Destinations > Central America > Guatemala

Guatemala Economy

Flag of Guatemala

After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth over the next several years, until a financial crisis in 1998 disrupted the course of improvement. The subsequent collapse of coffee prices left what was once the country's leading export sector in depression and had a severe impact on rural income. On a more positive note, Guatemala's macroeconomic management is sound and its foreign debt levels are modest. President Colom has continued programs initiated by prior governments to promote foreign investment, enhance competitiveness, and expand investment in the export and tourist sectors. These programs and the implementation of the U.S.-Central America Free Trade Agreement (CAFTA) have led to increases in foreign direct investment (FDI) inflows from $591.6 million in 2006 to $802.8 million in 2008.

Guatemala's economy is dominated by the private sector, which generates about 90% of GDP. Agriculture contributes 13.3% of GDP and accounts for 24% of exports. Most manufacturing is light assembly and food processing, geared to the domestic, U.S., and Central American markets. Over the past several years, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flowers have boomed, while more traditional exports such as sugar, bananas, and coffee continue to represent a large share of the export market.

The United States is the country's largest trading partner, providing 36% of Guatemala's imports and receiving 39.2% of its exports. The government's involvement is small, with its business activities limited to public utilities--some of which have been privatized--ports and airports, and several development-oriented financial institutions.

Guatemala ratified the U.S.-Central America Free Trade Agreement, commonly known as CAFTA, on March 10, 2005, and the agreement entered into force between Guatemala and the U.S. on July 1, 2006. CAFTA eliminates customs tariffs on as many categories of goods as possible; opens services sectors; and creates clear and readily enforceable rules in areas such as investment, government procurement, intellectual property protection, customs procedures, electronic commerce, the use of sanitary and phyto-sanitary measures to protect public health, and resolution of business disputes.

Other priorities include increasing transparency and accountability in Guatemala's public finances, broadening the tax base, and completing implementation of financial sector reforms. These measures attempt to ensure that Guatemala can comply with the standards of the international Financial Action Task Force for detecting and preventing money laundering.

The United States, along with other donor countries--especially France, Italy, Spain, Germany, and Japan--and the international financial institutions, have increased development project financing since the signing of the peace accords. However, donor support remains contingent upon Guatemalan Government reforms and counterpart financing.

According to the World Bank, Guatemala has one of the most unequal income distributions in the hemisphere. The wealthiest 10% of the population receives almost one-half of all income; the top 20% receives two-thirds of all income. As a result, about 32% of the population lives on less than $2 a day and 13.5% on less than $1 a day. Guatemala's social development indicators, such as infant mortality and illiteracy, are among the worst in the hemisphere. The United States has provided disaster assistance and food aid in response to natural disasters including Hurricane Stan, which caused extensive mudslides in Guatemala in October 2005.

Information by U.S. Department of State

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