Caribbean & Central America - November 2023

President-elect Bernardo Arévalo, who continues to face considerable pushback from Guatemala’s discredited political establishment following his remarkable 20 August run-off victory, has highlighted as key objectives with regard to the economy the need to boost employment, reduce poverty, and improve infrastructure. Here we look at some of the proposals put forward by his left-of-centre Movimiento Semilla (Semilla) which is due to take office in January 2024.

Semilla set out its economic plans as part of its 2024-2028 manifesto in the lead up to the two-round election, which saw Guatemalans head to the polls on 25 June and 20 August and ultimately elect Arévalo as the country’s next president. One key focus is improving the labour market in order to “combat poverty, hunger and uncertainty,” reads the manifesto, which proposes free training programmes targeted at boosting industrialisation and specialised services that will benefit an estimated 200,000 people.

According to Semilla’s manifesto it is also aiming to develop a public service that will support recruitment and boost the number of formal jobs, as part of what it calls “a climate of support for entrepreneurship” and the “economic empowerment of women and young people,” benefiting 100,000 people. In addition, the manifesto proposes a national programme of temporary work placements for 1m people, which will pay agricultural workers to build roads or plant trees outside of harvest seasons.  Other proposed schemes include new credit lines ranging from Q2,500-100,000 (US$320-12,900), designed to support around 50,000 small businesses; the creation of a national innovation fund, aimed at improving productivity; and the distribution of computers and tablets. In all, the labour market plans are assigned a budget of Q6.9bn for 2024-2028.

More key proposals include universal access to electricity through the investment of Q7.1bn mainly in small-scale renewable projects. Semilla also plans to lower prices for more than 1m customers by reducing the cost of street lighting. The manifesto does not detail how this will be achieved, but projects in other parts of the region have achieved significant cost savings by using smart management and control systems, for example. There are also plans to invest Q7bn in programmes to boost soil and water quality as part of a move towards an economy based on “regenerative, clean and circular production”.

In addition, there are plans for more environmentally friendly public transport systems, such as the first metro line in Guatemala. The government also wants to consolidate the public transport system in the capital to improve mobility within the city and with nearby areas. Other plans for the transport sector include 500km of new and improved main roads; 1,820km of new and improved secondary roads; and 1,500km of new and improved rural roads. Semilla also plans to develop a masterplan to improve port and airport infrastructure.

These spending plans will be financed by reducing corruption and unnecessary spending rather than increased taxes, which Semilla has said it is committed to retaining at current levels. Savings will be made by strengthening tax authorities, as well as cracking down on illicit financial flows, customs fraud, and contraband, according to the manifesto, which also explicitly says that there will be no tax amnesty under a Semilla government.

Other measures include an audit of government debts from the last 20 years, as well as restructuring public debt over longer payment terms and at lower interest rates. Semilla believes its plan will grow the economy at around 4.2% of GDP per year, while at the same time cutting debt from 27.7% of GDP in 2023 to 26.8% of GDP in 2027. It also envisages a rise in the tax burden from 11.7% of GDP this year to 13.0% in 2027, and an increase in the percentage of government spending on public investment from 20.5% to 28.2% over the period. At the same time, the percentage of government spending on day-to-day running costs is forecast to fall from 79.5% of GDP to 71.8% over the period.

As for economic reforms, Semilla aims to develop a “stable and modern” legal framework to boost investment and competition. The manifesto includes plans for a new competition law, which will seek to end uncompetitive practices by firms looking to prevent new entrants to their markets. It also proposes an investment law, which will set out incentives for companies to set up shop in Guatemala. Key sectors cited by Semilla include biotechnology, tourism, and sustainable forestry, among others.

However, there are serious questions over governability in Guatemala. Vested interests are currently attempting to prevent Arévalo from taking power, and it seems unlikely that they will allow him to rule the country unimpeded if he does eventually come into office. Even if the transition had been orderly, Arévalo would have faced serious difficulties in enacting a reformist programme. For example, Semilla will have just 23 of 160 seats in the new unicameral congress, compared to 39 won by outgoing President Alejandro Giammattei’s Vamos party, which will be the largest in the legislature. Overall, Semilla’s programme is relatively modest in terms of reforming the Guatemalan economy, but the government will have to overcome powerful opposition forces desperate not to cede any of the privileges they have enjoyed up to this point.

Education and health

Semilla’s manifesto pledges to invest Q110bn (US$14bn) in education to provide an extra 540,000 student places and 70,000 new classrooms, and Q61bn for health to extend coverage for a further 7m people through creating 400 extra health-related posts.

Poverty

The manifesto also pledges to assign Q16.5bn (US$2bn) to address the structural causes of poverty, which the International Monetary Fund (IMF) estimates afflicted 55% of the population in 2022, as well as chronic malnutrition, which affects 46.5% of children under five in Guatemala - an issue which President Giammattei declared a priority but which he has singularly failed to address. In its manifesto, Semilla maintains that it would reduce malnutrition by 10%.