Guatemala Politics

Guatemala

Guatemala: Uncertainty over election outcome unlikely to phase growth

October 8, 2015

Guatemalans will head to the polls in a runoff election on 25 October since no presidential candidate emerged from the 6 September elections with over 50% of the vote. Although it is uncertain what impact either of the candidates would have on the economy should they come out on top in October’s election, Guatemala will likely continue to benefit from strong momentum in economic activity and a steadily increasing inflow of remittances. The two candidates that will go head-to-head in October are Jimmy Morales, the former comedian running on an anti-corruption platform, and former first lady Sandra Torres, who is admired by Guatemala’s poor and rural communities for her management of social welfare and development programs during her ex-husband’s presidency.

Morales won 23.9% of the vote in September after campaigning on a transparency and anti-corruption ticket, which resonated with public opinion after former President Otto Pérez Molina resigned amid corruption charges. Morales has little political experience, however, he has used this as a strength during the election, attracting voters who have signaled their frustrations with a political elite that is rife with corruption. Morales has stated that he would increase the mining tax, a move that would affect the country’s sizable mining industry. Guatemala currently has the smallest tax base in Latin America at 11.5% of GDP. Morales has also proposed a budget deficit of 1.9% of GDP in 2016, but stated that it is unclear how he will fund such spending.

Torres narrowly beat the third place runner up, Manuel Baldizón, in September’s elections with 19.8% of the popular vote. However, since then she has shifted her campaign tactics to address transparency and corruption issues in the government. Furthermore, Torres may be able to count on the support of former Baldizón supporters in rural areas in the upcoming election. Although many in Guatemala still feel she is part of a corrupt political elite, she does enjoy the backing of an established political structure and strong party, which will help her enact reforms if she does get elected, an advantage Morales cannot match. Torres has stated that she plans on investing in public welfare programs, while restructuring the country’s mounting public debt to make it more affordable.

The election is expected to be a close race and, regardless of who wins, an emphasis will be placed on tackling corruption in Guatemala. Other reforms, regarding taxation or social programs, will have to be passed through a divided congress that will likely prove difficult for both candidates. Fortunately for the winner, there is little reason to suspect that the election result will impact Guatemala’s economy going forward. The economy relies heavily on significant remittance flows, which are unlikely to be affected by the election’s outcome. In addition, the country is in a favorable financial position, with a relatively low debt burden and a modest fiscal deficit.

Positive momentum in several areas of the economy will make Guatemala one of Central America’s better performers in 2015. FocusEconomics Consensus Forecast participants see GDP growing 3.9% in 2015, which is down 0.1 percentage points from last month’s forecast. For 2016, panelists expect the economy to expand 3.6%.


Author:, Economist

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