Fulfilling Guatemala’s Promise

The United States has a history of inconsistent engagement in Latin America—we pay attention when problems flow over our borders, but quickly lose interest once the most immediate concerns have been addressed.  Guatemala was thrust to the fore of American national consciousness following the flood of unaccompanied minors crossing the U.S. border in the summer of 2014.  Ultimately, the problems in Guatemala and the rest of the “Northern Triangle” both stem from and directly impact the United States. We face a dual -pronged imperative to help Guatemala address these challenges because of our role as consumers fueling the narco-trade and our geostrategic interest in having stable, democratic countries in our own backyard.

The three countries of the Northern Triangle each face a unique set of challenges, and while they may not like being compared to Costa Rica nor Panama, we and they need to point to countries of similar size in their neighborhood and encourage policies and efforts in a similar direction.  Given the progress enjoyed in places like Panama, it is clear that with the right policies and enough political will, improvements can be made.  The US can help with economic and security assistance, but Guatemala’s challenges are largely going to require solutions driven by Guatemalan effort and Guatemalan resources.

Guatemala.
Guatemala City with volcanoes in the background. Used under Public Doman license.

Despite vast natural resource endowments and world-class tourist destinations, including the Mayan ruins of Tikal and numerous active volcanoes, Guatemala (like the other Northern Triangle countries) struggles with extreme poverty and connections to drug trafficking and organized crime.  In most cases, these challenges can be tracked back to a history of conflict and division within the country.

The Guatemalan civil war lasted over 30 years and left more than 200,000 people killed or missing – a devastating number for any country but especially for a country of 15 million people. The war ended in 1996 after a peace agreement was signed between the Guatemalan government and the Guatemalan National Revolutionary Unity (URNG), a Marxist guerrilla group backed by the Soviet Union, and now one of Guatemala’s political parties (which received less than 3% of the vote in 2015). The origins of the conflict, including deep poverty, ethnic discrimination, and the lack of political space for the opposition, remain 20 years after the war ended.

 Guatemala has made significant progress in achieving macroeconomic and democratic stability since the end of the civil war, but serious problems remain.  Despite efforts implemented after the peace agreement to build democratic institutions, reduce military influence on government positions, and demobilize the then-armed URNG, corruption and impunity remained prevalent within Guatemala’s government during the early 2000’s. The corruption issue is still very relevant, as demonstrated by the amazing ouster and subsequent arrest of President Otto Molina in the fall of 2015 following allegations of corruption.

While it is not the poorest country in the Western Hemisphere, Guatemala showcases the highest rates of chronic malnutrition in Latin America. The country is also still struggling to create a cohesive national identity. About 52 percent of Guatemalans live in cities, and Guatemala leads the region in rate of urban growth at about 3.4 percent. The urban-rural divide crosscuts with divisions between the indigenous (38.9 percent) and non-indigenous (60.2 percent) populations.

These tensions are exacerbated by the significant influence of narco-trafficking within Guatemala. With Mexico on the north and west, and Belize, Honduras, and El Salvador on the east, Guatemala is in the crossroads of a number of drug trafficking routes. As Guatemala has evolved into a lynchpin for the North American cocaine trade, violence has escalated— the Institute for Economics and Peace estimated that in 2015 violence and insecurity cost Guatemala roughly 10 percent of its GDP.

Despite these deep-rooted challenges, there are clear opportunities for Guatemala and international partners to work together in support of a stable and prosperous future for the country:

  • Further Deepening Trade for even higher levels of growth: Since the peace accords, Guatemala has opened its borders to international markets through several trade agreements, which will increase trade and generate investment if sound policies are implemented. For example, CAFTA-DR, a free trade agreement between the United States, the Dominican Republic, and 5 other Central American countries, gives Guatemala preferential access to the U.S. market.
  • Leveraging Remittances: which account for nearly 10 percent of the country’s GDP, are another important source of income for Guatemalan households. Many of these remittances are sent to three provinces in the Western Highlands – a region that has long suffered from a lack of government presence and extreme poverty – indicating that many of the Guatemalan migrants to the United States and other countries come from this one area and are sending their income to family still in the region.  There are opportunities to work with Guatemalan diaspora communities and leverage these remittance flows for positive development impact.
  • Improving Tax Revenue by Broadening the Tax Base: Last year Guatemala collected around 13 percent of its GDP in taxes, and consistently has one of the lowest tax to GDP ratios in Latin America.  The rule of thumb for a developing country is to collect about 20% of taxes compared to the GDP.  The small formal private sector feels squeezed so its not necessarily about further squeezing the folks already paying taxes its about getting more companies and individuals to pay taxes in the first place.  This shortfall in revenue has impacted Guatemala’s ability to provide public goods and services, including the police force, hospitals, schools, and judges. Guatemala currently has the highest rate of participation in the informal market in Latin America (74 percent of total employment), and needs to broaden the tax base by cutting anti-growth regulations and incentivizing companies to operate in the formal economy. Improving contract enforcement and resolving insolvency challenges would be important steps in the right direction.
  • Continuing the Fight Against Corruption Through “CICIG”: The International Commission against Impunity (the acronym is CICIG in Spanish) was created in 2006 after then President Óscar Berger requested the UN’s support for the creation of an independent international body to investigate illegal security forces, human rights violations, and corruption in Guatemala. In the fall of 2015, as thousands of protesters took the streets of Guatemala City demanding the resignation of President Otto Molina, CICIG carried out a thorough investigation of the president’s involvement in corrupt activity, leading to his resignation and arrest. CICIG is viewed as such a success that Honduras recently moved to create a similar organization with support from the OAS–MACCIH.

There is reason to be hopeful that Guatemala can build off of recent success and forge a pathway to a better future. New President Jimmy Morales, a political outsider and former comedian, represents a clean start for Guatemala. Guatemala is going to continue to need help from the others and the US should continue to help.  The new assistance package in response to the unaccompanied minors of 2014 is a good start as long as we can agree on metrics of success and push Guatemala and others for big changes.

America’s future and Guatemala’s futures are intertwined, and many of the challenges in Guatemala could be solved with higher economic growth.  Ultimately, the root causes of poverty and violence in Central America stem from lack of investment, jobs, and security. Eliminating these endemic problems requires decent jobs in the formal private sector, increased ability of the state to ensure personal safety, and more monies from a broadened tax base to pay for efficient, clean and functioning government services.  These are big challenges but plenty of other developing countries (including Guatemala’s neighbors) have navigated these pitfalls successfully.  Guatemala can and should follow a similar path.

 

Article Published in Forbes.com on July 22, 2016.

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