Caribbean & Central America - April 2024

Guatemala’s President Bernardo Arévalo and other top officials have held a series of meetings with US counterparts in recent weeks, underlining the strength of ties with Washington and setting out economic priorities for his time in office.

On 18 March, a US delegation led by Under Secretary for Economic Growth, Energy, and the Environment Jose Fernandez travelled to meetings in Guatemala City for the first ever High-Level Economic Dialogue (HLED) between the two countries. The meeting produced various concrete agreements, including plans for the US Agency for International Development (USAID) to provide technical assistance for anti-corruption measures and the announcement of US$650,000 in funding to advance the Arévalo administration’s plans for a metro system in Guatemala City.

More widely, the two sides highlighted cooperation in various areas such as good governance; increased investment, competition, and infrastructure; supply chain resiliency; greater food security; and a more resilient energy sector. 

This meeting was followed by a visit from US Secretary of Homeland Security Alejandro Mayorkas, who travelled to Guatemala on 20 March to discuss migration, and then Arévalo met with US Vice President Kamala Harris in Washington on 25 March. Harris announced US$170m in development, economic, health and security assistance, including US$135m from USAID. “This assistance will support efforts to combat corruption; conserve biodiversity; scale agricultural technologies; and improve health outcomes, inclusive of all Guatemalans, especially indigenous communities,” reads a statement from USAID.

That same day, the White House announced more than US$1bn in new private sector commitments for its Central America Forward (CAF), a public-private partnership that was created in response to Harris’s Call to Action for Northern Central America. While many of these commitments involve training programmes or small-scale lending, significant pledges include US$260m for six electrical transmission projects and US$42m more investment in a new industrial park.

Arévalo has hailed relations with the US, which played a pivotal role in ensuring that he was able to take power amid attacks from corrupt actors in Guatemala, saying that the two countries are enjoying a “special moment”.

The agreements will help with key policy priorities such as an anti-corruption drive, which Arévalo recognises as a building block in a declared bid to attract more foreign investment, and in delivering on a campaign promise to build Guatemala City’s first metro line. Current plans are for a 6km line from Ciudad San Cristóbal in the contiguous suburb Mixco to the Obelisco in Zone 10, which would take 10 minutes. The line is expected to cost Q$7.8bn (US$1bn) and is scheduled to open in mid-2027, helping to reduce road traffic, according to the president. It will be run as a public-private partnership, with the World Bank already assisting in the design and project management. Arévalo is also likely to need Washington’s continued support in order to deal with serious governance challenges as opponents seek to block his reformist agenda.

For its part, Washington is seeking to address record migration on its southern border, which it blames in part on corruption and criminality in Central America, as well as a lack of economic opportunities and jobs. Fernandez said that businesses had found it difficult to invest in Guatemala due to corruption, but Arévalo’s commitment to cracking down on this “cancer” would make it easier to attract investment.

As a press release from the US Department of State made clear, the HLED was part of efforts to advance the Joe Biden administration’s ‘Root Causes Strategy’ which launched in July 2021 to address the economic, governance, and security factors driving migration. It was also intended to advance Harris’s CAF, which aims to generate jobs and new economic opportunities. 

Washington will likely expect Guatemala to comply with agreements on improving law enforcement and border infrastructure reached at a tripartite meeting on migration with Mexico in February in order to unlock further economic help. However, beyond technical assistance and some funding from USAID, Washington’s strategy relies on mobilising private companies to invest. This is important as China, which is more able to mobilise investment as a foreign policy tool through its state-owned enterprises, continues to develop links with Central America. 

Relations with China?

Guatemala and Belize are the last two countries in the sub-region that maintain diplomatic relations with Taiwan, the island nation China considers a breakaway province, which regional neighbours have broken off in favour of closer ties with Beijing. Arévalo has so far said that his government intends to maintain relations with Taiwan while trying to deepen commercial ties with China, but Beijing will most likely limit cooperation if this situation does not change. While Arévalo will no doubt continue to cultivate links with Washington, he may also be tempted to seek the economic benefits of closer ties with Beijing if the US cannot help to make concrete improvements to the Guatemalan economy.

Hydroelectric generation

In February, hydroelectric generation in Guatemala was 17% lower than the historical average, AMM chief Jorge Álvarez told national daily Prensa Libre in an article published 18 March. This has coincided with a period of increased demand, which has broken records on multiple occasions in recent weeks, including an all-time high of 2035MW on 13 March.

Energy emergency declared due to lack of rainfall

On 14 March the Guatemalan government declared an energy emergency after a lack of rainfall affected power generation at hydroelectric dams.

The state of emergency will last until 31 May but could be extended, according to a statement from the ministry of energy and mines (MEM). The declaration will allow the wholesale power market administrator (AMM) to take “necessary and exceptional actions” to ensure electricity supplies and avoid power cuts.

Guatemala is vulnerable to the effects of climate change and weather phenomenon such as El Niño, both of which are associated with lower amounts of rainfall. This was the case last year, which made for lower water levels in rivers and reservoirs and less power generated by hydroelectric dams.