Guatemala Politics

Guatemala

Guatemala: Newcomer Morales' economic agenda widely unknown, divided Congress points to slow policy implementation

November 4, 2015

Little is known about Guatemala’s President-elect Jimmy Morales’ political and economic program besides his central election promise to fight corruption. It is largely unclear how he aims to achieve this, and details are scarce regarding his general political and economic agenda. While Guatemala’s economy benefits from strong remittances inflows and has a fairly robust fiscal position, its main challenges are rising crime, gang violence, widespread emigration to the U.S., and pervasive political dissatisfaction. Adding to this, Morales’ isolation from the political establishment, small representation of his party in Congress and a divided Legislature point to slow policy implementation and reform reluctance.

Morales, candidate of the center-right National Convergence Front (FCN-Nación) party, won the 25 October runoff presidential election with 67.4% of the votes and is set to take office in January next year. His election marks a landslide victory over ex-first lady Sandra Torres, who ran for the leftist National Unity of Hope (UNE) party. Political newcomer and former comedian Morales campaigned on a transparency and anti-corruption platform and promised to promote conservative values. His election was largely facilitated by voters’ anger over a corruption scandal that increased dissent with the political elite and prompted the resignation of former President Otto Pérez Molina.

So far Morales has given few clues about his strategy to tackle corruption: he envisages increasing the transparency of public spending, auditing institutions and making more money available for justice. In order to dissolve concerns that the FCN-Nación’s close ties to the military could result in a greater role of the army, Morales said that the he will focus on reinforcing criminal investigations instead of resorting to the military to reduce crime. He mentioned the possibility of involving the military in infrastructure development. Regarding the economy, Morales said that he strives to lift Guatemala’s 1% mining royalty and to increase the country’s tax base by incentivizing small firms and informal workers to join the formal economy. What is more, Morales proposed reducing interest rates on loans for small- and medium-sized enterprises.

Any potential attempt to enact far-reaching reforms will face the challenge of FCN-Nación’s very small representation in Congress and a divided Legislature. FCN-Nación holds just 11 out of 158 seats in Congress and due to the fragmentation of Congress, Morales will have to negotiate with and secure support from several parliamentary groups in order to receive backing from a majority of representatives. This is not a minor challenge given Morales’ isolation from the political establishment and his disinterest in working on deals with politicians from other parties ahead of the elections.

After taking into account recent political developments, our panel of economic analysts left the GDP growth forecasts for 2015 and 2016 unchanged at 3.9% and 3.6%, respectively.


Author: Teresa Kersting, Economist

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