrollment in private secondary schools as a percentage of total secondary enrollments (public and private). In Guatemala this rate reaches 60.3 percent; while on average in the Latin American region it is only 19.4 percent. Comparing country-by-country in the Central America sub-region, this difference seems also quite important. For instance, in Costa Rica this rate is 9.5 percent, in Panama it is 15.9 percent, in El Salvador it is 16.6 percent, in Honduras it is 28.2 percent, and in Nicaragua it is 21.8 percent.
In general, Guatemala seems to show positive trends in coverage for primary education, however, big challenges remain in place for secondary education and tertiary education. As it has been mentioned in the Poverty and Inequality chapter, education is the most significant determinant of consumption for families in Guatemala, and the returns on education start to materialize after highschool is completed, and they increase even more with more years of tertiary education completed. To meet these challenges the government of Guatemala urgently needs to boost public investment in education, especially since it is among the Latin America countries with the lowest investment in education in relation to GDP.
Graph 5. Public Spending on Education as the percentage of GDP in Latin America
Source: Economic Commission for Latin America and the Caribbean (ECLAC), Social Spending Database.
Note: The most recent data available for each country is in parenthesis.
Despite Guatemala being a relatively small nation with a turbulent history, its economy has strength in a diverse set of natural resources. Due to its varied geographic and ecological zones, Guatemala has extraordinary biological and ecosystem diversity. This has been highly condusive to the development of certain agricultural activities, particularly coffee plantations, banana production, and diverse spices. In addition, Guatemala is the only oil-producing country in Central America; while also posessing minerals such as nickel, zinc, lead and iron.
The importance of these resources in the Guatemalan economy cannot be understated. In the last five years (2010-2014), excluding manufactured and value-added goods, its top- exports in terms of value (US$) have been sugar, coffee, precious metal ore, bananas, petroleum, and natural rubber. Besides being naturally endowed with prime agricultural lands and mineral resources, the importance of Guatemala’s natural resource exports is historically and presently buoyed by the country’s proximity to American consumer and manufacturing markets, where more than a third of its exports are destined.
Lately Guatemala’s natural resources have been greatly strained by its expanding population and by the pressure to grow cash crop, resulting demand for wood, cultivable land, and sewage disposal facilities. In addition, severe soil erosion has been caused by deforestation, especially on the steep slopes of the Central and Western Highlands. As a result, sedimentation from deforested watersheds, as well as sewage dumped directly into rivers and streams, has degraded water quality in both rural and urban areas.
Land and Agriculture
The total surface of Guatemala is almost 109,000 km2, out of which 33.6% corresponds to forest area, 18.2% to permanent meadows and pastures, 14.2% to arable land, 8.8% to permanent crops, and 25.2% to “other” land.
The comercialization of agricultural products by Guatemala started in colonial times under the encomienda system. After independence, in the late 19th and early 20th century, with the arrival of United Fruit Company, Guatemala started to expand its plantations and set a more organized approach to an export economy. During the civil war years, Guatemala’s exports were concentrated in key agricultural commodities such as coffee and bananas, but production was stable and modest. However, as political stability slowly became a reality, the production of agricultural products with destination to international markets started to increase. For example, the production of bananas in 1993 was 390,140 tonnes; five years after, in 1998, the production more than doubled to 794,240 tonnes.
Guatemala is rich in two spices, Nutmeg and Cardamom. Nutmeg is a spice consumed across the world that is grown on trees, and is primarily sourced from three countries, with Guatemala being the world’s leading producer by tonnage, and has held this title since the beginning of the 1990’s. This resource is remarkable first for its high market prices, and secondly as one of Guatemala’s most “artisanal” crops, being grown by small holders across all of the country. This is in stark contrast to major modes of agricultural crops, which are produced by a mixture of small and medium farms and plantations. Meanwhile, Cardamom is a spice consumed across the world that is obtained from a herb that grows under forest cover. Guatemala is the world’s leading producer of cardamom, along with Indonesia, Singapore, India and Grenada.
Coffee, Guatemala’s iconic natural resource export follows this general pattern, where 80% is grown in small and medium-sized farms, in all but 3 departments. This has been partly driven by an industry-wide shift on the basic quality-quantity axis. Since the 1980’s the share of high-grade coffee production grew from around 20% of the crop to almost 80%, largely in response to American preferences, which accounts for 49% of coffee exports. This necessitated a refocusing and decentralization of cultivation to smaller and medium farms.
Each coffee, banana, and sugar cane plantations are typically managed in systems of associated production, meaning large, primarily foreign companies possess corporate holdings, but rely heavily on contracting smaller producers. This has made national level conservation efforts highly difficult to implement. Increasingly, rich rainforest ecosystems are victim to slash-and-burn clearing, which typically leaves growers with 2-4 years of arable soil, before erosion, nutrient depletion, and bleaching leave the burned area barren, therein forcing farmers to clear new areas. Furthermore, contracted growers report that pressures to fulfill growing contracts leave them with little choice. Slowing this process will be vital to preserving the health and sustainability of Guatemala’s soil resources and vital agricultural exports. Groups like the Food and Agriculture Organization (FAO) have recognized this are working with the Government to decentralize management and promote local management of resources.
The extractive industries in Guatemala (mining and hydrocarbons) represented, on average during the period 2010-2014, less than 1% of the annual GDP in constant prices. The total exports of the extractive industries in 2014 in terms of value accounted for US$1.8billion, representing 17.2% of the total value exported by Guatemala last year (US$10.8billion). Hydrocarbons exports accounted for US$588million, while mining exports accounted for US$1.2billion in 2014. In the same year, petroleum and propane gas were the chief exports by value from the hydrocarbon sector, while stones and precious metals, such as as gold and silver, as well as lead, iron and steel were the main resources exported in terms of value from the mining sector.
Guatemala has sizeable petroleum reserves (80 million barrels) which positions it as number 67 in the world in terms of proven reserves of petroleum. In 2014 the production of petroleum was around 10,000 barrels per day. However, local cosumption of petroleum is around 70,000 barrels per day, meaning that Guatemala, despite producing petroleum, it remains a net-importer by a wide margin.
Violence and instability initially blocked extractives production, as few foreign investors were willing to develop mines amidst open conflict. For many years still, convoluted regulation and a lack of transparency has hampered the slowly growing industry, but this has been aided in recent years, beginning with a comprehensive reform process that began in 2010. Furthermore, in the last two years Guatemala has been compliant with the Extractives Industries Transparency Initiative (EITI), which asks mining organizations to report all royalty payments, and the government to disclose mining revenues. EITI’s mark offers a basic indicator about the investment environment and allows foreign corporations to better gauge the viability of mining in Guatemala.
Guatemala’s remarkable rainforests are a highly valuable resource under an immense amount of pressure. As mentioned, in 2011, 33.6% of land area in Guatemala was forested, a number which has been decreasing at an increasing rate.
On average 68,000 hectares, or 3.72% of total forest area, was converted to other uses between 2005 and 2010 every year. This process has been driven primarily by demand for farming area amongst small and medium agricultural producers. A growth in key market areas, cattle, sugar cane, palm oil, and drugs, has increasingly incentivized farmers to move into new areas. Conservation organizations have raised many warnings about the long-term effects of this continued trend, including ecosystem collapse in what is one of the most bio-diverse rainforests in the western hemisphere.
Wood-related exports for Guatemala are far from a negligible category. In 2014 US$66million is gained every year through sale on global markets, much of which includes rare woods. The illegal harvesting and sale of these woods by (often drug-related) organizations is cited as one of the causes of deforestation. Furthermore, many Guatemalans continue to cook with charcoal sourced from local forests, placing further strain on this resource.
Guatemala, while a net-energy importer, also generates a significant amount through hydroelectric projects that began being constructed in the 1970’s. At its peak, hydropower represented around 90% of domestic energy production. Today, hydro remains the country’s leading source, accounting for nearly 900MW of power, despite only 17% of its theoretical potential being utilized. This contributed to a total 64% of total energy production coming from renewables.
The most recent dam was completed in Quiché Department in 2010, with a 94MW capacity. While three new projects were recently approved, many recent projects have experienced substantial resistance from civil society, as the flooding of nearby areas and disruption of the watershed often force local populations to relocate and/or face livelihood shifts. The Ministry of Energy and Mines has clear plans to prioritize the development of further hydroelectric projects, as well as renewables in general, including geothermal, solar, and wind.
Foreign Trade and Investment
The Guatemalan current account balance has been historically negative in terms of its GDP, due to a greater volume of imports than exports. In the light of these numbers, the foreign direct investment and the remittances coming from Guatemalan migrants—mainly from the US—are particularly important for the balance of payments. In 2014 the current account balance was negative at 2.4% of the GDP.
In 2014 Guatemala sold to the world US$10.8 billion worth of products; 59.4% were manufacturing goods, 23.4% were agricultural products, and 17.2% were natural resources. The five main exporting products in terms of value were: clothing (12%), sugar (9%), coffee (6%), banana (6%) and metals (4%). In the last twenty years on average the value of exports has accounted for approximately 18% of the Guatemalan GPD every year.
Historically the export base of Guatemala has been dominated by its traditional agricultural exports (coffee, sugar, bananas, and cardamom), however, over the last several years there has been a slow degree of diversification through manufacturing—mainly from growth in maquila operations. The degree of risk and exposure to international global economic conditions of these two sectors are high. Agricultural exports are strongly affected by natural disasters, as well as the swings in international prices; meanwhile the maquila sector is highly correlated to the US business cycle, and it faces strong competition from China and other large-scale platforms in Asia.
In terms of imports, in 2014 Guatemalans bought from abroad US$18.3 billion; US$5.3 billion (32%) were spent on importing commodities and intermediary inputs for the industry, US$5.2 billion of the imports were destined to buy consumption goods (28%), US$3.5 billion to fuels and lubricants (19%), and US$3.2 billion to capital goods (18%). Additionally, the value of imports has represented in the last twenty years approximately 32% of the Guatemalan GDP annually.
The main trade partner of Guatemala historically has been the United States, followed by its neighboring countries in Central America and Mexico. In 2014 the value exported to the US was threefold the value that went to the second largest trade partner, El Salvador. The third, fourth, and fifth export main destinations in terms of value were Honduras, Nicaragua, and Mexico. The biggest importer country for Guatemala is United States as well, representing more than 40% of the total value imported in 2014.
Regional trade integration initiatives have been active in the region since 1960’s when the Central American Common Market (CACM) agreement was signed by Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica. Despite the great results achieved starting in the 1960’s, the initiative was suspended in mid 80’s due the withdrawal of some states and social instability in the region.
There is an effort to reactivate the CACM agreement even today, but its implementation is still delayed. Then the Caribbean Basin Initiative (CBI) first attempted to revive the agreement in 1983. Although some years later the work of this initiative had shown no results, in late 90’s the efforts of regional states to foster the integration of the regional economies was resumed.
Presently, the trade initiatives under which Guatemala is seeking to increase its exports are the CACM, CAFTA-DR, EU-Central American Association Agreement, free trade agreement between Mexico and other five CACM countries, and the Mesoamerican Project.
The CAFTA-DR trade agreement seeks the trade integration between Central American economies and the US, their biggest trade partner. It was ratified between 2006 and 2009, adding some members in 2012. The main objective of the agreement is having a free trade area where specialized economies can withstand and be competitive with Asian economies. Although the agreement boosted trade in the region, progress was slower than expected.
The EU-Central American Association American Agreement seeks the elimination of tariffs and the integration of American economies through the joint production of goods. Some sensitive products will still remain with the tariffs.
The Mesoamerican Project seeks the improvement of the logistics infrastructure so necessary for trade. It implies the building of highways, simplification of border crossing processes and improvements of transport maritime ports. The main challenge for all these initiatives remains the harmonization and simplification of the tariff systems, the improvement of legal security and coordination in Central American region.
Foreign Direct Investment
Since the end of the long-running civil war in 1996, a more pro-foreign investment attitude has been established in Guatemala, providing a business-friendly environment for companies operating in the country. Undoubtedly the CAFTA-DR has strengthened confidence in the country’s legal and regulatory framework, but above all it has helped to provide local and foreign firms preferential access to the US market.
In the last 8 years, since 2007, the net inflow of foreign direct investment (FDI) to Guatemala has increased from US$745 million to US$ 1,396 million in 2014. This flow of FDI represented around 2.3% of its GDP in 2014. In that year, 26% of the FDI was issued by US investors, 13.5% came from Canadian investors, and 11.2% from Mexican investments. They all represented more than 50% of the total net inflow of FDI in 2014.
Taking the last five years of available data, the FDI that is captured by Guatemala represents a relative small fraction of the total inflow that goes to the Latin America region and Central American sub region. In fact, on average, in the period 2009-2013, Guatemala was able to capture 13.1% of the total FDI that went to Central America annually, and only less than 1% of the total inflow of FDI that went to the Latin American region.
Lately, in nominal terms, the net FDI increased exponentially in 2010, 2011 and 2012 in comparison to immediate previous years, at 34.3%, 27.3% and 21.3%, respectively; meanwhile, in 2013 and 2014 the increase was relatively modest at 4% and 7.8%, respectively. Between 2013 and 2014, the investments from US investors made a big jump, from US$ 221 million in the previous year, to US$ 358 million. In the last five years (2010-2014), the net FDI in Guatemala has been concentrated almost 50% in three activities: agricultural, extractive industries, and electricity. Manufacturing represents around 18% of the FDI and the retail sector 15%.
Guatemala has witnessed an important increase on the inflows in FDI, mainly after the signing of the peace accords in 1996 that ended the civil war in Guatemala, and brought political and economic stability to the country. However, the first big jump of the FDI series occurred in 1989 when the government decided to privatize the state-owned airline company Aviateca. Also it is worth noting that in that year the government enacted laws regarding maquila, free-trade zones, and incentives to manufacturing exports. In 1998 the government enacted the Investment Act and privatized two state-owned companies, the telecom company Guatel and the electricity company EEGSA. Another major break-point to attract FDI took place in 2001 when the government granted permission to negotiate foreign currencies freely.
FDI in Guatemala seems to be positively correlated with the levels of infrastructure in the country, size and growth rate of the internal market, openness to trade, macroeconomic stability, and accessibility to natural resources. Meanwhile, the FDI in Guatemala seems to be negatively correlated with the average wage in the formal sector.
Following decades of political tumult and an informalized economy, the Guatemalan private sector began to develop as a core component of a resuscitated economy. Behind the immediate and steep growth of domestic production following the end of the civil war, was a rich acceleration of credit availability and efforts to reduce barriers to business formation and firm growth. In 2010, the private sector was measured at 85% of Guatemala’s gross domestic production and has been a focal point in the reformation of the economy.
Finance and Distribution of the Private Sector
Essential to the strengthening of the private sector in Guatemala has been its relatively stable financial sector providing capital to wide spectrum of enterprises. All lending institutions but one in Guatemala are private. However, strong credit access has been augmented by several public programs extending additional funding to micro, small, and medium enterprises, such as “Desarrollo institucional y de políticas de apoyo a la MIPYME” or Development of Institutions and SME Assistance Policies.
Within the private credit markets, Guatemala is relatively healthy compared to its neighbors. In 2009, there were 33 microfinance institutions serving 465,000 clients, or around 3.7% of the total population. At the same time as this measure the Latin American average was 2.8% of the population. Furthermore, it appears that most institutions that seek loans are usually “not rejected”. Approximately 99% of loans applied for by micro, small, and medium enterprises are approved.
A quick review Guatemala’s private sector shows that it is dominated by microenterprises. According to a 2010 survey, around 95% of all registered businesses fall into this category, meaning they employ between 1 and 9 employees. In total this accounts for approximately 175,566 businesses. The remaining 5% contains 5,816 businesses with 10-19 employees, 3,086 with 20-49, 811 with 50-99, and 604 with 100 or more employees.  To understand the distribution of activities within the private sector, a 2006 national survey (ECONVI) broke down registered businesses by size and industry, providing several key findings. By a grand margin, micro enterprises are operating in agriculture and trade. Small enterprises are represented by three main sectors; agriculture, trade, and training/teaching. Lastly, medium enterprises are the most diverse, where construction and social services have greater representation.
While the data is not very strong, there appears to be positive news in the area of formalization of the private sector. This process, which has heavy links to increasing per capita incomes, GDP, and social welfare, has begun to accelerate amongst certain groups. From 2012 to the end of 2014, the rate of informal employment fell from 74.5% to 64.8%—or almost 10%—amongst all employed individuals. The clear implication of this is that more of the population is receiving more regular remuneration based on a salary or hourly rate, in conditions much more likely to be regulated by labor protections.
During that period women made disproportionately strong improvements compared to their male counterparts, while indigenous populations have made only measured gains (and continue to experience informality at 23 percentage points higher). Thus, while firms appear to be capitalizing on human capital across genders, a serious distribution problem remains between ethnic groups and geographic context.
Urban and metropolitan areas continue to represent the core of the formal economy, where informality has ranged between 40-45% in recent years. Historical factors largely underlay the slow expansion of a formalized private sector. Certain areas, such as Quiché Department, lack the infrastructure necessary to support medium or large enterprises, while also not having the consumer demand to invite the service sector employment observed in more urbanized areas. According to a World Bank study of how to enhance SME development, these formalizing agents fail to establish in poorer areas largely for their logistical distance from value chains, which remains “one of the principal limitations on competitiveness of Guatemala and SMEs.”
Growth in the Private Sector
Amongst the many formal approaches to identify the needs of the private sector several broad themes have emerged. Namely corruption, bureaucratic convolution, and political instability remain a serious issue. As entrepreneurs, domestic or foreign seek to open a firm they frequently find difficulties acquiring the appropriate licensure and later legal protection for their enterprise. The World Bank Doing Business Report provides useful insights into these issues, as well as some year-over-year comparisons.
The general conclusions of the 2015 Report are positive for Guatemala. Since the 2014 survey, the index highlighted improvements in the ease of opening a business, as well as paying taxes. The latter was aided by the introduction of improvements in the electronic filing system introduced in 2014. Guatemala crucially remained high in the ranking for access to credit; despite falling two places, it is ranked 12th of 189 countries. Although this statistic does not discern the different barriers that different types of credit applicants face, it does reflect federal efforts to make sure that credible borrowers are able to get the funding they need to stimulate their enterprise. This includes the availability of relatively strong data on loans made amounting to less than 1% per capita income.
While this is a huge asset to Guatemalan and foreign investors, there remain many constraints identified by the report. Chiefly, protecting minority investors (shareholders), resolving insolvency, and enforcing contracts all see Guatemala in the bottom 20% of all economies studied. Each of these categories reflects aforementioned issues in governance that hold back the acceleration of private sector growth.
Manufacturing: Manufacturing is Guatemala's largest sector, representing approximately 18% of the country's GDP. The sector is mainly dominated by clothing, textiles, and leather goods; as well as foodstuffs, beverages, and tobacco. In 2009, due to a decline in international prices of manufacturing goods, the sector showed a negative rate of 0.9%, but recovered quickly the next year growing at a 3.3%. Since that year the trend has stayed flat. Within this sector, maquiladora activities (offshore assembly for re-export) have been specializing in textiles and clothing re-exports. Among diverse factors, the future performance of the manufacturing sector will remain subject to other large-scale platforms in Asia (mainly from China), Mexico, and other countries in the region.
Wholesale and Retail Activities: Commercial activities are also key, as the commercial sector has accounted for around 12% of Guatemalan GDP during the last decade. Similar to the manufacturing sector, commercial activities suffered a contraction in 2009, but since 2010 are expanding at a 3.5% annually.
Agricultural Sector: Despite the continuous expansion of diverse service-based activities, agriculture is still one of Guatemala's most important sectors, representing almost 14% of the country's GDP in the last ten years. It also provides well over one-third of all employment opportunities. Among its leading products are the country's main export crops: coffee, sugar, cardamom, and bananas. According to the latest economic assessment of Guatemala conducted by the Central Bank, the economic activities that contributed the most to the GDP growth in 2013 were the agricultural sector, manufacturing, and financial services. In 2013 the agricultural sector grew 4.7%, less than the 4.9% of 2012.
The Republic of Guatemala is a unitary republic, headed by a President, who is elected for a single four years term. The cabinet of ministers is presided by the head of state and appointed by him or her. The legislative branch is unicameral and represented by a Congress, which has 158 members, with the possibility of re-election.
Guatemala is a young democracy that officially came into force in January 1986 with the approval of the new constitution. It was later suspended before being reinstated in 1993. It was only in 1996 (when the peace treaty with guerrillas) was signed and Guatemala began a new era of stability after 36 years of civil war. There were several factors that contributed to this, the leading factor was the end of the Cold War, which stopped the soviet patronage to guerrilla's groups and reduced the US military support to the official government.
Guatemala is a presidential republic where the president, the head of executive power, is the head of the government, as well as the head of the state. The vice-president and the president of Guatemala are directly elected every four years.
The current president of Guatemala is Jimmy Morales and the vice-president is Jafeth Cabrera. Morales won the 2015 elections with 65.48% of votes against Sandra Torres with 34.52%. Guatemala is one of few countries which prohibits the re-election of the President. The cabinet of ministers is appointed and subject to the authority of the President. The former president, Otto Perez Molina, resigned because he was accused and convicted in the corruption case "La Linea".
The legislative branch is composed of one chamber, the Congress of the Republic. It has 158 members that are elected every five years by direct election. Unlike the Presidency, members can be re-elected.
In each one of the 22 department that compose Guatemala, at least one candidate is elected directly by all willing adult citizens. Of all of the candidates, 75% elected to the Congress are elected from by a district or department, with each district or department electing a number of representatives proportionate to its population. The remaining 25% is elected nationally and does not represent a particular department .
The judicial branch in Guatemala is formed by the Supreme Court and the Constitutional Court. The former has 13 magistrates formed in three chambers, and its members are elected by the Congress out of a list proposed by an independent committee (comprised of deans of Guatemalan law schools, representative of the law associations, and representatives of other courts). Out of five judges of the Constitutional Court, one is elected by the President, a second by Congress, a third by the Supreme Court, the other by the University of San Carlos, and the last one by the representatives of law associations. It has five judges and five representatives, ten members in total. Members of all courts are elected for a five years renewable term, except the president of the Constitutional Court, who is elected for 1 year renewable term.
The political life of Guatemala is very diverse and intense. A simple majority is sufficient to pass a law through the congress, unless there is some special requirement. One such exception is that in order to modify a law there must be a favourable statement from the Constitutional court and approval of at least two thirds of the Congress.
The party with the highest number of congressmen is Libertad Democrática Renovada (LIDER), followed by Unidad Nacional de la Esperanza (UNE). In fourth place is President Morales’s party, Frente de Convergencia Nacional (FCN). The main characteristic of Guatemalan political life is constant change—not only the emergence of new parties, but the ideological shifts by some of them.
Guatemala's central bank, Banco de Guatemala (Banguat), is responsible for the issuance of the national currency (the quetzal), administering monetary policy, and supervising activity in the financial sector. Banguat operates as an autonomous and decentralized institution of the government. Its main policy goal is to maintain the stability of prices.
Banguat formally started a shift to an inflation-targeting monetary policy scheme in 2005, using a single benchmark interest rate, the rate on seven-day certificates of deposit, which is applicable to all short-term monetary stabilization operations. In 2009, the bank instituted a “rules-based” foreign-exchange policy, a marked shift from the previous discretionary interventions in the foreign-exchange market. Under this mechanism, the central bank manages an administered floating exchange-rate policy. When the current exchange rate equals, exceeds, or falls out more than 0.75% of the moving average from the last five business days, the central bank will hold a maximum of three public auctions of foreign reserves per day among the entities involved in the exchange-rate market. Banguat will maintain a fixed inflationary target of 4.0% (plus or minus 1 percentage point) for consumer prices.
Inflation rate in Guatemala in 2014 was 2.95% (compared to 4.4% in 2013), below the target range of 3% to 5%. By the end of 2014 (November) the Monetary Policy Committee established the main annual interest rate at 4.0%. It started at 5% at the beginning of that year, but given that domestic inflationary preassures and international prices of commodities were trending downward, and global recovery remained moderate, the committee decided to help boost domestic expenditure and investment by lowering the interest rates.
Public finance in policy in Guatemala is characterized by low government revenues, and therefore low expenditures. As a consequence, structural fiscal deficits and a debt burden (that in the last 25 years has been represented between 15% and 25% of the GDP) have become integral challenges. In the period 2011-2013 the average rate of total fiscal revenues in terms of GDP was 11.6%, the lowest in Latin America; for that same period, the average rate of public expenditure in terms of GDP was only 14.1%, and again the lowest in the region. In the last 25 years the average annual rate of total fiscal revenue in terms of GDP has been 10.7%; while total fiscal expenditures have been on average 12.4% annually. The overall fiscal balance has been permanentely negative, accounted on average -2.4% of GDP annually in the recent period 2011-2013, but in the longer run (1990-2014) it has been sliglty less (-1.6%). Total public debt (domestic + external debt) reached almost 25% of the GDP in 2013; in recent years (2011-2013) it has sat near of 24.2% of the GDP, and in the last 25 years it has been on average 19.5% in terms of GDP.
The limited capacity of the Guatemalan State to take actions actively in the development process is represented by its low tax revenue of around 12.3% of GDP in 2012, the lowest in Latin America. The Ministry of Finance forecasted a tax revenue of 10.7% by the end of 2014 due to difficulties in the customs service and in tax collection administration over that year. In 2013 the tax burden reached 11% of GDP.
The Fiscal Budget for 2015 approved in Congress in late November 2014 amounted to Q70.6 billion (US$9.2 billion). With the view of increasing ordinary tax revenue to push spending in 2015, the passage of the Fiscal Budget provides for reforms to the royalty percentage in the Mining Act, an increase in the tax rate on fixed and mobile telephone lines, modifications to the Criminal Code, and changes to the Specific Cement Distribution Tax Act.
The role of aid in Guatemala’s history bears many similarities with other Latin American countries. Initially, the prolonged civil war that continued into the 1990’s drew massive amounts of military funding from the Cold War-involved powers. This was followed by sanctions in response to exceptional human rights violations of the national government. However, as the slow road to democratization began in the mid-1980’s, a sharp uptick in aid occurred (see figure below) in a concerted effort to support peace. Since that period, aid flows have on average grown proportionately with the population.
In 2013 Guatemala received US$494.2 million of Official Development Assistance (ODA) and Official Aid. Per capita, this figure has averaged around $25 in the last four years, which is the second highest in Central America, after Honduras. In comparison with the rest of the economy, net aid received was more-or-less than 1% of the country’s Gross National Income (see figure below), and has remained in that range for the last two decades.
Approximately 30% of the bilateral ODA in 2012-2013 was destined to economic infrastructure and services, 26% to non-economic infrastructure and services endeavors, 13% to health and population, 11% to production, 10% to education, and the rest to multi-sector programs.
Through years of receiving aid-related loans, national debt as a percentage of GNI reached two peaks, once in the 1980’s and in the mid-2000’s. Today this number falls at 32% after a strong period of repayment that coincided with over $0.5B in debt forgiveness grants over the period of 2006-2008.
The United States has historically been the lead donor to Guatemala, often unilaterally dictating trends in Guatemala’s foreign aid. According to the U.S. Department of State, top priorities for U.S. bilateral assistance to Guatemala are “addressing security and justice for citizens; improving food security and reducing chronic malnutrition; providing access to health services, promoting better educational outcomes; and managing natural resources to mitigate the impact of global climate change.”
In 2013, the US retained its position as major donor to Guatemala, giving a net total of $102.3 million, more than double the next greatest bilateral aid donor. It also lead the debt forgiveness grants that were carried out in the 2000’s, much of which was made contingent on investments in protecting the Guatemala’s rainforests.
Planned aid donations from the U.S. are set to fall to US$77.1 million in 2015. It includes approximately US$57 million for Development Assistance; US$1 million for Foreign Military Financing; US$13 million for Global Health Programs (U.S. Agency for International Development); US$720,000 for International Military Education and Training; and $5 million for food aid. However new initiatives are expected as the President Obama targeted no less than US$1 billion in aid to Guatemala, El Salvador, and Honduras.
Other major donors in descending order of total aid given are the Inter-American Development Bank, the Department for International Development (UK), and Government of Sweden.
Graph 7. Guatemala: Net Official Development Assistance (% of Gross National Income)
Source: World Bank (2015) – World Development Indicators.
The health system in Guatemala is comprised of public and private sector providers. Among the public sector the main actor is the Ministry of Public Health and Social Assistance, which is in charge of providing health services to the entire population. The Guatemalan Social Security Institute provides services in half of the deparments and concentrates more of its expenditures in Guatemala City. Private health care comprises more than 180 hospitals and more than 2,000 ambulatory health centers located principaly in the large urban areas. There also exist many NGOs working under the Ministry to expand health services to rural areas.
As with education, health in Guatemala remains a challenge, despite the progress that the country has made in recent years. Guatemala is still experiencing generally steady suboptimal rates with many health issues, such as communicable diseases, chronic under-nutrition and maternal mortality. On top of that, it has seen an increase in recent years of non-communicable diseases and injuries due to external causes, such as road traffic injuries or violence. Despite mortality due to communicable diseases decreasing considerably by 63% over the last 25 years, mortality due to non-communicable diseases has increased by 61%. The mortality rate due to communicable diseases remains high in children under 5 and the mortality rate due to non-communicable diseases is increasing in adults over 45. In the general population, chronic diseases remain the main cause of death.
Guatemala has the highest fertility rate in Latin America (3.8 births per woman), but only 52% of total births are attended by skilled health staff, the lowest in Latin America. Ultimately vaccination rates have not shown any improvements. In 2010 immunization rate of DPT was 94% of the total children ages 12-23 months, but in 2013 this rate fall to 85%. A similar improvement happened to immunization rate for measles; in 2010 it was 93%, but three years later if decreased to 85% of the total children ages 12-23 months. In a similar way, stunting prevalence among children less than 5 years old is 48%, one of the highest in the region, while underweight prevalence is also noteworthy, reaching 13% of the population of children less than 5 years old.
Lack of money is the major barrier to health care access for all groups of the population, but is especially true for the extreme poor, the indigenous population, and rural households. This highlights the importance of increasing health care access by reaching rural areas to improve the conditions of poor households.
Only rural and poor households are the only demographic that uses public health facilities more often than private ones. For those who have access to health care, 57% have been attended in private facilities and 42% in public care centers. 64% of the Guatemalans who have access to health care went to a clinic (local health care centers, health post, community center and private clinic).
Access to health care in Guatemala gets more worrisome when taking into account that only 2.9% of the extreme poor had health insurance, and 5.7% of all the poor had health insurance, in both cases entirely public. In a 2006 household survey, only 13% of the total population in Guatemala was on the records of the Guatemalan Social Security Institute, 2.2% had private insurance, but almost 85% of the population had no health insurance.
Graph 6. Public Spending on Health as the percentage of GDP in Latin America
Source: Economic Commission for Latin America and the Caribbean (ECLAC), Social Spending Database.
Note: The most recent data available for each country is in parenthesis.
Total government spending in health in Guatemala is the lowest in Latin America. Relative to GDP, only 1.17% of its spending is concentrated in public health services. In fact it has been consistently decreasing. In 2009 it was 1.39% and it reached its lowest level in 2012 with only 1.06%. This contributes directly to the the health-care system continuing to rely on private expenditure and primarily out-of-pocket spending, as well as having the highest level of private expenditure as a proportion of total health expenditure in the Latin American region.
Social Programs, Poverty and Inequality
Guatemala’s total social public spending in terms of GDP is low compared to the rest of the countries in Latin America., As discussed in other areas of this report, this is due to multiple factors, including a relatively large informal economy (see Poverty and Inequality) and subsequently low tax revenues (see Monetary and Fiscal Policy).
Most of the central government’s social spending in Guatemala is destined for education (21.9 percent of total public spending); while 10.7 percent of the total public spending is committed to social protection and social security. In terms of GDP, the resources allocated to social assistance represent only 1.6 percent of GDP, which, when comparing to the rest of the countries of Latin America, is the lowest. This might be a sign that despite the large population living in poverty, the public sector’s prioritization of social issues is in not entirely resolved as a political issue.
Graph 8. Total Public Social Spending in terms of GDP in Latin America
Source: Economic Commission for Latin America and the Caribbean (ECLAC), Social Spending Database.
Note: The most recent data available for each country is in parenthesis.
Social assistance programs aim to ensure a level of welfare sufficient to maintain a minimum quality of life for people’s development by facilitating access to social services and by securing decent livelihoods. Broadly considered, social policies in developing countries are formed by bodies related to services in health, education and housing that aim to enhance human development. Common avenues to achieve this include, training, labor mediation, promotion of production, technical assistance and financing to SMEs, which are designed to improve people’s autonomous income generation.
Social assistance systems traditionally are comprised of non-contributory and contributory schemes. In 2010, the non-contributory social assistance structure in Guatemala, or also called direct transfers (cash, food, etc.), were formed by five main programs: a conditional cash transfer (CCT) program called Mi Familia Progresa (MIFAPRO); a food transfer program called Bolsa Solidaria; a non-contributory pension program for the elderly called Programa de Aporte Económico del Adulto Mayor; two education scholarships program called Bolsa de Estudio and Becas Solidarias; and a cash transfer for transportation called Bono de Transporte. The two most relevant (based on coverage and resources allocation) were MIFAPRO and the non-contributory pension; together they represented up to 0.5 percent of GDP, while the rest collectively amounted to 0.1 percent of GDP.
Launched in 2008, MIFAPRO, as with the vast majority of the CCTs, was aimed at breaking the intergenerational cycle of poverty through the increase of human capital. Targeted to poor women, the program gives two cash transfers conditional on certain actions. The first is a monthly health and nutrition transfer of Q150 (or US$19 in 2010) given to mothers with children aged six and below, and also to pregnant and breast-feeding mothers, conditioned that they attend health centers and receive a basic package of nutritional and preventive maternal-child health care services. The second transfer is given to poor families with at least one child attending primary public school and preschool between six and fifteen years old. Since families can receive both, a poor family may get a transfer of up to Q300 (US$28 in 2010) per month. The benefit is a fixed amount for the family not dependent on other circumstances, such as the number of children or family size. The total spending in MIFAPRO in 2010 was 0.4 percent of GDP.
Initially, the beneficiaries were chosen from municipalities according to a map of food vulnerability. However, the government added other municipalities depending on its financial capacity. In 2008 the cash transfer program topped Q116.7 million (around of US$15 million) and benefited 280,939 families. Between 2009 and 2010 there was a significant increase in coverage. By January 2011 the program covered 90 percent of the municipalities, the beneficiary families were 862,000 and the total population covered by the program was 4.8 million, approximately one-third of the total population; and for that year the budget of the program reached almost Q1 billion (around of US$125 million). Even though, the coverage of the program is not small, the average transfer per person is very small. For instance, in 2010 the total amount spent in this program was Q1,138 million, and the average family benefit was around of Q110 per month; with an average family size of five, the per capita transfer was approximately US$14. The new government that took office in 2012 reduced drastically the budget for this program, and for 2013 it was reduced to only 0.1 percent of GDP.
A second non-contributory pension program for the elderly was designed to provide minimum living standards for this population who are not beneficiaries of contributory pensions. To be eligible, one must be older than 65 years old and has to apply to Ministry of Labor where socioeconomic status is checked. If she or he qualifies, the monthly transfer is Q400 (around of US$51 in 2010). The program began in 2006 and by 2010 it benefited to 103,000 people (18.6 percent of the target population) and represented 0.1 percent of GDP.
The effects on poverty and inequality in Guatemala of fiscal policies and government-funded social programs are analyzed in detailed in a recent working paper by Cabrera et al. (2014). They assess whether direct taxes, direct cash transfers, consumption taxes and subsidies, and public education and health spending have direct effects on inequality, poverty, coverage in education and health; not only for the whole population but also for indigenous/non-indigenous and rural/urban groups.
The results, based on the 2009-2010 National Survey of Family Income and Expenditures show that the Gini coefficient after direct taxes and cash transfers declines only from 0.551 to 0.546, a statically insignificant 0.005 points. When the monetized value of public education and health services is incorporated, the decline is still very small, only 0.024 points.
Similarly, when it refers to the effect of direct taxes, although they are somewhat progressive in the sense that they tend to tax more on the rich and less on the poorer, the problem is that they are considered to be relatively low. In contrast, indirect taxes or consumption taxes are outright regressive, which means that income inequality after direct and consumption taxes and after direct transfers is the same as market income inequality.
In the same way, the authors markedly point out that “consumption taxes are regressive enough that they more than offset the benefits to the poor of quite progressive cash transfers leaving post-fiscal poverty at a higher rate than market income poverty”. Based on their calculations, the extreme poverty headcount ratio with cash transfers and direct taxes declines from 35.9 to 34.6 percent, but consumption taxes bring the incidence of extreme poverty even higher, to 36.5 percent.
In addition, they also show that the effect of the average per capita income of the indigenous population relative to the average per capita income of the non-indigenous population change almost nothing once fiscal policy and social programs are taken into account. Average per capita income of the indigenous group is only 32 percent of the average per capita income of the non-indigenous population, and after taxes and cash transfers this ratio remains basically the same. To explain this they highlight that while the conditional cash transfer program (MIFAPRO) tends to target the indigenous and poor population, the size of the transfer is too small to make a difference. Also they argue public education spending is not pro-poor or pro-indigenous enough, and public health spending only reaches a reduced fraction of the poor. Therefore, inequality of opportunity (i.e. inequality due to circumstances) and extreme poverty are not on the right path of being effectively reduced in the short-run in Guatemala.
On the other hand, through a quasi-experimental study, Gutierrez and Ruvalcaba (2011) found mixed results of the CCT program MIFAPRO for education and health. Although authors discuss extensively in the research that these results could be biased due to methodological reasons; in health, it finds positive effects on services utilization, a reduction in the frequency of reported episodes of illness in the household, a positive effect on the percentage of children with complete vaccination, and an increase in prenatal care visits among women beneficiaries of the program. However, the program shows no effects on underweight and stunting prevalence for children less than 5 years old. In education, the evaluation identified positive effects in the years of schooling and enrollment rate of beneficiaries and a reduction of underachievement.
Since October 2011, there has been occurred a dramatic rise in the number of unaccompanied and separated children arriving to the United States from El Salvador, Guatemala and Honduras. The U.S. Customs and Border Protection (CBP) informed that the total number of apprehensions of unaccompanied and separated children from these countries jumped from 3,933 in FY 2011 (October 1, 2010 – April 30, 2011) to 10,146 in FY 2012; then it doubled again, to 20,805, in FY 2013. More worrisome, in FY 2014 this phenomenon reached the unprecedented number of 51,705. The latest figure for FY 2015 (October 1, 2014 – April 30, 2015) shows a significant reduction to 12,098; but it is still three times more than pre FY 2011 averages. Particularly from Guatemala, the number of children that were apprehended trying to cross the U.S. Southwest border increased drastically from 1,565 in FY 2011, to 17,057 in FY 2014. Remarkably, during FY 2015 this number was reduced to 6,607. Compared to El Salvador and Honduras, Guatemala is currently the primary country of origin of child migration into the U.S.
Why are these children leaving their countries of origin? The United Nations High Commissioner for Refugees conducted a large research project based on interviews with these children from Mexico, Guatemala, El Salvador and Honduras who arrived to the U.S. during or after October 2011.
Eighty-four percent of the children from Guatemala cited hopes of family reunification, better opportunities for work and study, or helping their families as the major reasons to migrate to the U.S. The majority of unaccompanied children from Guatemala are from Western Highlands, which has high incidence of poverty and very few and bad quality government services. Forty-eight percent were members of an indigenous population, and the majority of which discussed issues of deprivation as the main cause of migration. Twenty-three percent of the Guatemalan unaccompanied children interviewed mentioned violence they suffered in the home as the main reasons to leave the country toward the U.S. Twenty percent mentioned violence in society as being a major cause for their migration. Among all the interviewees from the four countries, forty-eight percent shared “experiences of how they had been personally affected by the augmented violence in the region by organized armed criminal actors, including drug cartels and gangs or by State actors.”
In Guatemala, “children and youth are specifically targeted for forced recruitment and threatened with severe retaliation if they refuse to join gangs and perform criminal activities or serve as coerced sexual partners.” In addition, every 17 hours a child or teen dies from gun violence and every two hours a child younger than five years of age dies of preventable causes. Moreover, there are credible allegations of collaboration between organized criminal groups and members of the Guatemalan military and police, as well as police and military involvement in serious crimes, exacerbating impunity and denying victims the right to security and justice. Such abuses are often not investigated or prosecuted.
The situation of these children once they are deported to Guatemala is even more traumatic. They are turned over the Secretariat of Social Welfare, the government agency in charge of returning them to their families. However, if they cannot be returned for a number of reasons, those children are sent to one of the permanent shelter this agency runs. The Guatemala’s Human Rights Ombudsman’s Office has reported that these shelters are unhygienic, provide poor quality food, inadequate clothing, and no recreational activities, and above everything, poor healthcare. In addition, these facilities are overcrowded to the point that children often sleep two to a bed, and staff become overwhelmed with supervision and other tasks. No risk assessment is carried out before a child is turned over to a family member, neither a follow-up. A report even says that government may have, in some cases, mistakenly handed children to individuals linked to human trafficking networks.
Solutions to counteract child migration have long and short-run dimensions. Undoubtedly, impunity to crime and violence is in the origin. The judicial system as well as the police and the military should reorient their actions toward more transparency, no corruption and looking at the wellbeing of citizens over personal interests. Deprivation has been mentioned by children as one of the main reasons to migrate. This means that areas where these children belong are the ones most in need to programs and policies to enhance their productivity and be able to create sustainable jobs.
The challenges facing the new president of Guatemala
On September 6th, 2015 elections in Guatemala took place for the presidency, congress, representatives and municipalities. The presidential elections coincided with congressional and municipal elections after the previous president, retired-general Otto Pérez Molina, stepped down from office due to protests against his administration and eventual imprisonment, along with vice president Roxana Baldetti. President and vice president were found guilty of corruption in “La Linea” lawsuit. Actor James Ernesto Morales Cabrera, best known as Jimmy Morales, won the presidential elections with 67% of the votes over the ex-First Lady, Sandra Torres, who only acquired 33% of the vote.