Caribbean & Central America - January 2018 (ISSN 1741-4458)

Guatemala’s 158-member unicameral congress failed to approve the 2018 budget by the required end-November deadline, reflecting deep and ongoing political divisions between the government led by President Jimmy Morales and opposition parties. This means the government will have to roll over its budget allocations from 2017, and increases the potential for new clashes over fiscal policy.

Perhaps reflecting the comparative political inexperience of President Morales, who took office in January 2016, the government made a mess of getting the 2018 budget bill approved. The budget bill was ambitious, proposing a 12.4% increase on 2017 spending levels to Q$87.922bn (US$11.97bn). It also offered a multitude of easy targets for critics and opponents. Since presidential elections are due in 2019, many accused Morales of seeking a bloated budget to increase spending for purely populist and electoral purposes. Economists said that the proposed increase in tax revenues required to fund the extra spending was unrealistic, meaning there would be an increase in levels of debt.

One of the biggest spending increases – a gigantic 42% – had been proposed for the ministry of communications, infrastructure, and housing. Although Guatemala clearly needs more investment in infrastructure, this ministry has been notoriously slow moving. The ministry was described bluntly by newspaper Prensa Libre as “a traditional source of corruption and immorality”. Importantly, the ministry had been under-spending its 2017 budget allocations, raising doubts over why such a large increase was deemed necessary for the following year. The Guatemala-based think tank Central American Institute of Fiscal Studies (known by its Spanish acronym Icefi) said that in any case provisions in the 2018 budget bill for carrying over previous year under-spends were unclear and inappropriate. Opposition members of congress said the entire budget offered a series of what they called “open padlocks” inviting corruption and waste.

In the end the bill did not even get as far as a full vote. Its political weakness was demonstrated by the fact that only 61 out of 158 deputies supported the order-of-the-day that would have triggered a third full and final reading. Finance minister Julio Estrada said failure to approve the bill was a defeat for the political system as a whole. He went on to further anger his critics by saying cutbacks in the justice and defence spend were now more likely (even though neither of the two departments had been particularly favoured by the budget bill). President Morales said that despite the setback, his government would “swim against the current” to ensure adequate public funding this year.

One additional reason why the 2018 budget bill came to grief was that its approval was closely tied up with plans by the ruling Frente de Convergencia Nacional (FCN-Nación) to get a new congressional leadership elected. The government lacks a majority in congress, so it must seek out coalitions. The proposal had been for FCN Nación deputy Javier Hernández to steer the bill through the legislature and as part of a package deal to also get multi-party support for the election of a new congressional leadership team, headed by Francisco Tambriz of Alianza Ciudadana (AC) as the new speaker. But Hernández fell short. Apart from running up against the budget troubles, his group also lost support as it was said to be linked to the failed September 2017 attempt by deputies to pass legislation that would have protected them from corruption investigations (notorious in Guatemala as the “auto-immunity pact”).

• Leadership battle

The struggle to elect a new congressional leadership continued during December and spilled over into January. There are now at least seven candidates for the role of speaker, and the negotiation process – where cross party coalitions are formed to gain the necessary majority for one of them – is taking longer than usual. The current speaker, Oscar Chinchilla, says a congressional commission will try to elect a new leadership body in the second week of January, but if it remains deadlocked, he will approach Guatemala’s highest court, the Corte de Constitucionalidad (CC), to ask for guidance.

Minimum wage increase

At the end of December President Morales announced a 3.4% increase in the minimum wage for 2018. The decision came after the national salary commission (Comisión Nacional del Salario), a tripartite body formed by representatives of government, business, and trade unions, failed to agree on an increase. The new monthly minimum wage for agricultural and non-agricultural workers will be Q$2,992 (US$407.8). Those working in the export sector including in-bond assembly plants (máquilas) will be paid Q$2,758 (US$375.7) a month.

• Criticism of wage rise

For different reasons, both labour and business criticised President Jimmy Morales’s increase in the minimum wage. Labour unions pointed out that the new minimum wage is still insufficient to buy a basic basket of goods and services for a household, priced at Q$3,548 (US$483.4) by INE, the national statistics institute. Employers in the private sector lobby Cámara de Industria de Guatemala (CIG) on the other hand, said the decision was “political” and would only lead to unemployment and higher prices.

Morales takes a Jerusalem gamble

On 24 December President Morales, following the lead taken by US President Donald Trump on 6 December, said Guatemala would be recognising Jerusalem as the official capital of Israel, and moving its embassy there.

President Morales is notoriously uneasy with journalists, and gives very few press conferences. Typically, perhaps, the announcement that Guatemala is to break with diplomatic consensus and move its embassy to Jerusalem was brief, and made through his Facebook page. It said only that the president (who paid a state visit to Israel last November) had spoken with Israeli Prime Minister Benjamin Netanyahu, and, in view of the “excellent” relations between the two countries, had agreed to move the embassy. No time scale was given.

The decision was welcomed by both the US and Israel, but is otherwise widely unpopular. The United Nations General Assembly had earlier rejected Trump’s move by 128 votes with only nine (including Guatemala and Honduras) voting against.

The president’s rationale for involving Guatemala in the politics of the Arab-Israeli conflict is not clear. Foreign minister Sandra Jovel said the president had not been motivated by religious considerations, nor did Guatemala seek anything in return from either the US or Israel. Despite this, both the US and Israel are in a position to help Guatemala with significant economic and strategic support. The US is a major aid donor. During the long Guatemalan civil war (1960-1996) Israel provided significant military advice and equipment to Guatemala. Military officers involved in that conflict founded the current ruling party, FCN Nación. Many, like Morales himself, were or are evangelical Christians well-disposed to the Israeli cause. It might be speculated that Morales is gambling that for Guatemala, the benefits of pleasing Trump and Netanyahu will outweigh any negative effects.

But it is also conceivable that the costs may exceed the gains. There is a potentially large economic cost. Guatemala is one of the world’s largest exporters of cardamom, with sales of around US$300m a year, much of which is shipped to Arab countries, including Saudi Arabia. Cardamon is a high-value spice, and a key ingredient of cardamom coffee, which is traditionally consumed throughout the Middle East. Palestinian leader Mahmoud Abbas has called for an economic boycott of countries that recognise Jerusalem as the capital of Israel, so there could be a negative impact there.

The decision may also create some diplomatic isolation for Guatemala in Latin America. Apart from Honduras, all major Latin American countries are keeping their embassies in Tel Aviv. Bolivian President Evo Morales (now admittedly one of a minority of centre-left leaders in the region) accused Guatemala of “selling its dignity for a few crumbs”. Former Guatemalan Vice President Eduardo Stein (2004-2008) pointed out that similar plans to move the embassy to Jerusalem in 1994, during the presidency of Ramiro de León Carpio (1993-1996), had to be quietly dropped after the Arab League threatened a cardamom boycott.