Report No. 9378-CU Guatemala Country Economic Memorandum
Public Disclosure Authorized June 19, 1991 Latin America and the Carihbean Region Country Department 11
FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized
Public Disclosure Authorized Document of the World Bank
This document has a restricted distribution and may be used by recipients only in the perforrnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT
Currency Unit: Quetzal (Q) December 1990 US$3 = Q4.96 Average 1990 US$1 = Q4.51
FISCAL YEAR
January 1 to December 31
ABBREVIATIONS AND ACRONYMS
BANDESA - Banco Nacional de Desarrollo Agricola (National Agriculture Development Bank) CACM - Central America Common Market CBI - Caribbean Basin Initiative CET - Common External Tariff CORFINA - Corporaci6n Financiera Nacional (National Finance Company) DGRI - Directorate of Internal Revenue DGA - Guatemalan Customs Administration DIGESA - Directorate General of Agricultural Services DIGESEPE - Directorate General of Livestock Services DIGEBOS - Directorate General of Forestry Services EEGSA - Empresa Eldctrica de Guatemala (Guatemalan Electric Company) ICTA - Instituto de Ciencia y Tecnologia Agricolas (Science and Agricultural Technology) IDB - Interamerican Development Bank IGSS - Instituto Guatemalteco de Seguridad Social (Guatemalan Social Security Institute) INDE - Instituto Nacional de Electrificaci6n (National Electricity Company) INDECA - Instituto Nacional de Comercializacion Agricola (National Agriculture Marketing Institute) NGOs - Nongovernmental Organizations SEGEPLAN - Secretaria General de Planificaci6n (General Planning Office) SIF - Social Investment Fund FOR OMCIAL USE ONLY
C0GWII DATA - ODVASL
AME ~~~~~~~~~~~~....POPMLAYION ...... 0...... _DUSKY ~lost9)
1.0.9 thouo. sq k,. 9.2 illion (1990) 01.7 per eq. km. Rate of Grwthbe 2.9 (1900) 245.9 par eq. km. of 4rioultural LaLnd
POPULATION C1H1ACTUERSTICS (1906) 51T* (1966) ... .. __...... Crude Dirtb Rate (per 1000) 40.8 Population per oteycian 2160.0 Crude Death Rate (per 1000) 8.9 Population per Ifepitsel Sad 600.0 Infant mortality (pot 1000 Liv Btrtha) 47.0
WCM DIS/7UTKC (190616?) AOOD TO ZCMCM (1990) ,,,...... _ _...... I of 1tottnal Inoo.. Hibohst qittilt 60.0 * of DwellWi. - Total 40.0 Loest Quitiue 2.8
£CCZSU TO OSm WAT (1966) ROOCTlM (1967) ...... _ ...... I of Population * Urban 09.0 Adult Illiteracy Rate I 51.0 Rural 1.0 Primry Sebool hrollunt S 76.0 sumgt asU(1966) ...... Dally Calorie Supply (Calories/Person) 2307.0 Daily Protein Supply (Graaallerson) 60.0
GNP PU CAPUA II 19869 s8 S 920.00
0 8S ROfIGAL PIODUCT li 1989 ANNUAL GUMlt RAM (. constant priLes) ------...... _,_____...... -_...__._.__...... ___._.__.___ q. IfIn. 1/ 2 of GSP 1975-1980 1980-1985 1965-1969 ___ ... . _.^___ ...... __._._...... ------ONP ot Kaikt Prices 23L$2.2 100.0 5.9 -1.4 2.5 Gross Doaettc aetentwat 3187.9 13.6 4.8 -7.9 6.0 Gross National Saving 1804.0 7.C 6.8 .7.3 1.9 Currnt Account S-1aane -1063.6 -4.6 Exports of Good. & US 4070.0 17.6 5.5 -7.0 1.9 mport. of Oood. & BPS 5286.0 22.9 4.6 -10.7 6.0
OUPUT, LUSOR 0R2c0AND PSODUCVITY t1 1969 .. __.__.___...... _. ______._...... Value Added Labor Force 21 V.A. Per Vorkier __,... ______...... *_...____._._.______Q. Hit. 2 Tboue. S Q. X
Agriculture 6044. 25.6 1)72.6 50.6 4403.9 45.6 udu"try 4269.2 18.1 431.4 15.9 9896.2 102.4 etrvices 13311.6 56.3 906.0 33.4 14692.7 152.0
TotallAverage 23625.6 100.0 2710.0 100.0 9664.5 100.0
GOVE I F1EUS0CE _.__.______.___._. Conaoltdated Nonfincial Public Scctor Centrm Governant __.. _ ___...... _____.__ Quatialso MKL. I of GDP Quotealee KIU. x of CODP ..__...... ,, 1989 1989 1985-69 1989 1189 1965-89
Current Ravevus 2901.4 12.3 11-4 236226 9.5 6.6 Current xpoenditures 2837.8 12.0 10.6 2385.7 10.1 6.8 Current Balance 63.6 0.3 0.9 -146.9 -0.6 -0.2 Capital E penditure. 029.6 3.5 3.2 744.9 3.2 2.6 Batsrnal linaning (not) 175.7 0.7 0.4 99.7 0. 4 0.5 o. ... _._.__.._...... _...... _.._...... ,,_,,......
VThis document has a restricted distribution and may be used by recipients only in the performance of their ofecial duties. Its contents may not otherwise be disclosed without World Bank authorization. COONI DATA - aU4!U
, snt! AmDmenC 1904 1983 1986 1907 1966 1989 1990 (utons of quatmales)
Ke a*-A qasi Koust 2399.1 3192.9 3875.1 4167.8 4993.0 5800.6 7296.3 lank Credit to Central Govermant (net) 1$49.4 1702.9 1243.7 960.9 870.3 1044.P 1075.2 lank Credit to Private Sector 1867.6 26;7.I 2242.1 2711 - 109.2 3427.1 4299.9
Hooey oad quasi omy as t of GDP 25.3 28.6 24.5 23.5 24.3 24.5 21.4 Cousmer Price index (1rch-april 1983.100) 108.8 129.1 176.6 198.6 220.1 245.1 3U.I
Aaa1 percentage changes inn Coumer Price Index 3.4 18.7 36.9 12.5 10.e 11.4 41.2 lank Crodit to Central Govortmnt (not) 26.8 9.0 -27.0 .21.1 -11.3 20.0 3.0 lack Credit to Private Sector 11.6 9.1 10.1 20.9 14.7 10.2 25.3
BALANCE OF PArr 1983 1985 MoS HC HDtSz Z1T8 (VERM 1985-1989)
(killon .f 8$5) us $ Uln. U
Report of Goods & W1S 1176.0 1162.0 1438.0 Coffee 41s.0 39.1 luports of Goods &10 1217.0 1262.0 1867.0 Cardemo 38.4 3.6 l.ource Gap (deficit - .) -:1.0 -100.0 -429.0 Cotton 35.4 3.3 Sugar 43.4 6.0 Net Fector Incme -113.0 -186.0 -190.0 8unana 76.4 7.2 tactor leceipto 29.0 30.0 15.0 Petrolem 17.8 1.7 Factor Paymuto 143.0 215.0 205.0 West 13.6 1.3 OSLT interatnpymunte) 69.0 116.0 103.0 Nanufaetursa 290.8 27.4 Vet Current '*.nsfero 31.0 20.0 140.0 Other 109.6 10.3
Currwi. Account 8anoe -223.0 -266.0 -479.0 Total 1060.4 100.0
Total KILT Capital (net) 303.1 19.7 221.6 Not Public VOLT Loana(DRS) 214.0 30.0 30.1 EXuNL DIET, DEC. 31. 1989 US $ Kin. Diebure ents KILT 317.0 265.0 181.53------Amortization KLT 103.0 235.0 151.4 IULT Public Debt inch. Guaranteed 2088.0 Direct Forign Iuvestmeut 45.0 60.6 91.0 Short Tmr Debt &UnF 449.5 Other ULt Inflow. (not) 44.1 -70.9 100.5 Bon-uaranteed Private Debt 110.0 Total Outstanding &Disbursed 2647.5 Other Item (net) 31 -40.4 70.3 106.0 DEBT SEIVICE US10O, 1989 S XGBPS overall 8al nca (deficit - 3)39.7 -175.9 -151.4 ------_ ------NILU Public Debt itcl. Guaranteed 16.9 Increase in Arrears -10.6 81.4 116.0 Interest on Short Tonr Debt, &11 2.3 Officil Reserves (icrease -) -29.0 94.5 36.0 Won-ura nteed Private Debt 0.6 Total Outetanding &Dieburead 19.9
VCGE RAMES IBRD LENDIlG, DECUNER 31, 1990 (Kin. US $)
Official Rate (1989 average)8 2.83 Q.IUS$ (1990 average) 4.31 Q.IUS$ outstanding &Diebureed 292.9 Undiebureed 187.4 outsteuding incl. Undtebureed 480.3
Notes Growth rates are compound rates. 1/ offiil exhanse rate ti used. 21 Employed. 91 Inuludee Errors & Omeeieneo, Nt Short Tere Capital and Capital B.E.I. GUATEMALA
COUNTRY ECONOMIC MEMORANDUM
TABLE OF CONTENTS
EXECUTIV SUMNRY ...... RESLIMN EJECUTIVO ......
PART Is MACROECONOMIC ISSUES
PREFACE ...... 1
I. MACROECONOMIC DEVELOPMENTS ...... 3
A. Introduction ...... 3 B. Investment, Savings, and Economic Growth . . . . 4 C. Public Finance ...... 7 D. Monetary Developments ...... 9 E. External Sector ...... 14 F. Exchange Rate Management ...... 18 G. Conclusions ...... 20
II. CENTRAL GOVERNMENTFINANCE ...... 23
A. Overview .-...... 23 B. Government Revenues and Tax Structure ...... 24 C. Tax Administratior...... 29 D. Central Government Expenditures ...... 32 E. Central Government Deficit Financing ...... 36 F. Conclusions ...... 38
III. MACROECONOMIC PROJECTIONS ...... 40
A. Introduction ...... 40 B. Projections ...... 40 C. Conclusions ...... 46
Thti report tS based on the findings of a mission that visited Gutetmalo In May/Jun. 1990. The mission was composed of Axel van Trotsenburg (Mission Chief and principal author of thot report), Diane Cashman (LA2C2, Manufacturing), Hernando Oarzon (Consultant, Tax Structure). Arthur Mann (Consultant, Tax Administration), Jorge Kohon (Consultant, Government Expenditures), and Felipe Illanes (LA2C2, Research Assistance #nd U,croeconomic Projections). The report received sector contributions from German Rioseco (Agriculture) and Ricardo Klockner (Power). Sebastian Edwards provided a background paper on the exchange rate. AnalrI Rodrfguez word-processed the report. The report has been updated following missions in November 1990, March and May 1991. A preliminary version of this draft was discussed with the Ministry of Finance and the Bank of Guatemala In May 1991. PART Ili SECTOR ISSUES
I. AGRICULTURAL SECTOR ...... 49
A. Overview ...... 49 B. Agricultural Sector Zesues .52 C. Analysis and Recommendations ...... 54
II. MANUFACTURING SECTOR...... 64
A. Overview ...... 64 B. Trends in Manufacturing ...... 64 C. Trade Regime ...... 66 D. Investment Finance ...... 70 B. Other Supply-Side Constraints ...... 72 F. Recommendations ...... 72
II. POWER SECTOR ...... 76
A. Overview ...... 76 B. Institutional Framework and Service Levels. . . . 76 C. Key Sector Issues ...... 77 D. Recommendations ...... 81
IV. SOCIAL SECTOR ...... 83
A. Introduction ...... 83 B. Social Sector Development During the 1980s . . . . 83 C. Social Sector Issues in the 1990s ...... 94
ANNMES
STATISTICAL APPENDIX GUATEMALA COUNTRY ECONOMIC MEMORANDUM
EXECUTIVE SUMMARY
1. This report evaluates the main macroeconomic and sectoral developments in Guatemala during the second half of the 1980s and identifies the main economic challenges the country will face in the 19909. The report is intended to provide a bac.kground for discussions with the new Government of President Serrano on important macroeconomic and sector adjustment issues. 2. Special emphasis is given to the current macroeconomic problems as evidenced by the large fiscal and external imbalances as well as by the accelerating inflation in 1990. Therefore, the assessment of the economic prospe-ts focusses on macroeconomic policy reform, with the central issue being a return to fiscal stability and the consolidation of economic growth without renewing inflationary pressures and external imbalances. 3. The report also discusses the main structural measures required over the next couple of years to further liberalize the economy and to deal more effectively with the deteriorating social conditions in the country. In this context, it identifies the main components of a poverty alleviation strategy and stresses the urgent need for an expanded and restructured social sector program.
A. Economic Overview 4. When it assumed power in 1986, the Government of President Cerezo inherited a legacy of profound economic and financial problems. During the first half of the 1980s, the Guatemalan economy contracted by about 1 percent annually. The deterioration resulted partly from external circumstances such as the political and economic instability in Central America, decline in the terms of trade, and the recession in industrialized countries. But domestic policies also played a major role. They included, among other factors, inappropriate fiscal and monetary policies, and a multiple exchange rate system. These policies produced large fiscal deficits, accelerated inflation. and generated negative real interest rates. Externally the country experienced a substantial loss of international reserves and continuing balance of payments problems. 5. In response to the serious economic situation, the Government in 1986 announced a comprehensive adjustment program. This program succeeded in reducing the deficit of the nonfinancial public sector to about 0.8 percent of GDP during the first two years of implementation, bringing down inflation to about 12 percent per year during 1987-89, and reforming the exchange rate system. The Government also initiated a liberalization of the trade regime which included the gradual reduction in tariffs. 6. However, the previous Government's adjustment efforts soon lost momentum. Economic policy making began to slip after 1988, and the Guatemalan economy started the 1990s with serious internal and external - ii - imbalances. The Government has had to cope with falling tax revenues and a fiscal deficit that has been increasingly financed in an inflationary fashion. Ir addition, the Bank of Guatemala continued to maintain exchange rate guarantees after the floating of the exchange rate in November 1989. That increased its losses sigrificantly during 1990 and explained part of the increasing inflationary pressures during that year. Finally, the large current-account deficits could no longer be financed through regular external credit. Resorting to arrears financing, Guatemala saw its stock of arrears accumulate rapidly during 1990.
7. Now the new Government of President Serrano faces the difficult task of implementing a comprehensive adjustment program. It must address the fundamental issues in the fiscal and monetary area, the credibility of the exchange rate system, and the external-arrears issue. A prompt start - meaning the first half of 1991 - is critical for embarking the country on a path of price stability and sustainable growth as -ell as to keep the external-arrears problem manageable. A solution to the arrears issue could unlock financial support from international institutions likely to be essential to sustaining economic growth and alleviating poverty.
B. Adiustment Requirements
8. Achieving sustained growth of output and employment as well as reducing poverty will depend on (i) a stable economic environment, manifested in low inflation rates and in fiscal discipline, and (ii) attention to a host of policies that influence the level of investment, investment productivity, and the efficient use of resources genera'lly.
9. Structural problems warranting urgent attention concern the existing distortions in agriculture, industry, finance, and trade. Impediments to competition, inflexibility in markets, and the inefficiency in the public sector - these factors continue to limit Guatemala's growth prospects. The supply-side deficiencies are all the more constraining as the country grapples with a rapidly growing population and with a large underemployment problem. Structural reforms could contribute to higher employment, stronger productivity growth, and efficiency.
B.1 ImDroving Domestic Balances and Structures
10. The unsustainable pattern of external balances observed during most of the 1980s largely reflected domestic problems. The problems were manifested in a decline of national savings - especially of public savings - and in difficulties in shifting resources between activities directed toward home and external markets. Policies to redress the current account deficits thus should focus on both macroeconomic and structural measures.
11. In coping with Guatemala's current-account deficit (which averaged 6.2 percent of GDP in 1987-90), it is preferable tu raise national savings rather than to further squeeze investment. The latter would slow the growth of productive potential and run counter to the objective of - iii -
strengthening competitivenss. Higher public savings thus assume major importance. Public savings have declined from 1.6 percent of GDP in 1987 to an average of 0.5 percent in 1988-1990. This trend largely reflects increasing current expenditures and decreasing tax revenue. Another problem affecting national savings is the disincentives to private savings. These disincentives are attributable mainly to negative real interest rates, which became especially apparent in 1990.
12. The current-account deficits signal the need to restrain domestic demand. The likely sustainability of those deficits can be assessed by reviewing how Guatemala coped with its external imbalances in the 1980s. During that period the country was unable to attract sufficient external sources to cover its current-account deficits. There have been clear limits to the willingness of capital markets to sustain financial flows to Guatemala corresponding to its persistent external deficits. In the absence of sufficient capital inflp','s. Guatemala accumulated substantial external arrears. That demonstrates that the current-account deficits have been unsustainable.
13. Recommendations. The Government should aim at a sustained reduction in the current-account deficit. This should be accomplished by a combination of policies designed to raise both public and private savings. Public savings should be raised by significantly increasing tax revenues while controlling growth of current expenditures. Private savings should be stimulated mainly by a monetary policy that aims at achieving positive real interest rates.
B.2 Fiscal Policies
14. Large public sector deficits beset Guatemala in the 1980s. Their persistence has shown that various fiscal-adjustment efforts proved to be only temporary and were disproportionally directed toward reductions of capital expenditures while current expenditures were not sufficiently constrained. The impact of this policy is most evident in the neglected infrastructure and social sectors. Both now require urgent attention.
15. Tax revenue performance during the 1980s was low by Guatemalan standards when compared to the second half of the 1970s, and, certainly, by international standards. Central Government tax revenue averaged a low 7.3 percent of GDP in 1980-90 compared to 9.2 percent of GDP in 1975-79. Revenue could not be increased on a sustainable basis principally because of (i) serious deficiencies in the tax administration, (ii) excessive exemptions, deductions, and allowances, and (iii) temporary resort to distortionary taxes such as export taxes.
16. The extent of the tax administration crisis may be indicated by estimates showing that collections from the domestic value-added tax and income tax could easily double, if all legal obligations were met. In 1989, this alone would have meant an increase in the tax ratio from an actual 7.8 percent of GDP to a potential 10.6 percent of GDP. Furthermore, the present Guatemalan tax code is replete with exemptions, deductions, and allowances iv - which have eroded the tax base and encouraged tax ovasion. For example, deductions on corporate income taxes average about 94 percent of gross income. A reduction of deduction possibilities or simply restricting the maximum amount of deductions to a certain percentage of income could significantly broaden the tax base and hence increase revenue.
17. The tax refonms of 1983 and 1987 turned out to be hesitant attempts to restructure the tax system and to improve tax administration without lasting impact. Both attempts failed to increase tax revenue because of implementation difficulties and of revisions that eroded the original intention of the reform, especially in the case of vilue-added tax. In the end, tax revenue as a share of GDP actually fell to a low 6.9 percent in 1990. In addition, the Government failed to adjust public utility prices in a timely manner thereby exacerbating the financial problems of the public sector and, in partic"lar, of the public sector electricity company.
18. The most formidable task of the Government will be to put the public sector on a more stable footing by addressing the fiscal deficit. A critical condition for reforms is the need to establish a broad consensus among the main political and economic groups to ensure an effective implementation of the fiscal package. Absent such a consensus, the reform efforts may suffer the same fate as the fiscal reforms of the 19808.
19. Recommendations. To reduce the deficit, the Government should concentrate on revenue-er.hancement measures as its principal instrument of fiscal adjustment. As a first step it should take measures to immediately restore the 1988 tax levels (8.8 percent of GDP). Then, from 1992 onward, the Government should increase tax revenue to over 10 percent of GDP to achieve higher public savings.
20. To do this, the Government shoald increase the value-added tax rate from 7 to 10 percent and eliminate most of the existing exemptions. As for income taxation, excessive deductions, allowances, and exemptions should be reduced. Tax yields can be increased by significantly improving the efficiency of the tax and customs administrations. This will require a strong political will to implement existing tax legislation and major improvemente in the organization of the tax and customs administrations themselves. In this context, the existing technical assistance available to the Ministry of Finance should be more effectively used.
21. To reduce the deficit further, the Government should review expenditures and identify those areas where savings are appropriate. In the short term, restraining expenditures should be possible through (among other means), a moderate wage policy and reductions in subsidies. The Government could also cut expenditures by reducing overstaffing in the public sector. In the medium term, the Government needs to reallocate expenditures, especially in the health and education sectors (see also social sector section). After deciding on the size and balance between current and capital expenditures, the Government should enforce strict expenditure monitoring to involve a high degree of accountability and transparency. 22. The Government has to decide on the amount of transfers to public sector enterprises that is sustainable under a deficit-reduction plan. Transfers to public sector enterprises, especially to the electricity company, must be reduced by adjusting the tariffs of public eervices and by eliminating any form of subsidy for pe.roleum products. In addition, the Government should consider privatizing some of the public sector enterprises aE a means of improving efficiency and performance of the public sector.
B.3 onetavl Policy 23. In Guatemala monetary policy has traditionally been rather conservative and, as a result, the country has experienced generally low inflation rates. After a temporary surge in inflation during 1985-86, price increases were brought down to an annual average of 12 percent in the 1987-69 period. However, with the floating of the exchange rate in November 1989, the Bank of Guatemala failed to switch towards an ac- e monetary stance, i.e. using monetary policy as a key instrument of macroeconomic policy. 24. Although the Monetary Board liberalized interest rates of the banking system in August 1989, interest rates remained unchanged until February 1990 due to the commmercial banks' agreement to maintain the interest rate structure, and the absence of effective open market operations. During the rest of 1990, interest rates increased only modestly because of liquidity considerations by banks and the inability of the Bank of Guatemala to increase significantly the interest rates in its open market operations. As a consequence, interest rates became increasingly iiegative in real terms. The negative real interert rates did not only put pressure on the exchange rate but also served as a powerful disincentive to save in the domestic market in 1990. As a result, the country fell into a devaluation-price spiral between the end of 1989 and 1990.
25. Recommendations. To strengthen the credibility of anti- inflationary monetary policies, the Bank of Guatemala should keep the growth of monetary aggregates restrained until there are signs that demand pressures are subsiding and the inflationary expectations are receding. Policy credibility, it should be noted, is fragile and should be ensured by more autonomous decision-making power for the Central Bank than has been granted to date. An important step towards a more active use of monetary instruments will be to endow the monetary authorities with more autonomy.
26. Monetary and credit policies, particularly those affecting the liquidity of the banking system, need to become the principal antiinflationary tool, apart from fiscal policies. In this context, the Bank of Guatemala should (i) continue using open market operations in an efficient manner, and (ii) use a more flexible minimum-reserve-ratio policy. These policies should improve the Bank of Guatemala's control of monetary aggregates and be conducive to keep interest rates positive in real terms.
27. The extent of inflationary pressures during 1990 suggests, among other things, that the Bank of Guatemala was not able to neutralize the expansionary effects that its growing losses had on the money supply. The - vi X exchange rate guarantee on petroleum importa caused heavy losses during 1990. The Monetary Board should eliminate the remaining exchange rate guerantee for petroleum imports as well as the inte.est rate subsidy to the Central Government so as to reduce the losses of the Bank of Guatemala.
B.4 Exchange Rate Policv
28. The erratic and inconsistent exchange rate policies during the 1980s illustrate the authorities' search to solve the country's balance of payments problems. Between August 1989 and November 1990, Guatemala experimented with a variety of exchange rate systems, without much success. Two factors have lain at the heart of the crisis: (i) a persistent public sector deficit, and (ii) a lack of confidence, characterized by a generalized loss of credibility of the policy actions of the Government and of the Bank of Guatemala. 29. To understand the evolution of the exchange rate, it is necessary to look into portfolio shifts. There is evidence that in 1989 and 1990 an important portfolio shift took place out of quetzales and into dollars. This was, in turn, fueled by expectations and lack of credibility of decisions taken by the Bank of Guatemala.
30. Exchange rate developments during 1990 were also linked to uncompetitive behavior of the banking system. Domestic interest rates, for instance, did not react sufficLently to the changing conditions in the exchange rate and the macroeconomy. As a result, real interest rates became increasingly negative in 1990, fueling capital flight. 31. Since the new Administration took over in January 1991, the Bank of Guatemala has maintained the exchange rate system introduced in November 1990, i.e. an auction system that operates with a band, extending 5 centavos above and below the base exchange rate set and regularly modified by the Bank of Guatemala. The returning confidence in the policy actions of the monetary authorities have minimized speculative activities and stimulated a significant inflow of foreign exchange. However, this largA inflow and the current exchange rate system has already led to a small real appreciation of the quetzal that should be addressed in order to avoid a negative impact on the country's external competitive position. 32. Recommendations To stabilize the exchange rate on a sustainable basis, the Government should implement a coherent set of macroeconomic policies. These would simultaneously address the problems of credibility, fiscal deficits, and credit expansion. In the absence of a comprehensive adjustment program, especially of a fiscal program, it appears that any exchange rate policy different from a market based approach may lose its credibility and viability over time. If the fiscal adjustment does not take place quickly, the pursuit of a flexible exchange rate policy becomes even more important. 33. While adopting a comprehensive economic program, the Government should modify the current exchange rate system in order to preserve -vii-
Guatemala's external competitiveness. Changes such as widening the band and more frequent adjustments of the base rate should be considered.
B.5 Economic ProsPects
34. Guatemala's medium-term outlook depends on how quickly tha Serrano Administration implements a credible and sustainable stabilization and adjustment program as well as on the degree to which it remains committed to the program over time. A base-case scenario was developed in which the macroeconomic program begins to be implemented during the first half of 1991 and is successfully carried through in the following years. The program is assumed to include revenue-enhancement measures and monetary policies aimed at reducing the inflation rate and restoring real interest rates to positive levels. In addition, trade liberalization and commitment to a flexible exchange rate management are components directed at improving the balance of payments situation. Finally, a major element of the program is the normalization of relations with foreign creditors through the clearing of all external debt service arrears.
35. The results of these projections indicate that the full set of policies and measures underlying the adjustment program would basically reduce the public sector deficit and the current account deficit. This would allow for investments to be increasingly financed by domestic sources. In addition, a flexible exchange rate management would preserve Guatemala's external competitiveness and stimulate nontraditional exports, contributing to declining current-account deficits. The simulation indicates that a successful stabilization effort coupled with structural measures would result in growth rates of 3 to 4 percent a year during the next couple of years. Over the medium to long term, the structural reforms would help achieve even higher growth rates.
36. Under an alternative low-case scenario an initial adoption of the macroeconomic program is followed by policy slippage. The results of this simulation suggest that abandonment of the adjustment effort would ultimately constrain economic growth, as indicated by stagnating investment and export growth, the return of public dissavings and declining national savings, and unsustainable current account deficits.
C. Promotion of Structural P.eforms
37. Implementing the necessary macroeconomic adjustments is only one aspect of structural reform. More fundamentally, action is needed to improve domestic economic performance over the coming decade and beyond. Structural reforms in the different sectors are needed to generate higher employment, stronger productivity growth, and improved efficiency. The present economic imbalances, in a country that is struggling with a growing poverty problem as well as with large and increasing underemployment, underscore the importance of microeconomic policies and their complementarity with macroeconomic policies. The principal requirements are to foster more - viii - flexible and efficient markets for land, capital, and labor, and to improve the functioning of the public sector.
C.1 Agricultural Sector 38. Agriculture accounts for about one-fourth of Guatemala's GDP and about three-fourths of its export revenues throughout the 1980s, it employed about half of the labor force. Despite its importance, the agricultural sector did not grow as it could have. The principal issues are (i) uneven distribution of land, (ii) inability of the Government to create effective incentives for growth, and (iii) low public investment. 39. The unequal distribution of land has resulted in a highly unbalanced pattern of regional development. The rural poor are concentrated in the Altiplano region with only limited access to productive assets and infrastructure. Although there is enough land suitable for sustained farm production in Guatemala which could provide an acceptable living standard in rural areas and also yield an adequate supply of food for the urban population of Guatemala, the land distribution issue has impeded efforts to improve agricultural productivity. 40. During the 1980s population growth outpaced agricultural output. Instead of correcting the incentive system, Guatemala increasingly relied on food aid and commercial food imports as a means to close its food deficit. Food aid has not had a significant impact in improving the low- income population's access to food since only 20 percent of imported food is distributed directly to the poor. 41. Guatemalan agriculture has not been able to exploit all its growth potential because of a host of disincentives. Although the exchange rate policy reforms of 1986-90 stimulated exports, trade policy has continued to distort incentives in the agricultural sector. Quantitative restrictions, prohibitions, differentiated import duties and (until recently) export taxes have also impeded stronger sectoral growth. 42. Domestic incentives have not been effective in promoting growth in the agricultural sector. Credit at subsidized rates of interest from the National Bank of Agricultural Development (BANDESA) has been utilized to foster smallholder and grain production, but it has neither had the desired effect nor always benefitted smallholders. In fact it has resulted in a high level of financial losses in the public sector. Furthermore, the guaranteed- price policy failed to maintain real prices for basic-grain producers. 43. Public expenditures in agriculture have been inadequate. Sector expenditures declined steadily during the 1980s and reached a low of 1.1 percent of GDP in 1989. In addition to shortages of fur,ds to finance expenditures other than salaries, the Government faces serious problems of ill-defined priorities and weak implementation capability. As a result, overall budget execution dropped from 81 percent in 1981 to 50 percent in 1989, with implementation of the capital budget dropping from 75 percent in 1986 to 39 percent in 1989. - ix -
44. ecnuxendations. A comprehensive effort is needed to modernise public sector agricultural agencies. Such effort should aim at alleviating both institutional problems and inadequate resource allocation that frustrate policy planning and program implementation.
45. The duality of Guatemala's agriculture makes it advisable to differentiate the Government's role in the commercial and smallholder subsectors. Except for neutral incentive policies and provision of basic infrastructure, the commercial subsector does not require direct government intervention. Assisting the smallholder sector should explicitly be made the main objective of the Ministry of Agriculture. Resources and services must concentrate on smallholders. With regard to the investment program, the Ministry should increase its investments in basic infrastructure and services, and ensure that they benefit smallholders.
46. The impact of the past trade and exchange rate reforms on the production of basic grains will not be fully felt until additional measures are taken. The Government should (i) eliminate quantitative import restrictions for agricultural inputs and replace them with tariffs, (ii) modify the situation wherein a few importers control the market of agricultural inputs and distribution, and (iii) eliminate quantitative restrictions on foreign trade of basic grains.
47. No clear policies exist to administer or to monitor food aid. The Government should improve the access of the poor to food by better targeting its food-aid program.
48. Increasing smallholder productivity will require increased producer access to credit. In the absence of viable short term alternatives BANDESA would continue to play a major role in such credit. To improve the efficiency of BANDESA, the Government should (i) decentralize BANDESA's operations and focus them on smallholder credit, (ii) simplify its operational policies and procedures, and (iii) eliminate interest rate subsidies. 49. To improve the contribution of research and extension to growth, the Government needs to (i) commit more resources, (ii) ensure that the system's priorities are on smallholders, (iii) unify the extension services to eliminate duplication, and (iv) use a training-and-visit methodology to transfer technology to smallholders.
C.2 Manufacturina Sector
50. A consensus has emerged among policy makers that faster growth in nontraditional exports is a necessity, not only for raising incomes but also for restoring macroeconomic stability. However, distortionary trade policies present a major obstacle to further expansion of nontraditional exports. The policies have particularly pronounced effects in the manufacturing sector. Throughout the past 20 years the tariff policy has been biased in favor of final consumer goods. It has produced strong incentives for resource allocation to protected industries for the Central American market at the expense of preduction for growth markets outside the region. 51. The strong orientation of the manufacturing sector to the regional market left the sector highly vulnerable to deteriorating regional economic conditions in the early and mid 19809. The partial recovery of regional demand since 1986 and the introduction of new export incentives in 1984 have led to modest growth of the manufacturing sector since then. Nonetheless, the sector continues to exhibit a dualistic production structure, in which exports outside the region consist largely of garment assembly and exports within the region consist of light manufactures.
52. A strong manufacturing base is essential for a competitive nontraditional export sector, because it provides a means of increasing the level and diversification of foreign exchange earnings and because it has important backward production linkages with agriculture. To encourage the reorientation of the sector to nonregional markets, the Government will need to implement policies that promote efficiency and competitiveness in exporting industries. The most critical policy adjustment will occur in the structure of tariffs and accompanying policies, which now tend to reinforce distortions through the tariff regime. In particular. nontariff barriers must be avoided.
53. An equally crucial component of the structural adjustment package should be the financial sector reform. The current lack of investment finance, especially for the nontraditional export sector, has limited existing and potential productive capacity to respond to changes in incentives.
54. Recommendations. The Government should intensify its trade liberalization policies. The ultimate goal should be a uniform tariff of 20 percent. As an intermediate step the Government could move to a tariff schedule in the 10-20 percent range. Unifying the tariff structure would eliminate inefficiency in production originating from the dispersion in effective protection rates and would substantially increase the transparency of the trade regime. In addition, the Government should eliminate quantitative trade restrictions that do not relate to legitimate health and safety objectives.
55. Supply-side distortions stemming from legislated monopolies in services and lack of free entry in the transport sector all reduce potential improvements in resource allocation associated with outward orientation. The lack of investment finance in particular is a principal constraint to increasing investment and growth in the nontraditional export sector. Therefore, the Government should reaffirm its determination to promote market orientation in the financial sector by (i) maintaining interest rate liberalization policies, (ii) encouraging free entry and development of banks and other financial institutions, and (iii) correcting the income tax bias in favor of debt finance in order to stimulate the development of equity finance.
56. The Government should promote direct foreign investment as an additional source of capital by (i) eliminating the differential income tax treatment of dividends earned by foreign and domestic investors, (ii) removing informal barriers to entry in key subsectors, and (iii) continuing efforts to stabilize the macroeconomic environment. - xi -
C. 3 Powr Sector
57. The Guatemalan power sector is dominated by the public power company, Instituto Nacional de Electricidad (INDE), and the main public distribution company, Empresa Electrica de Guatemala S.A. (EEGSA). During the 1980s these companies faced serious financial and institutional problems, resulting in a deterioration of public electricity service. During the second half of the 1980s, particularly, INDE struggled with an inadequate revenue base stemming from the Government's inability to adjust electricity rates in an environment of inflation, devaluation, and increasing debt service payments resulting from the quetzal devaluations. As a consequence, the company has registered growing deficits and needed substantial government transfers. Compounding INDE's financial difficulties have been structural problems such as its lack of qualified management and serious overstaffing.
58. Electricity rates are well below the estimated marginal cost. They have not been adequately adjusted to take into account the effects of inflation and devaluation and the related higher debt-service requirements. In fact, electricity rates in real terms fell continuously during the last eight years. Owing to the accelerating inflation in 1990, the tariff increases of April 1990 were quickly eroded. Average electricity prices were 50 percent lower in real terms at the end of 1990 than in 1980.
59. Institutional problems are such that the power sector companies are not run along commercial criteria. The main issues facing this sector are (i) centralization of decision making at the Ministry of Energy, (ii) lack of a regulatory body to coordinate policies and investments in the sector, and (iii) INDE's inability to address issues affecting the efficiency of the company's operations.
60. Reconmendations. To improve the financial situation of the power sector, the Government should increase electricity rates substantially in real terms. As a target, the Government should adjust electricity rates toward the level of long-run marginal costs. This would help reduce the sector's reliance on Government transfers. It would also encourage energy conservation.
61. To improve the institutional shortcomings of the power sector, the Government should provide a greater degree of autonomy to INDE, in exchange for greater accountability from management. The Government and INDE should agree on a set of performance measures to verify the progress made in such diverse areas as staff productivity, accounting, and internal control. In addition, the Government should revise the current regulatory framework of the power sector and clarify the relationship between INDE and the different Government agencies.
C.4 Social Sector
62. Guatemala's social indicators are among the worst in Latin America. Even during the time of buoyant economic growth (from the 1950s until the enw of the 1970s) the benefits trickled down but little to the - xii - poorer groups of the population. As a result, the social indicators have improved only slowly, reflecting the passive policy stance of the Government toward social issues.
63. The lack of social progress during the 1980s can largely be attributed to three major factorst (i) insufficient economic growth, (ii) failure of the public and private sectors to provide the incentives, services, and resources to the poor as to facilitate their integration into the formal economy, and (iii) lack of investment in social services such as primary education, primary and preventive health care, and water and sanitation. The low level of investment in these areas suggests that for too long such investments have been considered unproductive.
64. Poverty continues to be a pervasive phenomenon in Guatemala. Malnutrition, shortages in housing, inadequate access to basic health and education services, and a steady erosion of real wages - all these conditions continue to characterize the conditions of life of the vast majority of the Guatemalan population. According to Government estimates, the share of the poor within the population increased from 63 to 83 percent between 1980-81 and 1986-87, while extreme poverty doubled from 32 to 64 percent during the same period. By neglecting such a large portion of the population, the country has effectively limited its future productive capacity.
65. Guatemala still has a long way to go to meet the educational needs of its people. In 1988, 51 percent of the population over 15 years of age was illiterate; in some of the poorest areas illiteracy exceeded 80 percent. Only about 60 percent of school-age children attend school in poor rural areas. An important factor which has influenced the poor enrollment performance, especially in rural areas, has been the allocation of the education budget. Expenditures on education are biased toward higher level education and against primary education, even though the social rates of return for the former are lower than for the latter.
66. Guatemala's health situation also provides cause for concern. The Government was not able to improve the health indicators during the last decade. The mai. reasons were: (i) lack of resources, (ii) tendency to allocate most resources toward curative care, (iii) a passive stance toward primary health care and nutrition problems, and (iv) poor management with the Ministry of Health.
67. Recommendations. The Government urgently needs to design a social strategy that embraces all segments of the society. The guiding principle of such a strategy should be the achievement of more equitable development through broad-based growth, productive employment, and investing in human capital.
68. The main social objective for the 1990s should be an improvement in the poverty situation. Given the extent of moderate and extreme poverty in Guatemala, the Government will need to adopt a two-track approach toward this problem. First, the Government should combat poverty by promoting the employment potential in the rural sector. It should support a - xii - strategy that aims at increasing agricultural production, especially of the smallholders (see also agricultural section). Second, it should alleviate extreme poverty through targeted aid programs, with special emphasis on the rural sector. Poverty could also be reduced if the level of social spending and public sector efficiency were to significantly increase. That would require a restructuring of those ministries that oversee poverty-alleviation projects.
69. An effective poverty-alleviation program needs active and guiding Government support for targeted aid programs. In the past, however, the public sector has not been effective in tackling the poverty problem. To ensure a more efficient and timely implementation of poverty alleviation. the Government should take the following actions: (i) select priority projects in preventive health care, primary education, and the smallholder ;ector. The projects should be executed at a high level of coverage and quality; and (ii) introduce a Social Investment Fund (SIF) to cope with institutional weaknesses that impede poverty reduction.
70. The Government should increase social spending after improving its revenue base and reviewing expenditure in this sector. This review should concentrate on li) allocation with regard to region and by beneficiary, (ii) effectiveness of expenditures. (iii) implementation capacity, and (iv) institutional aspects. Past allocation has not benefitted the poverty segment, thus exacerbating the extreme poverty, nutritional problems, and migration.
71. The Government should increase coverage and quality of education, especially in the rural areas. The Ministry of Education will need to set the following prioritiest (i) focus on primary education, (ii) expand preprimary education, (iii) reallocate education budget toward primary education, and (iv) increase resources allocated to education over the medium term, since increased investments in human capital will be a critical component in reducing poverty.
72. The Government should implement a more effective health policy geared toward the poor. This will require (i) increasing the present share of expenditures allocated for primary and preventive health care by reducing the share allocated for curative care, (ii) defining a national nutrition strategy, (iii) bringing Guatemala to at least the average level of coverage of malnourished children prevailing in Latin America as a whole, (iv) increasing the effectiveness of school feedir.g programs, and (vi) restructuring the Ministry of Health to improve its operational efficiency. GUATEKALJA MDEORANDO ECONOMICO 1/
RESUMEN EJECUTIVO
1. Este informe evalia los acontecimientos macroecon6micos y sectoriales que tuvieron lugar en Guatemala durante la segunda mitad de la d6cada de los ochenta e identifica los principales desafios economicos con que el pais Pe enfrentar6 en la decada de los noventa. Ademas, proporciona fundamentos para las conversaciones con el nuevo gobierno del ),esidente Serrano sobre las principales cuestiones macroecon6micas y relativas al ajuste sectorial.
2. Se ha hecho especial hincapi4 en los problemas macroecon6micos actua'es que se manifiestan en los grandes desequilibrios fiscal y externo asi como en la aceleraci6n de la inflaci6n en 1990. Por consiguiente, la evaluaci6n de las perspectivas econ6micas se centra en la reforma de las politicas macroecon6micas, siendo el tema primordial una vuelta a la estabilidad fiscal y a la consolidaci6n del crecimiento econ6mico sin renovar presiones inflacionarias ni desequilibrios externos.
3. El informe tambifn aborda las principales medidas estructurales necesarias en los pr6ximos aftos para liberalizar adn mas la economia y tratar de manera mas eficaz las condiciones sociales del paIs, las que se hallan en deterioro. En este sentido, identifica los componentes principales de una estrategia de alivio de la pobreza y hace hincapie en la necesidad urgente de contar con un programa social mAs amplio y reestructurado.
A. Generalidades econ6micas
4. El gobierno del Presidente Cerezo, que asumio el poder en 1986, hered6 un legado de problemas financieros y econ6micos. Durante la primera mitad de la decada de los ochenta, la economia de Guatemala se contrajo en alrededor de uno por ciento al ano. El deterioro de la economia se debi6 en parte a circunstancias externas adve_sas como la inestabilidad politica y, por consiguiente. econ6mica de America Central, el deterioro de los terminos de intercambio y la repercusi6n de la recesion de los paises industrializados. Pero tambien jugaron un papel importante las politicas internas. Entre estas figuraban una polltica fiscal y monetaria inapropiada y un sistema de tipos de cambio m6ltiples. Estas politicas tuvieron como resultado grandes deficits fiscales, aceleraci6n de la inflaci6n y tasas de interes real negativas. En el aspecto externo, el pais experiment6 una perdida considerable de reservas internacionales y continuos problemas de balanza de pagos.
5. En respuesta, el Gobierno anunci6 en 1986, un programa integral de ajuste. Este programa logr6 disminuir el d4ficit del sector pdblico no financiero a 0,8 por ciento del PIB durante los primeros dos aflos de su puesta en practica, reduciendo la inflaci6n a cerca del 12 por ciento por afo durante 1987-89, y reformando el sistema cambiario. Ademas, el gobierno inici6 una
I/ E*e traducal6n no m una v.rai6n oftcial dol ru m sobr, el Infor. titulado: Quetmele: Country Economic Mbmnrandum, El mu_en on Ingld; e *1 orlgnal y constItuy. au ver16n of Tclal. - ii - liberalizaciGr del r4gimen comercial que incluy6 una reducci6n gradual de lo1 aranceles.
6. Sin embargo, los esfuerzos del gobierno anterior en el campo del ajuste no lograron mantener el impetu. La formulaci6n de is politics econ6mica, comenz6 a deteriorarse despu6s de 1988, y la economia empez6 la d6cada de los noventa con serios desequilibrios internos y externos. El gobierno se iencontr6 ante la disminucion de lo ingresos tributarios y un d6ficit fiscal que ha venido financltndose cada vez mAs de manera inflacionaria. AdemAs, el Banco de Guatemala continu6 manteniendo garantias cambiarias despu6s de la flotaci6n del tipo de cambio que tuvo lugar en noviembre de 1989, lo que aumento sus pdrdidas significativamente durante 1990 y explic6 parte de las crecientes presiones inflacionarias durante ese safo. Por Oltimo, los grandes deficits en cuenta corriente no pudieron seguir financiAndose mediante crddito externo regular. Como consecuencia de ello, el pais recurri6 al financiamiento mediante atrasos y au mora de pagos se acumul6 rApidamente en el curso del aflo 1990.
7. Ahora el nuevo gobierno del Presidente Serrano se enfrenta ante la dificl. tarea de poner en prActica un programa integral de ajuste. Tiene que abordar las cuestiones fundamentales en el campo fiscal y monetario, la credibilidad del sistema cambiario y la cuesti6n de los atrasos externos. Es importante que se ponga rapidamente en marcha el programs econ6mico durante ia primera mitad de 1991, a los efectos de embarcar al pais en un camino de estabilidad de precios y crecimiento sostenible y mantener el problems de los atrasos externos a niveles manejables. Por lo tanto, una soluci6n al problems de los atrasos podria ser la movilizaci6n del apoyo financiero proveniente de instituciones financieras y donantes internacionales, probablemente necesario para sostener el crecimiento econ6mico y aliviar la pobreza.
D. Exigencias de aluste 8. El logro de un creclmiento econ6mico sostenido del producto > del empleo, asi como is reducci6n de la pobreza dependerA des i) un entorno econ6mico estable, que se manifieste en bajas tasas de inflaci6n y en disciplina fiscal, y ii) atenci6n a un sinnimero de politicas econ6micas que ejercen influencia en el n.vel de inversiones, en su productividad y, en tdrminos mAs generales, en el uso eficiente de recursos.
9. Los problemas estructurales que tienen que ver con las distorsiones existentes en los sectores agropecuario, industrial, financiero y comercial, merecen urgente atenci6n. Los impedimentos a is competencia, la inflexibilidad de los mercados e ineficiencias en el sector p6blico siguen limitando las perspectivas de crecimiento de Guatemala. Las deficiencias par el lado de la oferta son mAs limitantes puesto que el pals tiene que verselas con uns creciente poblaci6n y un serio problema de subempleo. Las reformas estructurales podrian contribuir a un aumento del empleo y a un crecimiento mAs firme de is productividad y de la eficiencia. Bol MeJora de los equillbrios v las estructuras internas
10. Durante la mayor parte de la ddcada de los ochenta se observ6 un patr6n insostenible de la balanza de pagos externa que ha sido principalmente el reflejo de problemas internos. Estos se manifestaron en una disminucifn del ahorro nacional, especialmente del ahorro p(blico. y en las dificultades para reasignar recursos entre actividades dirigidas hacia los mercados internos y externos. Las politicas para corregir los deficits de cuenta corriente deberian concentrarse tanto en medidas macroecon6micas como estructurales.
11. Con el objeto de hacer frente al d6ficit en cuenta corriente de Guatemala, que alcanz6 un promedio de 6,4 por ciento del PIB en 1987-90, es preferible aumentar el ahorro nacional en lugar de reducir a6n mds la inversi6n. Esto 6iltimo disminuiria el crecimiento del potencial productivo y seria contrario al objetivo de fortalecer la capacidad de competir. En este contexto, asume vital importancia el aumento del ahorro p6blico. El ahorro pablico disminuy6 de un nivel de 1,6 por ciento del PIB en 1987 a un promedio del 0,5 por ciento para el periodo 1988-1990. Esta tendencia se atribuye en gran medida al aumento del gasto corriente y a la disminuci6n de los ingresos tributarios. Otro problema que afecta al ahorro nacional lo constituyen los desincentivos al ahorro privado. Estos desincentivos se atribuyen principalmente a las tasas de interes real negativas que se volvieron especialmente evidentes en 1990.
12. Los deficits en cuenta corriente constituyen otra sefial de la necesidad de poner coto a la demanda interna. Se puede determinar la posibilidad de sostener las balanzas en cuenta corriente por medio de un examen de la forma en que Guatemala hizo frente a sus desequilibrios externos a fines de la decada del ochenta. Durante ese periodo, el pals no logr6 atraer suficientes fondos extertios para poder cubrir sue d6ficits en cuenta corriente. Han existido llmites claros sobre la disposici6n de los mercados de capital de proveer flujos financieros a Guatemala correspondientes a sus persistentes deficits externos. En ausencia de suficientes flujos de capital, Guatemala acumul6 atrasos externos sustanciales, los cuales indican claramente que los deficits en cuenta corriente han sido insostenibles.
13. Recomendaciones. El gobierno deberla tratar de lograr una reducci6n sostenida del dtficit en cuenta corriente, lo cual podria lograrse mediante una combinacion de politicas destinadas a aumentar el ahorro p(blico y privado. El ahorro p(iblico deberia incrementarse por medio de un aumento considerable de los ingresos tributarios, controlando al mismo tiempo el crecimiento de los gastos corrientes. Deberia estimularse el ahorro privado principalmente mediante una politica monetaria ciue busque lograr tasas de interis real positivas.
B.2 Politicas fiscales
14. Grandes deficits en el sector pablico acosaron a Guatemala en 1980. Su persistencia ha demostrado que los esfuerzos de ajuste fiscal fueron solamente transitorios y desproporcionadamente dirigidas a reducir los gastos - iv- de capital, mientras que no se limit6 suficientemente el gast3 corriente. El impacto de esta politica es mas evidente en los descuidados sectores social y de infraestructura.
15. La recaudaci6n de impuestos durante la ddcada de los ochenta fue baja para los estdndares guatemaltecos, si se la compara con la de la segunda mitad de la decada del setenta y, por cierto, con los estAndares internacionales. El promedio de ingresos tributarios del gobierno central alcanz6 al 7,3 por ciento del PIE durante el periodo 1980-90, promedio que es bajo si se lo compara con el 9,2 por ciento del PIB alcanzado en el periodo 1975-79. No fue posible aumentar los ingresos tributarios de manera sostenida debido principalmente as i) graves deficiencias en la administracion tributaria, ii) excesivas exenciones y deducciones, y iii) la aplicaci6n transitoria de impuestos distorsionantes, como los impuestos a la exportaci6n.
16. El alcance de la crisis en la administracion fiscal puede ser indicado a traves de estimaciones que muestran que las recaudaciones en concepto de impuesto al valor agregado y a la renta, podrian facilmente duplicarse si todas las obligaciones legales fueran cumplidas. En 1989, esto por si solo hubiera significado un aumento en el porcentaje de impuestos del actual 7,8 por ciento del PIB al potencial 10,6 por ciento del PIB. Ademas, la actual ley tributaria, esta repleta de excepciones, deducciones y subsidios que han deagastado la base impositiva y alentaron la evasi6n de impuestos. Por ejemplo, deducciones en los impuestos a la renta de las empresas en un promedio de cerca de 94 por ciento del ingreso bruto. Una reducci6n en las posibilidades de deducci6n, 6 simplemente restringiendo el monto maximo de deducciones a un cierto porcentaje del ingreso bruto, podria ampliar significativamente la base impositiva y por lo tanto, acrecentar los ingresos.
17. Las reformas tributarias de 1983 y 1987 resultaron ser intentos vacilantes de reestructurar el sistema tributario y de mejorar su administraci6n, que no tuvieron una repercusi6n duradera. Ninguno de los intentos logr6 aumentar los ingresos tributarios debido a dificultades de aplicaci6n y a las revisiones que desgastaron la intencion original de la reforma, especialmente en el caso del impuesto al valor agregado. Al final, los ingresos tributarios como parte del PIB disminuyeron en realidad a s6lo el 6,9 por ciento en 1990. Ademas, el gobierno no logr6 ajustar los precios de los servicios p6iblicos de manera oportuna, aumentando de ese modo los problemas financieros del sector pdblico y, en especial, de la empresa p6blica de electricidad.
18. La tarea de mayor magnitud que tendri que realizar el nuevo gobierno sera colocar al sector p6blico en una situaci6n mas estable, mediante la correcci6n del deficit fiscal. Una condici6n esencial para las reformas del sector p6blico es la necesidad de establecer un consenso generalizado entre los principales grupos politicos y econ6micos para asegurar una implementaci6n eficaz del paquete fiscal. En ausencia de dicho consenso, esa reforma puede sufrir el mismo destino que las reformas fiscales de la ddcada de los ochenta.
19. Recomendaciones. Para reducir el deficit de manera sostenida, el gobierno deberia concentrarse en medidas que mejoren los ingresos como instrumento principal destinado al aluste fiscal. Un primer paso serla tratar de obtener una restauraci6n inmediata de los niveles Lmpositivos de 1988, es decir, 8,8 por ciento del PIB, y luego aumentar el ingreso tributario a mAes del 10 por ciento del PIB a partir de 1992, con el objeto de lograr un nivel mAs elevado de ahorro pciblico.
20. Para realizar esto, el gobierno deberia aumentar la tasa del impuesto al valor agregado de 7 a 10 por ciento y eliminar la mayor parte de las exenciones que existen a este impuesto. En el campo del impuesto a la renta, deberian reducirse las deducciones, asignaciones y exenciones excesivas. Al mismo tieumpo, podria aumentarse la recaudaci6n tributaria mejorando de manera considerable la eficiencia de las administraciones tributaria y aduanera. Esto exigird una firme voluntad politica de aplicar la legislaci6n tributaria existente y de realizar importantes mejoras en la organizaci6n misma de dichas administraciones. Al respecto, cabe sefialar que deberia utilizarse de manera mas eficiente la asistencia tAcnica de que dispone el Ministerio de Finanzas.
21. Para reducir el dAficit, el nuevo gobierno deberia examinar el gasto e identificar los campos en los que sea apropiado realizar ahorros. A corto plazo, deberia ser posible disminuir el gasto mediante una politica salarial moderada y reducciones de subsidios como los del transporte urbano, entre otras medidas. Ademas, el gobierno podrla disminuir los gastos mediante una reducci6n del exceso de personal del sector pdiblico. A mediano plazo, el gobierno necesita reasignar gastos, en especial en los sectores de salud y educaci6n (v4ase tambien la secci6n sobre el sector social). Tras decidir sobre la magnitud y el equilibrio entre el gasto corriente y de capital, deberian mantenerse estrictas medidas de control del gasto, lo que conlleva un elevado grado de responsabilidad y transparencia.
22. El gobierno debe decidir sobre el monto de transferencias a las empresas al sector pdblico que sea sostenible en el marco de un plan de reduccion del deficit. Se deben reducir las transferencias a las empresas del sector pablico, en especial a la de electricidad, mediante un ajuste de tarifas de los servicios p6blicos y la eliminacidn de toda forma de subsidio a los productos derivados del petr6leo. Ademds, el gobierno deberla considerar la privatizaci6n de algunas de las empresas del sector p6blico como medio destinado a mejorar la eficiencia y el desempeffo de dicho sector.
B.3 Politica monetaria
23. En Guatemala la politica monetaria ha sido tradicionalmente mas bien conservadora y, como resultado de ello, el pais ha experimentado en general tasas bajas de inflaci6n. Tras oxperimentar un aumento temporal de la inflaci6n durante el periodo 1985-86, disminuyeron los precios a un promedio anual de 12 por ciento en el periodo 1987-89, pero con la flotaci6n del tipo de cambio en noviembre de 1989, el Banco de Guatemala no logr6 pasar a una situaci6n monetaria activa, es decir, a utillzar la politica monetaria como instrumento clave de la politica macroecon6mica. - vi1
24. Aunque la Junta Monetaria liberaliz6 las tasas de interds del sistema bancario en agosto de 1989, 6ste se mantuvieron sin cambios hasta febrero de 1990 debido al convenio subscripto por los bancos comerciales de mantener la estructura de las tasas de inter6s y a la ausencia de efectivas operaciones de mercado abierto. Durante el resto de 1990, las tasas de interds aumentaron 861o modestamente debido a consideraciones de liquidez de los bancos y a la incapacidad del Banco de Guatemala para aumentar significativamente las tasas de interes en sue operaciones del mercado ablerto. Como consecuencia, les tasas de inter6s se volvieron cada vez mde negativas en t4rminos reales. Las tasas de interns real negativas no solamente colocaron presiones sobre el tipo de cambio sino tambidn sirvieron como un poderoso desincentivo al ahorro en el mercado interno en 1990. Como resultado, el pals cay6 en una espiral de devaluaciones y precios entre fines de 1989 y 1990.
25. Recomendaciones. A fin de fortalecer la credibilidad de las politicas monetarias antiinflacionarias, el Banco de Guatemala deberia mantener limitado el crecimiento de los agregados monetarios hasta que existan signos de que estdn aflojando las presiones de la demanda y que las expectativas inflacionarias estan disminuyendo. Esto sirve para destacar que la credibilidad de las politicas es fragil y que deberia asegurarse por medio de un poder de decisidn m&s aut6nomo para el Banco Central que el que se le ha dado hasta la fechas Un paso importante hacia una utilizacion mas activa de los instrumentos monetarios ser4 otorgar mds autonomia a las autoridades monetarias.
26. Las politicas monetaria y crediticia, en especial las que afectan la liquidez del sistema bancario, necesitan constituirse en la principal herramienta antiinflacionaria, ademas de las politicas fiscales. En este sentido, el Banco de Guatemala deberia i) continuar usando las operaciones de mercado abierto de una manera eficiente, y ii) aplicar una politica mas flexible en cuanto al encaje legal. Estas politicas deberian mejorar el control de los agregados monetarios por parte del Banco de Guatemala y ayudar a lograr tasas de interes real positivas.
27. El alcance de las presiones inflacionarias en Guatemala durante 1990 da la idea de que, entre otras cosas, el Banco de Guatemala no logr6 neutralizar los efectos expansionistas que sus crecientes perdidas tuvieron en la oferta monetaria. En especial, la garantla de tipo de cambio sobLe la importaci6n de petr6leo caus6 p6rdidas considerables durante 1990. Se recomienda que la Junta Monetaria elimine la garantia restante de tipo de cambio para las importaciones de petr6leo asi como el subsidio de tasas de interes al Gobierno Central con el objeto de reducir las perdidas del Banco de Guatemala.
B.4 Politica cambiaria
28. Las politicas cambiarias irregulares e incoherentes que rigieron durante la decada de los ochenta ilustraron la bdisqueda por parte de las autoridades de una soluci6n a los problemas de balanza de pagos del pals. Entre agosto de 1989 y noviembre de 1990, Guatemala ha experimentado una - vii -
vaxiedad de sistemas de tipo de cambio sin mucho Oxito. En el centvo de la crisis han figurado dos factores principalest i) un persistente d4ficit del sector pdblico y ii) una falta de confianza, caracterizada por una pdrdida generalizada de credibilidad en las medidas de politicas del gobierno y del Banco de Guatemala.
29. Con el fin de comprender la reciente evolucion del tipo de cambio, es necesario considerar cambios en la cartera. Existe una creciente evidencia de que en 1989 y 1990 hubo un importante cambio en la cartera, pasando de quetzales a d6lares. A sU vez, esto ha sido impulsado por las expectativas y la falta de credibilidad en las decisiones tomadas por el Banco de Guatemala.
30. Los acontecimientos en materia de tipo de cambio durante 1990 tambOAn han estado vinculados al comportamiento no competitivo del sistema bancario. Por ejemplo, las tasas de interes internas no han reaccionado lo suficiente a las cambiantes condiciones del tipo de cambio y de la macroeconomia. Como resultado de ello, en 1990 las tasas de interes reales se han vuelto cada vez mds negativos, induciendo la fuga de capitales.
31. Desde la asuncion de lA nueva administracifn en enero de 1991, el Banco de Guatemala ha mantenido el r6gimen cambiario que fuera introducido en noviembre de 1990. Este consiste de un sistema de subasts que opera dentro de una bands de 5 centaves por encima y por debajo de la tasa de cambio base determinada y modificada regularmente por el Banco de Guatemala. El regreso de la coniianza en las politicas de las autoridades monetarias ha minimizado las actividades especulativas y estimulado una entrada significativa de divisas. No obstante, esta gran entrada de divisas y el sistema de tipo de cambio corriente ya han conducido a una pequefia sobrevaluaci6n real del quetzal que deberia ser tratada para evitar un impacto negativo en la competitividad externa del pasis.
32. Recomendacionxes. Para estabilizar el tipo de cambio en una forma sostenida el gobierno deberia implementar un conjunto coherente de politicas macroeconomicas que al mismo tiempo aborde los problemas de credibilidad, de desequilibrios fiscales y de expansion crediticia. En la ausencia de un programa de ajuste comprensivo, particularmente de un programa fiscal, cualquier politics cambiaria distinta de una basada en el mercado perderia su credibilidad y aU visbilidad con el tiempo. Si el ajuste fiscal no se implementa rApidamente, la necesidad de implementar una politica de tipo de cambio flotante se harna mis urgente.
33. M2lntras el gobierno adopta un programa econ6mico comprensivo, deberis al mismo tiempo modificar el sistema del tipo de cambio actual para preservar la competitividad externa de Guatemala. Cambios tales como un ensanchamiento de la banda cambiaria, y ajustes mas frecuentes de la tasa de cambio base deberian ser considerados.
B.5 Perspectivas econ6micas
34. Las perspectivas de Guatemala a mediano plazo dependen de la rapidez con la que el gobierno del Presidente Serrano logre aplicar un - viii - programa creible y sostenible de estabilizaci6n y ajuste, asl como del grado de su compromiso al programa en el transcurso del tiempo. Se elabor6 un caso base en el cual el programa macroecon6mico comienza a implantarse durante la primera mitad de 1991 y se lleva a cabo exitosamente en los afios siguientes. Se supone que el programa incluye medidas destinadas a aumentar los ingresos tributarios, y politicas monetarias encaminadas a reducir la tasa de inflacion y restablecer a niveles positivos las tasas de interns real. Ademas, la liberalizaci6n del comercio y el compromiso de mantener un manejo flexible del tipo de cambio constituyen componentes dirigidos a mejorar la situacion de la balanzsa de pagos. Por 6ltimo, un importante elemento del programa es la normalizaci6n de las relaciones con los acreedores externos a traves de la liquidacion de todos los atrasos en el servicio de la deuda externa.
35. Los resultados de estas proyecciones, indican que la aplicaci6n de las politicas y medidas que sirven de base al programa de ajuste corregirian el d6ficit del sector piblico y el deficit en cuenta corriente. Como resultado de ello, la inversi6n podria financiarse cada vez mts mediante fuentes internas. Adem&s, un manejo flexible del tipo de cambio preservaria la competitividad externa de Guatemala y estimularia las exportaciones no tradicionales que contribuyan a disminuir el deficit de la cuenta corriente. Un esfuerzo de estabilizaci6n exitoso, junto con medidas estructurales deberian producir tasas de crecimiento del 3 al 4 por ciento anual durante los pr6ximos afios. A mediano y largo plazo, las reformas estructurales habran de contribuir al logro de tasas de crecimiento adn mas elevadas.
36. En un escenario adicional de un caso bajo, la adopci6n inicial del programa macroecon6mico es seguido por un desfase de politicas. Los resultados de esta simulaci6n sugieren qtne el abandono del esfuerzo de ajuste a la larga reduciria el crecimiento econemico, como lo indican una inversi6n y un crecimiento de las exportaciones estunnados, la vuelta a la falta de ahorro p6blico y la disminuci6n del ahorro nacional, y un deficit en cuenta corriente insostenible.
C. Estlmulo a las reformas estr'.-turales
37. La aplicaci6n de los necesari.i ajustes macroecon6micos, es solamente uno de los aspectos de la reforms estructural. Mas fundamentalmente, se necesitan medidas destA.adas a mejorar el desempeflo econ6mico interno en el transcurso del decini3 venidero y mas all& del mismo. Las reformas estructurales en las diferentes sectores son necesarias para generar un mayor nivel de empleo, un crecimiento mAs fuerte de la productividad y mayor eficiencia. Los desequilibrios econ6micos actuales en un pals que estA luchando con un problema creciente de pobreza asi como con un significativo y en crecimiento nivel de subempleo recalcan la importancia que tienen las politicas microecon6micas y el hecho de que complementan las politicas macroecon6micas. Los requisitos principales son fomentar mercados mas flexibles y eficientes para la tierra, el capital y el trabajo, y mejorar el funcionamiento del sector pAblico. - ix -
C.1 Sector aericola 38. El sector agricola represent6 aproximadamente un cuarto del PIB y alrededor del 75 por ciento de los ingresos en concepto de exportaciones y emple6 alrededor de la mitad de la fuerza laboral durante los anos ochenta. A pesar de su importancia, el sector ag,lcola no creci6 como podria haberlo hecho. Los problemas principales son: i) desigualdad en la distribuci6n de la tierra, ii) incapacidad del gobierno de crear incentivos eficaces para crecimiento, iii) bajo nivel de inversi6n pOiblica.
39. La desigualdad en la distribuci6n de la tierra ha tenido como resultado un patr6n de elevado desequilibrio del desarrollo regional con una concentracion de los pobres de zonas rurales en la regi6n del altiplano, que cuentaa con acceso limitado a los activos productivos y a la infraestructura. Si bien en Guatemala existe suficiente tierra adecuada para una producci6n agricola sostenida, la cual podria proporcionar un nivel de vida aceptable en zonas rurales y tambidn producir un suministro adecuado de alimentos a la poblaci6n urbana del pais, la cuesti6n de la distribucion de la tierra ha obstaculizado los esfuerzos destinados a mejorar la productividad agricola.
40. Durante los affos ochenta, la poblaci6n creci mas rApido que el producto agricola. En lugar de corregir el sistema de incentivos, Guatemala dependi6 cada vez mas de la ayuda alimentaria y de la importaci6n de productos alimenticios comerciales como medio de cubrir su ddficit alimentario. La ayudz alimentaria no ha tenido una repercusi6n considerable en mejorar el acceso de la poblaci6n de bajos ingresos a los alimentos ya que solamente el 20 por ciento de los alimentos importados se distribuye directamente a los pobres.
41. La agricultura de Guatemala no ha logrado explotar todo su potencial de crecimiento debido a un cOmulo de desincentivos. Si bien las reformas de la politica de tipo de cambio que se aplicaron en el periodo 1986- 90 estimulaban las exportaciones, la politica comercial ha seguido distorsionando los iUcentivos en el sector agricola. Las restricciones cuantitativas, las prohibiciones, las tasas de importaciLn diferenciadas y, hasta hace poco, los impuestos a la exportacion han impedido tambidn un crecimiento mAs firme del sector.
42. Los incentivos internos no han sido eficaces en fomentar el crecimiento en el sector agricola. El credito a tipos subvencionados de interes que otorga Banco Nacional de Desarrollo Agricola (BANDESA) ha sido utilizado para fomentar la producci6n de los pequeffos agricultores y la producciLn de granos, pero no ha tenido la repercusi6n deseada ni siempre ha beneficiado a los pequeflos agricultores. En realidad, ha producido un alto nivel de perdidas financieras en el sector pablico. HAs aln, la politica de precios garantizados no ha sido efectiva para mantener lo precios reales para los productores de granos basicos.
43. El gasto pdblico en el sector agrlcola ha sido insuficiente. Los gastos del sector disminuyeron en forma sostenida durante los aftos ochenta, llegando a un 1,1 por ciento del PIB en 1989, su punto mds bajo. Ademas de la escasez de fondos para financiar gastos que no fueran salarios, el gobierno se - x - enfrenta ante graves problemas de prioridades mal definidas y una endeble capacidad de ejecuci6n. Como resultado de Osto, la ejecuci6n general del presupuesto disminuy6 de 81 por ciento en 1981 a 50 por ciento en 1989; la ejecuci6n del presupuesto de capital disminuy6 de 75 por ciento en 1986 a 39 por ciento en 1989.
44. Recomendacinaes. Es necesario realizar un esfuerzo integral para movilizar a los organismos del sector piblico dedicados a la agricultura. Dicho esfuerzo debe destinarse a aliviar los problemas institucionales y la asignaci6n de recursos insuficientes que frustran la planificaci6n de politicas y la ejecuci6n de programas.
45. La dualidad de la agricultura guatemalteca hace recomendable la diferenciacion del rol del gobierno en los subsectores comercial y de pequeflos agricultores. Excepto por politicas neutras de incentivos y provisi6n de infraestructura bdsica, el subsector comercial no requiere intervenci6n directa del gobierno. La asistenuia a los pequeftos agricultores deberia constituir explicitamente el objetivo principal del Ministerio de Agricultura. Los recursos y los servicios deberian concentrarse claramente en dichos productores. Con respecto al programa de inversiones, el Ministerio de Agricultura deberia aumentar sus inversiones en infraestructura basica y servicios y asegurarse de que estos servicios beneficien a los pequeofos agricultores.
46. La repercusi6n de estas reformas comerciales y de tipo de cambio en la producci6n de granos bdsicos no se habr& de sentir plenamente hasta que se tomen medidas adicionales. El gobierno deberiat i) eliminar las restricciones cuantitativas a la importaci6n de insumos agricolas y reemplazarlas con aranceles, ii) modificar la situaci6n en la que unos pocos importadores controlan el mercado de insumos agropecuarios y su distribuci6n, y iii) eliminar las restricciones cuantitativas al comercio exterior de granos bAsicos.
47. Existen politicas poco claras para administrar o controlar la ayuda alimentaria. El Gobierno deberia mejorar el acceso de los pobres a los alimentos mediante una mejor orientacion de su programn de ayuda alimentarla.
48. Para aumentar la productividad de los pequeffos agricultores serA necesario aumentar el acceso de los mismos al crddito. BANDESA continuarl desempefando una funci6n importante en el credito agricola a los pequenos agricultores. Con el objeto de mejorar la eficiencia de BANDESA, el gobierno deberiat i) descentralizar las operaciones de BANDESA y concentrarlas en el credito a los pequeflos agricultores, ii) simplificar sus pollticas y procedimientos operativos, y iii) eliminar los subsidios a las tasas de inter4s.
49. Para mejorar la contribuci6n de la investigaci6n y extensi6n al crecimiento, es necesario que el gobierno: i) comprometa mts recursos, ii) asegure que las prioridades del sistema se destinen a los pequefios productores, iii) unifique los servicios de extensi6n para eliminar duplicaciones, y iv) utilice una metodologia de capacitaci6n y visitas para transferir tecnologia a los pequefos productores. - xi -
C.2 Sector manufacturero
50. Ha habido consenso entre lo0 encargados de formular las politicas econ6micas de que el crecimiento mAs rApido en las exportaciones no tradicionales constituye una necesidad, no solamente para incrementar los ingresos sino tambi6n para restablecer la estabilidad macroecon6mica. Sin embargo, las politicas comerciales distorcionantes constituyen el principal obstAculo para una mayor expansi6n de las exportaciones no tradicionales. Estas politicas han tenido aspectos especialmente pronunciados en el sector manufacturero. Durante los 61timos veinte aftos, la repercusidn fle la politica arancelaria ha sido altamente sesgada en favor de lo bienes de consumo final, produciendo fuertes incentivos para la asignacion de recursos a industrias protegidas para el mercado centroamericano a expensas de la produccion destinada a mercados en crecimiento fuera de la regi6n.
51. La firme orientaci6n del sector manufacturero hacia el mercado regional hizo que el sector quedara altamente vulnerable a las condiciones econ6micas en deterioro de la regi6n a comienzos y mediados de la d6cada de los ochenta. La recuperacidn parcial de la demanda regional que tuvo lugar desde 1986, asi como la introducci6n de nuevos incentivos para la exportaci6n en 1984, han llevado a un leve crecimiento del sector manufacturero desde entonces. No obstante, dicho sector sigue presentando una estructura de producci6n dualista, en la cual las exportaciones que van fuera de la regi6n consisten en su mayor parte en la confeccin de prendas de vestir y las exportaciones dentro de la regi6n caen en la gama de las manufacturas livianas.
52. Es esencial contar con una s6Lida base manufacturera para tener un sector de exportaci6n de productos no tradicionales que sea competitivo, porque dicha base proporciona un medio para aumentar el nivel y la diversificaci6n de las ganancias en divisas y debido a que tiene importantes efectos regresivos ligados con la produccidn agricola. Para estimular la reorientaci6n del sector hacia mercados no regionales, el gobierno necesita aplicar politicas que fomenten la eficiencia y la competitividad en las industrias de exportaci6n. El ajuste de politicas mas critico serA en terminos de la estructura de los aranceles y las politicas accesorias, que tienden a reforzar las distorsiones a trav,s del r6gimen arancelario. En particular, es necesario evitar las barreras no arancelarias.
53. Un componente igualmente crucial del paquete de ajuste estructural deberia ser la reforma del sector financiero. La actual falta de recursos para fLinanciar inversiones, en especial para el sector de exportaci6n de productos no tradicionales, ha limitado la capacidad productiva existente y potencial de responder a los cambios de incentivos.
54. Recomendaciones. El gobierno deberia intensificar sus medidas de liberalizacion del comercio. La meta final deberia ser un arancel uniforme del 20 por ciento. Como un paso intermedio, el Gobierno podria adoptar un sistema arancelario con un piso del 10 por ciento y un techo del 20 por ciento. Unificando el sistema arancelario eliminaria la ineficiencia en la producci6n lue se origina por la dispersion de las tasas de protecci6n efectiva y aumentaria la transparencia del r6gimen comercial de manera - xii - sustancial. Adem&s, el gobierno deberia eliminar las restricciones cuantitativas al comercio que no se relacionan con objetivos legitimos de salud y seguridad.
55. Las distorsiones de la oferta que provienen de los monopolios legislados en servicios y la limitada entrada al sector transporte reducen las potenciales mejoras en la asignaci6n de recursos que se relacionan con la orientaci6n hacia el exterior. La falta de recursos para financiar inversiones, en especial, es un obstAculo principal para el aumento de las inversiones y el crecimiento del sector de exportaci6n de productos no tradicionales. Por consiguiente, el gobierno deberia reafirmar su determinacion de fomentar la orientaci6n al mercado en el sector financiero mediantes i) el mantenimiento de politicas de liberalizaci6n de las tasas de interes, ii) el fomento de la entrada libre y el desarrollo de bancos y otras instituciones financieras y iii) la correcci6n del sesgo en el impuesto a la renta que favorece el financiamiento de la deuda, con el fin de estimular el desarrollo de las inversiones en capital.
56. El gobierno deberia fomentar la inversi6n extranjera directa como una fuente mts de capital mediante lo siguientet i) eliminaci6n del tratamiento diferencial en el impuesto a la renta sobre los dividendos que perciben los inversionistas externos e internos, ii) eliminaci6n de las barreras informales a la entrada en subsectores claves y iii) continuaci6n de los esfuerzos para estabilizar el entomo macroecon6mico.
C.3 Sector enera4tico
57. En Guatemala el sector energ4tico esti dominado por la empresa p%kblica de energia, Instituto Nacional de Electricidad (INDE). y la principal empresa ptlblica de distribuci6n, Empresa El4ctrica de Guatemala, S.A. (EEGSA). Durante los aflos ochenta, estas empresas p6blicas se vieron ante graves problemas financieros e institucionales, lo que tuvo como consecuencia un deterioro del servicio p6blico de electricidad. Durante la segunda mitad del decenio, en particular, INDE luch6 con una base insuficiente de ingresos, proveniente de la incapacidad del gobiemno de ajustar las tarifas de electricidad en un entorno de inflaci6n y devaluaci6n, y debido a gastos crecientes con motivo de los pagos mis elevados del servicio de la deuda externa, resultante de las devaluaciones del quetzal. Como consecuencia, la empresa ha experimentado crecientes d4ficits y ha necesitado sustanciales transferencias gubernamentales. Han agravado las dificultades financieras del INDE los problemas estructurales como su incapacidad de funcionar en forma eficiente debido a su falta de gesti6n calificada y a un grave problema de exceso de personal.
58. Las tarifas de electricidad estan bastante por debajo del costo marginal estimado y no se han ajustado en forma adecuada ya que no se tuvieron en cuenta los efectos de la inflacion, la devaluaci6n y las exigencias relacionadas de un servicio de la deuda mas elevado. Lo que ha sucedido es que las tarifas de electricidad en tdrminos reales disminuyeron continuamente durante los dltimos ocho afios. Debido a la inflacion acelerada en 1990, los aumentos de tarifas de abril de 1990 se vieron rdpidamente desgastados y los - xiii - precios promedio de la electricidad fueron 50 por ciento m4s bajos en terminos reales a fines de 1990 que en 1980. 59. Los problemas institucionales son de indole tal que las empresas del sector energdtico no se manejan segdn criterios comerciales. Los principales problemas que afectan a este sector son: 1) la centralizaci6n de la toma de decisiones en el Ministerio de Energia, ii) la falta de un organismo regulador que coordine las politicas y las inversiones en el sector y iii) la incapacidad del INDE de abordar los problemas que afectan la eficiencia de las operaciones de la empresa.
60. Recomendaciones. Con el objeto de mejorar la situaci6n financiera del sector de la energia, el gobierno deberia aumentar las tarifas de la electricidad de manera sustancial en tdrminos reales a los efectos de compensar la erosi6n de las tarifas. Como meta, el gobierno deberia ajustar las tarifas de electricidad hacia el nivel de los costos marginales a largo plazo lo cual ayudarla a que el sector reduzca su dependencia de las transferencias del gobierno y fomente la conservaci6n de energia. 61. Para mejorar las deficiencias institucionales del sector energdtico, el gobierno deberia proporcionar un mayor grado de autonomia al INDE, a cambio de una mayor responsabilidad por parte de la administraci6n. El gobierno y el INDE deberian llegar a un acuerdo sobre un conjunto de medidas de desempetlo que deberian verificar el progreso realizado en campos tan diversos como lo son la productividad del personal, la contabilidad y el control interno. Ademgs, el gobierno deberia revisar el marco regulador actual del sector energetico y aclarar la relaci6n entre el INDE y los diferentes organismos gubernamentales.
C.4 Sector social 62. Los indicadores sociales en Guatemala se encuentran entre los peores de America Latina. A6n durante la epoca de un pujante crecimiento econ6mico, desde los anos 50 hasta fines de los 70, los beneficios del desarrollo econ6mico se distribuyeron de manera desigual y llegaron muy poco a los grupos m4s pobres de la poblaci6n. Como resultado de ello, los indicadores sociales han mejorado lentamente, lo que refleja una actitud pasiva por parte del gobierno hacia las cuestiones sociales. 63. La falta de progreso social durante los afios ochenta puede atribuirse en gran medida a tres factores principales: i) insuficiente crecimiento econ6mico; ii) incapacidad de los sectores pdblico y privado de proporcionar incentivos, servicios y recursos a los pobres para facilitarles su integraci6n a la economia formal, y iii) falta de inversiones en servicios sociales como educaci6n primaria, atenci6n primaria y preventiva de la salud, y agua potable y saneamiento. Los bajos niveles de inversi6n en estas Areas indican que durante demasiado tiempo estas inversiones se han considerado no productivas. 64. La pobreza sigue siendo un fen6meno generalizado en Guatemala. La malnutrici6n, la escasez de vivienda, el acceso inadecuado a los servicios - xiv -
bisicos de salud y educaci6n, junto con una erosi6n sostenida de lo salarlos reales siguieron caracterizando las condiciones de vida de la gran mayorla de la poblaci6n guatemalteca durante los afos ochenta. Segdn las estimaciones del gobierno, la proporci6n de pobres en la poblaci6n aument6 del 63 al 83 por ciento entre 1980-81 y 1986-87, mientras que la extrema pobreza se duplic6, yendo del 32 al 64 por ciento durante el mismo periodo. Al dejar que una porci6n tan grande de la poblaci6n no participe plenamente en las actividades econ6micas, el pals en efecto ha limitado au capacidad productiva futura. 65. Guatemala todavia tiene un largo camino que recorrer para satisfacer las necesidades educativas de su poblaci6n. En 1988, el 51 por ciento de la poblaci6n de mais de 15 aflos de edad era analfabeta y en algunas de las zonas mas pobres el analfabetismo superaba el 80 por ciento. Solamente un 60 por ciento de los nitios en edad escolar asisten a la escuela en las zonas rurales pobres. Un factor importante que ha influido en esta matriculaci6n tan baja, en especial en las zonas rurales, ha sido la asignaci6n del presupuesto para la educacion. En Guatemala el gasto en educaci6n ha estado sesgado a favor de la educaci6n superior y contra la educaci6n primaria, a pesar del hecho de que las tasas de rendimiento social para los primeros son mAs bajas que para los 6ltimos. 66. La situaci6n de la salud en Guatemala proporciona tambien motivo de preocupaci6n. Los motivos principales fueron: i) la falta de recursos, ii) la tendencia a asignar la mayorla de los recursos a la atenci6n curativa. iii) la actitud pasiva hacia la atenci6n primaria de la salud y hacia los problemas de nutrici6n y iv) la gesti6n deficiente del Ministerio de Salud.
67. Recomandacioues. El gobierno necesita urgentemente concebir una estrategia social que abarque a todos lo segmentos de la sociedad. El principio rector de dicha estrategia deberia ser el logro de un desarrollo mAs equitativo mediante un crecimiento de amplia base, del empleo productivo y de la inversi6n en capital humano.
68. El objetivo social principal para la decada de los noventa deberla ser una mejora en la situaci6n de los pobres del pals. Dado el alcance de la pobreza moderada y extrema en Guatemala, el gobierno necesitar& adoptar un enfoque de dos vias para abordar este problema. Primero, el gobierno deberia combatir la pobreza promoviendo el potencial de empleo en el sector rural. Deberia apoyar una estrategia que apunte al crecimiento de la produccion agricola, especialmente de los pequeftos productores (ver secci6n agricola). Segundo, deberia aliviar la extrema pobreza mediante programas de ayuda dirigidos a estos grupos, con 6nfasis especial en el sector rural. No obstante, la pobroza podria reducirse si se aumentara considerablemente el nivel del gasto social y de la eficiencia del sector p6blico. Por lo tanto, esto exigirA una reestructuracifn de los ministerios que constituyen log organismos ejecutivos principales de los proyectos de alivio de la pobreza.
69. Un programa de alivio a la pobreza eficaz necesita tambidn el apoyo activo y orientador del gobierno para los programas de ayuda destinados a este fin. Pero en el pasado el sector p6blico no ha sido efectivo en abordar el problema de la pobreza. Para asegurar una aplicaci6n mAs eficiente y oportuna de la estrategia de alivio de la pobreza, el nuevo gobierno deberia - xv - tomar las siguientes medidass i) seleccionar proyectos prioritarios en los campos de atenci6n preventiva de ls salud, de is educaci6n primaria y del sector do pequefios productores, todo lo cual puede realizarse a un alto nivel de cobertura y calidad, y ii) introducir el Fondo de Inversiones Sociales (FIS) con el objeto de hacer frente a las insuficiencias institucionales que impiden la reduccifn de la pobreza.
70. El gobierno deberia aumentar el gasto social despues de mejorar su base de ingresos y examinar el gasto en este sector. Este an6lisis deberia concentrarse en: i) la asignaci6n presupuestaria con respecto a la regi6n y a los beneficiarios, ii) la efectividad de los gastos, iii) la capacidad de ejecuci6n y iv) los aspectos institucionales. En el pasado las asignaciones no han beneficiado al segmento pobre, aumentando de este modo la extrema pobreza, los problemas de nutrici6n y la migraci6n.
71. El gobierno deberia tratar de lograr un aumento de la cobertura y la calidad de la educaci6n, en especial en las zonas rurales. El Ministerio necesitarA fijar las siguientes prioridadess i) concentrarse en la educaci6n primaria, ii) ampliar la educacifn preescolar, iii) reasignar el presupuesto de educaci6n hacia la educaci6n primaria y iv) aumentar a mediano plazo los recursos asignados a la educaci6n, ya que una mayor inversi6n en capital humano constituirA un componente critico para reducir la pobreza con el tiempo.
72. El gobierno deberia tratar de poner en practica uns politica de salud mAs eficaz dirigida hacia los pobres. Esto requeriri: i) aumentar la proporci6n actual de gastos que se asigna a la atenci6n primaria y preventiva de la salud, reduciendo la proporci6n que se asigna a la atenci6n curativa; ii) definir una estrategia nacional de nutrici6n; iii) colocar a Guatemala por lo menos en el nivel promedio de cobertura de nifios malnutridos que prevalece en Am6rica Latina en general; iv) aumentar la eficacia de los programas escolares de alimentos, y v) reestructurar el Ministerio de Salud a los efectos de mejorar su eficacia operativa. PART I
MAaROECON?IIC ISSUES PREFACE
1. This report evaluates the main macroeconomic and sectoral developments in Guatemala during the second half of the 1980s and identifies the main economic issues the country will face in the 1990s.
2. Since Guatemala is confronted by serious internal and external imbalances as well as by accelerating inflation, Part I of this report draws special attention to macroeconomic issues. It focuses on policies that could enable Guatemala to return to a stable economic environment and sustained economic growth. The recommended measures aim not only at stabilizing the economy in the short term but also at correcting structural problems, especially those pertaining to the public sector.
3. Part II reviews sectoral issues. The common concern in this part is the lack of efficiency and competition in the economy. It looks at limited Government effectiveness in implementing projects and in giving a clear sense of direction. In addition, it examines how low investments in the infrastructure and social sectors limit the development potential of the various sectors. Individual chapters of Part II identify the structural reforms needed for the 1990s. If implemented, the reforms could lead to higher employment, stronger productivity growth, and increased efficiency in the private and public sectors.
Part I
4. The part covering macroeconomic issues is subdivided into three chapters. Chapter I reviews economic performance over the last five years and examines the evolution of economic policies. The chapter identifies those adjustment measures that should help stabilize the economy and lay the foundations for sustainable growth in the 1990s. Since the Central Government h3s been mainly responsible for the large deficits of the nonfinancial public sector, Chapter II analyzes Central Government finances. A review of the tax structure and tax rates is provided to identify the areas where the 1987 tax reform were ineffective and where improvements are needed. In addition, issues concerning tax and customs administration are discussed because of their vital importance in improving tax collection in Guatemala. ChaPter III builds upon the recommendations made in the first two chapters and evaluates the impact of a possible adjustment program and the risk of policy slippage in implementing the necessary adjustment.
Part II
5. Chapter I discusses why Guatemalan agriculture was unable to exploit all its growth potential during the 1980s. It evaluates the effectiveness of agricultural policy, especially with regard to the smallholder sector, by looking mainly at price policy, food aid, credit policy, and institutional factors concerning the Government. Chapter II evaluates the performance of the manufacturing sector and identifies the two most important impediments to its growth: high protection and limited investment finance. The chapter then discusses how further trade liberalization can contribute to the sector's development. Next it examines the issue of investment finance. -2- 6. Chapter UI? deals with the power sector. This sector merits attention because it faces serious financial and institutional problems. They were caused mainly by the high external debt-service requirements, low tariffs, and poor management. In particular, the power sector's increasing transfer requirements from the Central Government have become a budgetary problem. The social sector is analyzed in Chanter IV. This chapter looks at the deteriorating living conditions in Guatemala. It concentrates on a poverty alleviation strategy and the need for an expanded and restructured social sector program. Such a program would help cope with pressing employment problems, and with serious health, nutrition, and education issues in the l990s. - 3 -
CHAPTER I: MACROECONOMIC DEVELOPMENTS M
A. Introduction
1.01 In Janiuary 1991 the new Government of President Serrano took over an economy that had been progressively drifting away from equilibrium. The large deficits of the public sector as well as of the current account resulted in an acceleration of inflation and a rapid accumulation of arrears to external creditors during 1990. The new Government faces the difficult task of implementing an adjustment program that addresses the fundamental fiscal, monetary, exchange rate, and external arrears problems. 1.02 The current economic difficulties follow a decade of stagnating per capita growth and of a hesitant implementation of adjustment programs. These factors made many reform efforts ineffective, especially in the fiscal area. The country's macroeconomic problems started in the late 1970s and early 1980s when the Government resorted to expansionary fiscal policies to counter the slowdown in the economy. The lax domestic fiscal and credit policies manifested themselves in large public sector deficits and in serious balance of payments problems, which were exacerbated by the inappropriate fixed exchange rate regime. Guatemala's economic downturn reflected other conditions as well. They included the impact of the recession in industrialized countries, the rise in real interest rates on external loans, and the fall in the country's terms of trade. Moreover, political tensions within the region caused a sharp contraction in regional trade. 1.03 When the Government of President Cerezo took office in 1986, it announced an adjustment program ("Programa de Reordenamiento Economico y Social"). It called for (i) simplification and gradual unification of the exchange rate, (ii) reduction of the fiscal deficit by means of increased taxation, (iii) a slowdown in the rate of overall credit expansion, and (iv) relaxation of price controls. The program was successful in reducing inflation and price controls, unifying the exchange rate, and restoring economic growth. However, the dynamism of these reforms subsided during 1989 and 1990 owing largely to growing fiscal and monetary problems. The dynamism was replaced by growing concern about the direction of economic policy.
1/ The last Country Economic Memorandum on Guatemala was Issued on January 16, 1987. t provides a detailed economic analysis of the country's problems prior to the inauguration of the Government of President Cerezo. -4-
B. Investment, savings, and Econom1gc Growt
1.04 Economic performance in the 1980s was a clear break with the 19709, when the economy grew on average by 5.7Z a year. This held particularly true for the 1980-85 period, when GDP fell by an annual average of 1.12. This negative trend was first halted and, since 1987, has been reversed. On average, the Guatemalan economy grew by 3.OZ during 1986-90. This slightly exceeds the population growth rate of 2.9Z. Hence, the decline of per capita GDP of 1980-86 wos, at least, arrested. Still, in 1990 Guatemala's per capita GDP stood at 182 below the 1980 level.
Table I.1: Main Economic Indicators, 1970-90.
1970-79 1980-82 1988-86 1986 1987 1988 1989 1990 a/
Real Growth Rates (U): ______.______CDP 6.7 0.8 -0.9 0.1 8.6 8.9 4.0 8.6 Per Capita GDP 2.9 -2.5 -8.8 -2.8 0.6 1.0 1.1 0.8 Consumption 6.4 1.0 -0.2 1.2 4.2 4.2 2.9 2.8 Private 6.4 0.8 -0.2 0.8 8.9 4.1 8.0 2.6 Public 6.2 6.1 0.2 6.8 7.0 6.0 2.4 -0.7 Total Investment 7.8 -8.3 -10.0 0.2 82.6 -1.1 2.0 -1.6 Private b/ 5.8 -16.2 2.8 -0.9 84.4 -5.6 -0.9 -1.7 Public 18.8 11.0 -27.8 8.7 27.1 12.7 9.8 -0.8 Nonfinancial Public (X GDP) ______Revenues 11.9 11.7 10.6 11.4 12.2 12.6 12.8 11.2 Expenditure 13.7 17.2 13.8 12.2 18.1 16.8 16.5 18.6 Deficit 1.9 6.4 2.7 0.7 0.8 2.7 8.2 2.8 Primary Deficit 1.2 4.6 1.7 -0.9 -0.9 0.7 1.6 0.6 Balanc, of Payments (% GDP) Trade Balance -2.0 -1.2 -0.1 2.8 -6.0 -4.8 -4.8 -2.9 Curront Account -1.7 -4.6 -8.1 -0.6 -7.9 -6.8 -6.7 -4.5 Prices
CPI (X Chg.) 8.9 9.0 9.8 88.9 12.8 10.8 11.4 41.2 RER (1980=100) 104.1 93.2 94.8 117.9 122.2 132.8 188.2 188.5
a/ Preliminary. b/ Includes change In stocks. Source: Statistical Appendix.
1.05 GDP by Expenditures. During the 1980s, the fiscal policy stance of the various governments significantly influenced overall consumption growth. Fiscal policies were especially expansionary during 1980-82, when public consumption and investment grew by an annual average of 5.1% and 11%, respectively. From 1983 through 1985, a reduction in the deficit was largely achieved by a drastic cut in public investment (Table 1.1). When the Cerezo Administration took over, public consumption increased steadily by more than 52 annually. Since this expansionary fiscal policy stance could not be sustained in the light of growing deficits, the Government was forced to constrain expenditure growth in 1990. Falling export revenues and rapidly rising unemployment as well as falling real wages reduced the purchasing power of the population during the first half of the 19809. As a consequence, private consumption stagnated during that period but rebounded in 19R6-90 when incomes improved mainly due to a recovery of agricultural production, construction, and services.
Table 1.2: Financing of Investment, 1080-90. (As X ot Current GDP)
1980-82 1988-85 1980 1987 1988 1989 1990 a/
Total Investment 16.7 11.4 10.8 18.9 13.7 18.6 12.8 Public 6.8 8.0 1.9 2.7 2.9 8.1 2.9 Private b/ 9.0 8.4 8.4 11.2 10.8 10.4 S 4 Total financing 16.7 11.4 10.8 18.9 1D 7 18.5 12.8 Foreign savings 4.6 8.6 0.6 7.8 6.6 6.7 4.6 Gross Not.Savings 11.2 7.8 9.7 6.1 7.2 7.8 7.8 Public 1.6 1.0 1.8 0.8 0.6 0.8 0.6 Private 9.6 6.9 8.4 S. 686 7.6 7.2
Note: For 1986, when a system of multiple exchange rates was in place, the exchange rate used is the average rate of 1.68 Q./USS a/ Preliminary. b/ Includes change In stocks. Sourco: Bank of Guatemala, IMF, and World Bank.
1.06 Domestic investment fell sharply during 1980-85. Investments averaged 15.7? of GDP in 1980-82 but only 11.4? in 1983-85. This contrasted sharply with the second half of the 1970s, when investment reached on average 19.6Z of GDP. After the Cerezo Administration took partial measures for adjustment, bringing down the public sector deficit as well as inflation, investment started to recover from 1987 onward. During 1987-90 it averaged 13.4Z of GDP. The increase in investment is attributable mainly to the private sector.
1.07 Four factors account mainly for the fall of private investment during 1980-86. They are (i) the increase of the real cost of capital (1981- 84), (ii) a crowding-out by the public sector (1980-82), (iii) a shortage of foreign exchange, which contributed to a sharp fall in capital goods imports (especially, from 1983 through r85), and (iv) uncertainty of investment prospects stemming from domestic and regional political and economic problems. However, 1987 marked the turning point for private investment. In that year private investment increased by almost 2.8 percentage points of GDP. The turnaround occurred mainly because of a sizeable expansion of inventory and imported capital goods and through a surge in nonresidential construction. - 6 -
1.08 The contraction of public investment after 1982 came in the wake of the completion of various large construction projects in the energy and transport sectors. In addition, the large public sector deficits of the early 1980s made fiscal adjustment imperative. Since the Government was not able to either reduce current expenditures or increase revenues, it concentrated its efforts on curbing canital expenditures. As a result, public investment decreased from 3.92 of GDP in 1983 to a mere 1.92 of GDP in 1986. Although public investment recovered slightly during 1987-90 (when it averaged 2.92 of GDP), it represented one of the lowest public investment rates in Latin America. Moreover, as will he explained in the following chapters, it was insufficient to support the necessary investments in infrastructure and in the social sectors.
1.09 Main Issues. To facilitate increased levels of investment in the 1990s, the Government will need to tackle two issues. First, public investment should be increased following the implementation of a fiscal reform package. Second, national savings have to be increased to reduce the reliance on foreign savings, which have proved to be unsustainable. In the absence of major policy reforms in these two areas, higher investments are anlikely to bo forthcoming.
1.10 SavinRs. National savings have been declining steadily since the 1970s. They fell from an average of 17.32 of GDP in the second half of the 1970s to 9.52 during 1980-85 and to 7.72 of GDP during 1986-90.
1.11 Although gross national savings increased in 1986, the rise in private savings reflected mainly temporary windfall gains. These were realized by the coffee sector in the wake of higher coffee prices, which had started to increase at the end of 1985. The sharp fall of gross national savings in 1987 reflected, in part, the depressing impact of the negative real interest rates on savings. With the recovery of economic growth as well as the returr to positive real interest rates, the gross national savings increased again since 1988. The susceptibility of private savings to macroeconomic disturbances and, especially, to fluctuations in real interest rates, have been well documented.1 Similarly, during 1990 real interest rates turned increasingly negative and exerted a disincentive to private savings.
1.12 Another factor explaining the low gross national savings rate has been that the public savings rate - which in the 1970s averaged about 2.2a of GDP - declined to 1.32 of GDP in 1980-85. It further decreased to a mere 0.7Z of GDP during 1986-90. The low and falling public savings rate clearly indicates the fiscal laxity of the various governments when exactly the opposite was required to achieve macroeconomic stability.
2/ An extensive discussion of private saving behavior Is provided In Guatemala. Financial Sector Report, World Bank, July 16, 1990. - 7 -
1.13 The decline in national savings was compensated by a substantial increase in foreign savings. Although this strategy kept the investment ratio from falling below 10 percent of GDP during the 1980, it has caused a chronic balance of payments problem. After a temporary improvement in the current account deficit in 1986, foreign savings averaged 6.2? of GDP during 1987-90. These deficits were unsustainable and contributed to Guatemala's current debt- servicing problems.
1.14 Main Issues. Any solution to the current unstable macroeconomic situation will require correction of existing internal and external imbalances, This should be achieved through (i) a sustained reduction in foreign savings and (ii) a permanent increase in the national savings rate. The second item should be accomplished mainly through monetary policies aimed at achieving positive real interest rates (thereby stimulating private savings) and through increased public savings.
C. Public Finance
1.15 The nonfinancial public sector comprises, on the one hand, the Central Government, which traditionally runs a deficit, and, on the other, the Social Security Institute (IGSS), municipalities, and nonfinancial public enterprises, which tend to generate a small surplus. In the 1980s this surplus averaged about 0.6Z of GDP. Despite these surpluses, the total public sector recorded relatively high deficits during the 1980s. These came down markedly only in 1986 and 1987 following implementation of the Government's adjustment program.
1.16 For assessing the effectiveness of fiscal policies during the 19808, the primary balance - i.e., the deficit corrected for interest payments - is perhaps the best indicator of the success or failure of the public sector to adjust. The largest pr3mary deficits were recorded in the beginning of the 1980s. A clear improvement in the public sector accounts took place during the first two years of the Cerezo Administration, when improved revenue performance and very low capital expenditures produced small primary surpluses. These first two years demonstrated the effectiveness of fiscal policies in stabilizing the economy and returning it to its growth path. However, the Government did not succeed in keeping revenue growth in line with expenditure growth after 1987. As a consequence, the fiscal policy of the nonfinancial public sector deteriorated during 1988-90. The decline occurred largely because of increasing Central Government deficits and the deteriorating financial position of the public electricity company, INDEY
J3 Because of Its Importance, Chapter XI will discuss in dtail tho major issue. facing the Central Government from the revenue and expendlture side. Chapter TII,Part TI, will analyze the financial difficulties of INDE. - 8 -
Table I.aS Consolidated Nonfinancial Public Sector, 1980-90 (As Porcent of CDP)
1980-82 1988-86 1988 1987 1088 1989 19t0 */
Current Revenuo 11.7 10.8 11.4 12.0 12.8 12.8 11.2 Current Expenditure 10.0 9.6 10.1 10.7 12.0 12.0 10,6 Interest 0.9 1.0 1.6 1.7 2.0 1.8 1.7 Public Savings 1.6 1.0 1.8 1.8 0.6 0.8 0.6 Not Capital Expenditure 7.2 8.7 2.1 2.2 8.8 8.6 2.9 Public Sector Deficit 6.4 2.7 0.7 0.8 2.7 8.2 2.3 Prlmary Deficit 4.5 1.7 -0.9 -0.9 0.7 1.6 0.6
Memorandum Bank of Guatemala Losses --- 1.7 1.8 2.2 1.6 1.8 2.1 Public-Sector Deficit, Including BG Losses 6.4 4.4 2.6 8.0 4.8 4.6 4.4
./ Preliminary. Sourco: Statistical Appendix.
1.17 In addition, the Bank of Guatemala also started, in 1984, to accumulate losses from exchange rate guarantees and interest subsidies. If these losses are added to the deficit of the nonfinancial public sector, the combined public sector deficit increased significantly. It averaged 4.4? of GDP in 1988-90.
1.18 The persistence of large public sector deficits in the 1980s indicates that various fiscal-adjustment efforts were only temporary in effect. Moreover, they were disproportionally directed toward reductions of capital expenditures while current expenditures were not sufficiently controlled. The tax reforms of 1983 and 1987 turned out to be hesitant attempts to restructure the tax system and to improve tax administration without lasting impact. Both tax reforms failed to increase tax revenue because of implementation difficulties and of revisions that eroded the original intention of the reform. This was especially the case in the value- added tax. In addition, the Government failed to adjust public utility prices in a timely manner, thereby particularly exacerbating the financial problems of the public electricity company.
1.19 Main Issues. The most formidable task of the Government of President Serrano will be to put the public sector on a more stable footing since most of the macroeconomic problems during the 1980s emanated from this sector. A critical condition for the success of any public sector reform - 9 -
package is the need to establish a consensus among the main political and economic groups to ensure effective implementation. Without such a consenuus, the reform efforts will likely be jeopardized and may suffer the same fate as the fiscal reforms of the 1980s.
1.20 Another component of any fiscal reform package will be the need to reconcile pressures for increasing expenditures with the need to control the growth of expenditures. Current expenditures will be under pressure because of (i) wage demands, and (ii) higher interest-sorvice payments due to devaluations of the quetzal in 19w0 and to the need to pay market interest rates on domestic debt. Over the medium term, the Government will need to increase its investments in infrastructure and in the social sectors, which were largely neglected during tle 19808. As Chapter II will elaborate, this requires a policy of reducing the growth of current expenditures while expanding public investment. This would be accomplished through such means as major improvements in project implementation and introduction of wage- incentive schemes to improve the public sector's managerial capacity.
1.21 To reduce the deficit on a sustainable basis, the Government should concentrate on revenue-enhancement measures as its principal tool toward fiscal adjustment. The emphasis on revenues stems from the fact that the fiscal instability of the 1980s can be explained primarily by poor tax-revenue performance. Chapter II cc&Lcludes its analysis of the Central Government by recommending, among other things, an increase in tax revenue by increasing the value-added-tax rate from 7Z to lOZ; reducing excessive deductions, exemptions, and allowances; and improving tax and customs administration. These measures will contribute not only to reduction of the deficit but also to more stable tax-revenue collection than has been observed hitherto.
1.22 In the 1990s a successful adjustment of the public sector will also be influenced by the performance of public enterprises. In this context, privatization of selected public sector companies should be considered as a means toward improving efficiency and performance of the public sector. Apart from privatization, the Government should review whether its pricing policy for public services has contributed to operational losses of public enterprises. A case in point is the energy company. It has, over the last couple of years, needed increasing transfers from the Central Government to cover losses arising from failure to adjust rates. As a consequence, rates in real terms fell by more than 50Z during the last decade. To help reduce the public sector deficit, electricity prices should be adjusted in line with long-run marginal costs.
D. Monetary Develonments
1.23 Monetary policy in the 1980s changed markedly in the light of the large fiscal and external imbalances. As a consequence, the monetary authorities abandoned their traditionally conservative management of the money supply that had kept inflation rates at about 1S during the 1950s and 1960s, and under 9s a year during the 1970s. The large public sector borrowing requirements of the early 1980s were financed largely by the Bank of - 10 -
Guatemala; it was the public sector deficit, together with an overvalued quetzal, that contributed to 'he serious balance of payments problems and the rapid depletion of international reserves.
1.24 During 1980-82, the Bank of Guatemala responded to the scarcity of foreign exchange by intensifying exchange restrictions and accumulating external payments arrears. By the end of 1982 those arrears had reached almost US$300 million. Foreign exchange restrictions depressed imports and reduced inventories. As a result, many corporations put their money in time and savings deposits while waiting for approval of their foreign exchange requests. This was one of the explanations for the quasi-money growth of 20.52 a year during 1980-82.
Tabl- 1.4: Money, Intlation, and Intereet Rates, 1989-90 (InPercent)
1980-82 188-86 1986 1987 1988 1989 1990 / ------___------__------_-
Growth ot Monetary Aggregate. (Dec/Dec) Snme Money 7.4 18.8 22.4 0.6 20.7 19.8 B8.8 Voney (MIT 2.8 21.7 19.6 9.8 14.4 20.7 88.0 Quasi-Money 20.6 10.2 22.6 6.0 23.9 18.0 20.6 Infl ati on Rate. ______-- CPI (Annual Average) 9.0 9.6 88.9 12.8 10.8 11.4 41.2 CPI (DeC/Dec) 6.8 16.7 26.7 10.1 11.0 17.9 69.8 NolnalI Interest Rates Lending 12.7 12.0 18.2 14.0 15.2 16.9 29.1 BorrowIng 10.8 9.0 10.2 11.0 12.2 18.0 18.8 Real Interest Rates Lending 8.4 2.7 -17.8 1.6 4.0 4.1 -14.9 Borrow1ng 1.2 -0.1 -19.6 -1.2 1.3 1.4 -19.6 Real Exchange Rate Index (1980=100) 98.2 94.8 117.9 122.2 132.8 188.2 183.6
a/ Prelimi nary. Source: Statistical Appendix.
1.25 The Bank of Guatemala decided in 1983 to sterilize the domestic counterpart of the external arrears. That meant that pending foreign exchange requests had to be validated by the purchase of so-called stabilization bonds in an amount equivalent to the outstanding arrears. This measure had two consequences. First, quasi-money underwent a temporary contraction. Second and more important, the Bank of Guatemala had to start servicing these stabilization bonds, which were denominated in dollars. The servicing cost of these bonds has become a significant part of its operational losses since 1984.
1.26 With the abandonment of the fixed exchange rate in 1984, the Bank of Guatemala assumed exchange rate guarantees, causing substantial exchange and operational losses. Since the Bank did not tighten monetary policy in the wake of the quetzal devaluation and monetized its losses - reflected in the sharp growth of base money - inflation started to increase in 1985. It could be held down only artificially, by a sharp increase in price controls.
1.27 The initial fiscal adjustment measures and exchange rate reforms of the Cerezo Administration relieved pressure on the Bank of Guatemala and helped reduce inflationary pressures in 1986-87. However, as mentioned before, fiscal policy has become increasingly expansionary since 1988, and the Government forced the Bank of Guatemala to finance part of its growing deficit. With the increasing borrowing needs of the Government and its still relatively high losses, the Bank of Giuatemala was already in a difficult position to control base money growth when interest rates and the exchange rate were liberalized in 1989.
1.28 With the floating of the exchange rate in November 1989, the Bank of Guatemala failed to switch toward an active monetary stance - i.e., using monetary policy as a key instrument of macroeconomic policy. In 1990 monetary policy did not change significantly to counter actual and anticipated inflationary pressures stemming from the devaluation of the quetzal, causing interest rates to become increasingly negative in real terms. The negative real rates not only put pressure on the exchange rate but also served as a powerful disincentive to domestic savings. As a result, between the end of 1989 and 1990 the country fell into a devaluation-inflation spiral.
1.29 Main Issues. As it seeks to improve monetary management in the 1990s, the Bank of Guatemala faces three main challenges. First, the Bank of Guatemala has to follow a more active monetary policy - i.e., monetary policy should become a key instrument of macroeconomic policy. Second, in order to control base money growth, the Bank of Guatemala has to seek a permanent solution to its operational and exchange rate losses. And third, since the Bank of Guatemala is subordinated to the Monetary Board, its autonomy to utilize different instruments to manage monetary aggregates is severely limited. An essential step toward a more active monetary policy will be to endow the monetary authorities with more independence and adequate instruments.
1.30 MonetarY Instruments. To strengthen the credibility of antiinflationary monetary policies, the Bank of Guatemala should keep the growth of monetary aggregates restrained until there are signs that demand pressures are subsiding and the inflationary expectations are receding. In this context, the Bank of Guatemala should continue using mainly open market operations and reserve-rate policy to control its monetary aggregates and to keep interest rates positive in real terms. - 12 -
1.31 The Bank of Guatemala has rarely used reserve-rate policy to influence money supply. In 1986-90, reserve rates were kept at 41? for demand deposits and 13? for time and saving deposits. During that time the significant difference in reserve ratios led to compositional changes of deposits and thus to different average reserve ratios. These differences variously increased or reduced the money multiplier without triggering a compensatory reaction from the Bank of Guatemala. To improve reserve policy, the Monetary Board decided in July 1990 to converge to a uniform reserve ratio of 20* by February 1991. After this process was completed, the Bank of Guatemala de facto raised the minimum reserve requirements to 232 between March and May 1991. Banks are now required to invest at least 32 of their demand and savings deposits in government bonds for which the Bank of Guatemala pays a variable interest rate. Given the current macroeconomic problems, the Dank of Guatemala has adopted a more flexible policy toward setting reserve ratios. It is recommended that this policy is continued in the future.
1.32 During the 19808 open-market operations were limited in their effectiveness for two main reasons. First, the Monetary Board predetermined the interest rate instead of letting the market decide it in an auction. Second, the Bank of Guatemala sold public bonds to the Government at below market rates, causing operational losses to the central bank. In August 1990 the Monetary Board improved open-market operations by authorizing a weekly auction of government bonds held by the Bank of Guatemala ("CenivacusQ). Their interest rates are determined by auction, except for the maximum rate which is still been set by the Bank of Guatemala. The experience with the weekly placement of these bonds in 1990 showed a significant increase in interest rates although they remained negative in real terms. For this reason, the stock of Cenivacus during August-December 1990 averaged a modest Q424 million or 1.2Z of GDP.
1.33 In the first five months of 1991 open market operations have become the principal instrument in controlling base money growth. The large foreign exchange inflow taking place in the March-May 1991 period was completely neutralized by the issuance of Cenivacus. When the Bank of Guatemala ran out of Cenivacus a new certificate of deposit (CD) was introduced in May 1991. This CD carries the same maturity and interest rate as a Cenivacus but can not be traded in auctions. One of the main reasons why open market operations have worked effectively in 1991 has been the reemergence of positive real interest rates due to a sharp fall in inflation. It is recommended that the Bank of Guatemala commits itself to keep interest rates positive in real.terms in its open market operations .
1.34 Losses of the Bank of Guatemala. The multiple exchange rate practices during 1984-88 led to substantial losses of the Central Bank. In this period, the Bank of Guatemala provided exchange guarantees that allowed debtors to buy foreign exchange at Ql.00 per US$ while the exchange rate stood already at Q2.50 per US$. This implicit subsidy was iiminated in mid-1988, when the exchange rate was unified. - 13 - 1.35 However, with the floating of the exchange rate in 1989 not all exchange guarantees disappeared. The Bank of Guatemala accepted the exchange rate losses due to a reference exchange rate for petroleum imports. This subsidy, which became increasingly expensive in the first months of 1990, was modified in April and July 1990. These modifications were insufficient, however, to prevent heavy losses following the outbreak of the Middle East crisis in August 1990. In 1990 the Bank of Guatemala suffered losses in the order of Q133 million (0.4Z of GDP) as a result of this petroleum subsidy. It is recommended that the Monetary Board should eliminate the exchange rate guarantee for petroleum imports.
1.36 The other major exchange rate losses in 1990 were incurred through exchange rate guarantees on letters of credit for imports and advance payments for exports. All exchange rate subsidies caused 1Z of GDP in losses to the Bank of Guatemala in 1990, while the operational losses accounted for 1.1Z of GDP. These losses resulted from an imbalance between the Bank of Guatemala's interest receipts (on domestic assets, and particularly on Government bonds being serviced at below market interest rates) and interest payments (mainly on foreign liabilities and Bank of Guatemala bonds).
Table 1.5: Revenue on BSoe Money Creatlon and Losses, 1984-90 (InPercent of VP)
------__------__-- 1984 1986 198 1987 1988 1989 1990 1/
Seinorage -0. 1 2.2 -0.4 -0.8 0.9 0.2 -1.8 In? ation Tax 0.4 2.8 2.1 0.9 0.8 1.4 4.0 Change In Base Money 0.8 4.6 1.7 0.1 1.7 1.6 2.8 Losses 0.7 4.6 1.8 2.2 1.6 1.8 2.1
1/ Preliminary. Source: Statistical Appendix and World Bank staff estimates.
1.37 The losses incurred by the Bank of Guatemala through the extension of the exchange rate guarantees as well as through the imbalance between interest receipts and payments were reflected in the monetization process that took place during this period. Real revenues from base money creation fluctuated according to the loss situation of the Bank of Guatemala. The total revenue from the monetization process (changes in base money over GDP) is broken down between seignorage (increases in the real stock of the monetary base) and the inflation tax (the product of the inflation rate and the real
4/ The Bank of Guatemala still guarantees to Importers the exchange rate provevling on the day tho oil shipment leaves the exporting country. Albeit marginal during times of exchange rate stability, the cost of this guarantee can become substantial If the quetzal devalues rapidly between the day of embarkation and arrival In Guatemala. - 14 -
stock of base money), as Table 1.5 shows. The inflation tax is collected on reserve money, which consists of currency and reserves. Since currency and reserves are an interest-free liability of the Bank of Guatemala, the holders of currency (the public) pay the inflation tax in full, while the holders of reserves (the banks) transfer the inflation tax on to the depositors by paying them less and/or charging higher spreads in lending operations.
1.38 To cope with the loss situation, the Bank of Guatemala should address the causes underlying the inflation tax - namely, the exchange rate guarantees and the interest subsidies. During 1990 the Bank of Guatemala took steps to eliminate the exchange rate guarantees on letters of credit for imports and advance payments for exports. These positive steps ought to be continued by (i) eliminating the remaining exchange rate guarantee for petroleum imports, and (ii) reducing the interest rate subsidies to the Government by charging it market rates for new bond issues.V These measures should contribute to a fiscal solution to public sector imbalances instead of burdening the Central Bank with losses that eventually become monetized.
E. External Sector
1.39 The recurring balance of payments problems throughout the 1980s are best evidenced in the large current account deficits and the loss of international reserves. Expansionary fiscal and monetary policies as well as inappropriate exchange rate policy have been largely responsible for this outcome.
1.40 Trade Balance and Current Account. The large trade deficits since 1987 reflect slow growth in exports, while imports have surged in the wake of a recovery of investment and consumer demand. Export earnings during the 1980s have stagnated because of (i) the collapse of the Central American Common Market (CACM), (ii) stagnating prices for Guatemalan exports (during 1986-89, prices were, on average, 72 below the 1980 level), and (iii) low volume (about 232 lower than 1980 for the same period). It should be noted, however, that the figure for total exports disguises the fact that revenues of nontraditional exports have been increasing steadily since 1986, growing on average by 152 per year between 1986 and 1989.
1.41 In particular, nontraditional exports to countries outside of the CACM have grown steadily; they increased their share from about 152 during 1980-86 to over 202 in 1989. The rapid growth of nontraditional exports shows clearly that the trade and exchange rate reforms initiated by the Cerezo Administration have been providing tangible results. The reforms should be continued as a means to diversify and further expand Guatemala's exports.
i/ In March 1991 the Bank of Guatemala took a first step In reducing Its Interest subsldy to the Government when It raised the interest rate on new loans from 7X to 12X 6/ The chapters on Agriculture and Manufacturing In Pert 1I will discuss, In greater ketail, the Impact of the trade and exchange rate reforms on nontraditional exports during the 1980s. - 15 -
1.42 Despite the growth of nontraditional exports, Guatemala has continued to rely heavily on its traditional exports, such as coffee, bananas, and sugar, in the 1990s. These exports accounted for about 57X of total exports during the 1980s, averaging about US$650 million a year. Their performance was largely determined by developments on international commodity markets.
1.43 Developments with respect to imports followed the policy stance of the Government at the time. As can be seen from Table I.6, the initial demand restraint imposed by the Cerezo Goverunent resulted in a fall in imports and a surplus in the trade balance in 1986. With the relaxation of demand policies and the return of economic growth rates of at least 3.5Z from 1987 onward, imports started to rise again.
Table I.8 : Balance of Payments and Debt Indicators, 1980-90
------.------_-.------__------__------1990-82 1983-86 1988 1987 1998 1989 1990 a/ ------__------__------As Percent of CDP: ______Trade Balance -1.2 -0. 1 2.8 -6.0 -4.8 -4.8 -2.9 Current Account Balance -4.6 -8.1 -0.6 -7.9 -4.6 -6.7 -4.6 Interest Payments 0.8 1.1 2.1 2.5 1.6 1.2 1.9 Trade Balance (Mlns.US8): ______Exports (FOB) 1827 1096 1044 978 1074 1128 1211 Imports (FOB) 1428 1106 876 1333 1418 1484 1428 Not International Reserves: ( MIns. USN ) b/ 156 58 1O6 25 -102 -126 -184 External Debt Indicators: Debt-Service/Exports G*NFS (X) 8.8 18.9 26.8 27.6 27.8 18.8 18.2 Debt/CDP (X) 14.7 28.0 8s.1 39.6 82.6 81.2 85.6 Debt/Exports OlFS (M) 86.2 189.8 287.1 247.6 202.4 178.7 170.7 DOD in US2 Mine. c/ 1244 2250 2768 2818 2677 2601 2888 Terms of Trade Index: (1950u100) 91 93 114 88 90 85 78 Real Exchange Rate: (1980=100) 93.2 94.8 117.9 122.2 132.8 138.2 168.5 a/ Proliminary. b/ Exclude arrears of the Bank of Guatemala. c/ Repayable in foreign currency and goods. Source: Statistical Appendix. - 16 -
144 The most notable change within the factor services balance was the increase of interest payments on the external debt. The payments averaged 1.81 of GDP during 1986-89, up from an average 1.02 during the first half of the 1980s. As a result of the growing trade deficits and the increasing interest obligations, the current account balance averaged an unsustainable 6.72 of GDP during 1987-89. Since sufficient external financing was not available, the country's reserves were depleted, and external arrears accumulated rapidly. During 1990 the country accumulated an additional US$207 million of arrears over the previous year.
1.45 External Debt. Guatemala's external debt stock has been relatively small in comparison with the Latin American average. During the 1980s it averaged 25.7? of GDP as compared with 54.2? for all of Latin America. Nevertheless, the country was affected by the international debt crisis of the 1980s; hence, it encountered serious difficulties in servicing its foreign debt throughout the decade. The country's external debt problems originated at the end of the 1970s and beginning of the 1980s. In that period the Government pursued overly expansionary fiscal policies that --ere, to a large extent, financed by external credit. As a result, between 1978 and 1985 its debt stock tripled.
1.46 Of particular concern in the late 19809 was the rapid deterioration in Guatemala's borrowing terms. From 1987 through 1989 average interest rates increased from 4Z to 7.5?, maturity declined from 28.8 to 14.1 years, and the grace period fell from 8 to 2.8 years. External debt indicators have yet to show the impact of this trend because (i) the external debt growth in the second half of the 1980s was slowed down by large increases in external grants, averaging US$113 million from 1987 through 1989; and (ii) the 1988 restructuring of the stabilization bonds, issued in 1983 and 1984, made it possible to redeem a large part in local currency; this reduced foreign debt by about US$151 million.
1.47 Despite the country's continuous payments problems in the 1980s, the Government made progress in settling some of its arrears and in rescheduling maturing obligations. During the 1980s Guatemala generally gave priority to servicing debt owed to multilateral institutions. Still, as a result of the deteriorating foreign exchange position in 1990, the country also fell into arrears with those institutions. As the macroeconomic situation continued to worsen during 1990, the accumulation of external arrears is estimated to have reached over US$626 million by the end of the year. Therefore, the Government needs to design a debt strategy that (i) clears first all the outtstanding arrears to external creditors, (ii) improves the maturity profile, and (iii) aims at stabilizing and then gradually reducing the external debt/GDP ratio while at the same time reducing borrowing on commercial terms.
y/ A dlsagroegation ot this figure shows that 42X of the total arrears stems from the ot.1one l Financial Corporation (CORFINA) to the Exterior Bank of Spain; about 26X from the nonfinancial public sector to the World Bank ID8, CABEI and other bilateral lenders; and the remainder from the Bank of Guatemala (mainly consisting of principal arrears) to financial Institutions, bilateral and multilateral lenders. - 17 -
1.48 Capital Fl-ght. A number of factors have encouraged capital flight from Guatemala. Among them are the decline in the real exchange rate, the negative real interest rates, and the large difference betwz domestic and international real interest rates, Political and economic certainty too have contributed. At various times during the 19809 one or more of these factors were present in Guatemala. 1.49 Whatever the method used for calculation, estimates suggest that capital flight reached significant levels during the 1980s. Between US$500 million and US$760 million, it is believed, left the country. That amount would equal between 30 and 45 percent of the newly contracted external debt in that period.P In 1990 increasingly negative real interest rates as well as economic and political uncertainties have provided the most important stimulus to capital flight. It is in this context that interest rate policy assumes such importance, not only with regard to its impact on financial intermediation but also from the balance of payments point of view.
Table I.7: Capital Flight, 1980-89 (In Millons of Dollars)
1980-86 1908-89 ------__------Method I 819.8 227.1 Method II 660.0 210.0 Method III 261.0 286.6
Method I = Short-term capital outflows plus errors and omissions. Method II = Change in deposits of nonbanks abroad. Method III = Current account balance e not foreign direct Investment e change In reserves + change in external debt.
Source: World Bank staff eatimates.
8/ One way through which capital flight can take place Is the underinvoicing of exports and overinvoicing of imports. There Is evidence that underinvoicing of exports was used In Guatemala in the 1980s. For example, banana export prices recorded by the customs were, on average, 63% below the prices recorded by the World Bank commodity division. A similar discrepancy was found for meat.
2/ Preliminary date show that deposits of Guatemalan nonbanks abroad lncroesed by USS2S0 million from US$1.65 billion at the end of 1989 to US$1.8 billion at the end of 1990. - 18 -
F. Exchange Rate Management
1.50 The erratic and inconsistent exchange rate policies during the 1980s may best reflect the authorities' search for a solution for the country's balance of payments problems. Between August 1989 and November 1990, Guatemala experimented with almost every conceivable exchange rate system. Yet neither did the exchange rate stabilize nor economic conditions in the country improve. Two factors have lain at the heart of the crisis. First is a stubborn public sector deficit. Second is a confidence crisis, characterized by a generalized loss of credibility in the policy actions of the Government and of the Bank of Guatemala.
1.51 Exchange Rate Systems in the 19808. The first and longest of the exchange rate regimes stood in effect for almost 60 years - from 1926 to 1984 - during which a fixed nominal exchange rate of Ql per US$ was maintained. As mentioned before, in the early 1980s no lasting effort was made to take adequate and sustained corrective macroeconomic measures, resulting in a quetzal overvaluation and large external sector deficits. Continued deterioration of the economic situation finally prompted authorities to adopt a new exchange rate system in November 1984. Exporters and importers were allowed to transact a certain percentage of their foreign exchange in the parallel market. As this percentage varied across different economic agents, Guatemala implemented a de facto multiple exchange rate regime. At one point under this regime, more than 30 different exchange rates coexisted. As the macroeconomic disequilibrium continued unchecked, the adoption of this multiple rates system represented a minor palliative.
1.52 In 1986 the new Government adopted a three-rate multiple exchange rate regime. The first segment, called the official market, maintained the Ql per US$ rate and was restricted to public debt payments and a reduced number of imports. The second segment, referred to as the regulated market, was set at an initial rate of Q2.50 per USS. It was directed to other imports, most exports, and the rest of foreign debt. The third segment, the banking market (mercado bancario), channeled all transactions not subject to any of the previous segments. In this segment the exchange rate was freely set by market participants.
1.53 In June 1988 the exchange rate was unified at Q2.70 per US$. As a result of this measure, the free foreign exchange market was eliminated. The idea behind this decision was to follow a policy of periodic adjustment of the nominal exchange rate according to the evolution of economic conditions. However, the long Guatemalan tradition with fixed nominal exchange rates affected the authorities' willingness to actually undertake such adjustments. The nominal rate was thus kept fixed at Q2.70 per US dollar, despite a continued fiscal disequilibrium. By the end of the first half of 1989, the worsening balance of payments situation led to speculation against the quetzal in anticipation of imminent devaluation. - 19 v
1.54 In August 1989 the quetzal was devalued by 3Z, reaching a rate of Q2.78 per US dollar. An adjustable (crawling peg) exchange rate system waa formally announced. But the devaluation was seen as insufficient; as a result, speculation actually increased, and requests for import licenses grew at an even faster pace. The fact that the Monetary Board failed to keep up its promise of adjusting the nominal exchange rate periodically aggravated the already precarious foreign reserve position considerably and led to a rapid increase in unfulfilled foreign exchange requests (presas).
1.55 In November 1989 the Monetary Board abandoned the fixed parity and introduced a floating exchange rate. After an initial devaluation of the quetzal by about 191, the exchange rate stabilized in December 1989 to around Q3.40 to the US$. However, the accommodating monetary policy of the Bank of Guatemala caused interest rates to become negative in real terms at the end of the year. As a result, pressure on the exchange rate intensified in January 1990.
1.56 In February 1990 the authorities came to believe that the nominal exchange rate was depreciating too rapidly. They decided to superimpose a sliding band on the floating market. It was argued that this band would reduce speculation and that, as a consequence, the speed at which the quetzal was depreciating would subside. Instead, speculation against the quetzal intensified, and a parallel foreign exchange market (outside of the band) became very active. This development resulted in a serious foreign exchange problem for the authorities. They were forced in April 1990 to abandon the sliding band and to readopt the floating system.
1.57 At the end of May 1990 the Monetary Board, once again, changed the exchange rate regime. It replaced the interbank floating regime with a centralized auction system. But the new system functioned less thin satisfactorily during the rest of 1990. The Bank of Guatemala usually limited either the volume to be auctioned daily or influenced the price-setting procedure in such a way that the exchange rate did not fully reflect the market rate. As a result, the discrepancy between the official auction and parallel exchange rate was significant for most of 1990. The exceptions were August and September 1990, when the Bank of Guatemala temporarily experii#ented with a Dutch auction, in which successful bidders pay their actual bid. As was to be expected, the quetzal depreciated markedly, and the supply of foreign exchange surged.
1.58 Since the end of November 1990 the auction system has operated with a band, extending 5 centavos above and below the base exchange rate set by the Bank of Guatemala."J It is only within this band cf 10 centavos that buyers of foreign exchange may make their bids.
10/ The base exchange rate can be modified provided that for a period of 16 public auctions the weighted average of the prices bid was consistently within the upper or lower side of the band. - 20 -
1.59 Recent Exchange Rate Issues. The exchange rate changes in 1990 cannot be explained by traditional real exchange rate analyses alone. (These analyses focus on index behavior and on the evolution of real exchange rate fundamentals, such as the terms of trade, commercial policy, and capital inflows.) In fact, as mentioned before, to understand the evolution of the quetzal in 1990, it is necessary to look into speculative activities that have been fomented by expectations and the lack of credibility of decisions taken by the Bank of Guatemala.
1.60 During 1990 exchange rate developments in Guatemala were also linked to uncompetitive behavior of the banking system. This was especially evident from bank interest rates, which did not react sufficiently to the changing conditions in the exchange rate and macroeconomic fronts. Real interest rates thus became increasingly negative in 1990. This in turn fueled capital flight.
1.61 Since the new administration took over in January 1991, the Bank of Guatemala has maintained the exchange rate system introduced in November 1990. The returning confidence in the policy actions of the monetary authorities and the effectiveness of their open market operations have minimized speculative activities. The change in expectations and the reemergence of positive real interest rates have also stimulated a significant inflow of foreign exchange. However, this large inflow and the current exchange rate arrangement have led to a real appreciation of the quetzal which should be addressed in order to avoid negative repercussions on Guatemala's international competitiveness.
1.62 Despite the initial success in stabilizing the exchange rate and increasing foreign reserves during the first half of 1991, the lack of progress in designing and implementing a comprehensive fiscal package continues to threaten the sustainability of the current exchange rate policy. It appears likely that in the absence of a fiscal program any strategy different from a market based approach may lose its credibility and viability over time.
1.63 In sum, the only way to stabilize the exchange rate on a sustainable basis is by implementing a coherent global economic package that would simultaneously attack the credibility, fiscal, and credit sides of the problem. It follows that the problem of exchange rate instability in Guatemala will not be solved through exchange rate management alone.
G. Conclusions
1.64 Guatemala's new Government needs to design as soon as possible a macroeconomic adjustment package that will tackle the current fiscal, monetary, exchange rate, and debt problems in a consistent fashion. The package must also provide the conditions for sustained growth in the 1990s. The previous sections have identified the key elements of such an adjustment program, some of which will be elaborated in subsequent chapters. They are:
(i) Central Government deficit. The Central Government should reduce the deficit through a combination of revenue-enhancement measures . 21 -
and strict control of current expenditure growth. As Chapter IX will show, there is also ample room for increase in tax revenue. For the consolidated public sector, it is recommended that tax revenue be raised by at least 2 percentage points of GDP in the short term; this would mean a return to the taxation level of 1988. During the next two years the Government should aim at an additional increase in tax revenue by another 2 percentage points of GDP through a significant improvement in tax and customs administration. With this level of tax revenue and through constraints on current expenditure the Government would be able to undertake the overdue investments in infrastructure and the social sectors, while still generating small primary surpluses (see also Chapter 1II).
(ii) Public sector enter2rises. The tariffs of public sector enterprises, especially of the electricity company, should be adjusted. As will be pointed out in the chapter on Power, the financial situation of INDE will further deteriorate unless the Government implements a comprehensive restructuring plan for the power company. In this context, it is recommended that electricity prices be adjusted toward levels of long-run marginal costs. Furthermore, the Government should consider privatization as a means to improve overall public sector efficiency and performance.
(iii) Monetary policy. The Bank of Guatemala should be granted more autonomy in using monetary policy as a key instrument of macroeconomic policy (active monetary policy) to achieve price stability. To this end, it should adopt a more flexible policy in setting the minimum reserve ratio. In addition, the Bank of Guatemala should continue to use open-market operations as principal instrument to control base money growth and be committed to keep interest rates positive in real terms.
(iv) Losses of Bank of Guatemala. The losses should be reduced by (a) seeking a fiscal solution to the operational losses, especially eliminating interest rate subsidies to the Government, and (b) eliminating the exchange rate guarantee on petroleum imports.
(v) Exchange rate policy. In the absence of a comprehensive adjustment program, especially of a fiscal program, the current exchange rate system may not be viable and credible over time. Under such circumstances, the pursuit of a flexible exchange rate policy becomes even more important. Even with an adjustment program in place the authorities should consider modifying the current exchange rate system in order to maintain the country's external competitiveness. Changes such as widening the band and more frequent adjustments should be considered.
(vi) Debt management. The clearing of external arrears should be a priority for the new Government in starting a process of restoring its international credit standing. It is recommended that the Government seek the support of its macroeconomic program from the - 22 -
IMF and from the World Bank in the form of an adjustment operation, once Guatemala has become current with its debt-service payments to the Bank. - 23 -
CHAPTER II: CENTRAL GOVERNMENT FINANCE
A. Overview
2.01 Central Government finance requires special attention since imbalances in this area have resulted in large deficits of the nonfinancial public sector. During the 1980s Central Government deficits contributed to instability. Although the deficits may not appear large compared with other Latin American economies (they averaged 4.3Z of GDP during 1980-85 and 2.8Z during 1986-90), they are nevertheless large compared with the relatively small share of the Central Government within the economy. This is best evidenced by looking at the deficit/revenue ratio. It reached an all-time high in 1981 at 86.1Z, fell through the mid-1980s, and steadily increased until 1989.
Table II.1 : Central Government Operations, 1980-90 ( As Percent of CDP )
------__----__- 1980-82 1983-86 1986 1987 1988 1989 1990 1/ ------__------__- Revenue 8.8 7.6 8.9 9.4 10.1 9.6 8.0 Expenditure 14.4 10.7 10.8 11.8 18.0 &3.2 10.9 Interest 0.7 0.8 1.3 1.4 1.6 1.4 1.8 Deficit 5.6 3.1 1.9 2.5 2.9 8.8 2.9 Primary Deficit 1.9 2.8 0.8 1.1 1.4 2.4 1.6 Memo: Deficit/Revenue Ratio 68.6 40.4 21.2 26.2 28.2 89.8 86.2
Note: Expenditures are on accrual basis. 1/ Preliminary. Source: Statistical Appendix, Tables 6.1 and 5.2.
2.02 The extent of the Government's effort to reduce the deficit can be assessed by analyzing the development of the primary balance - i.e., the overall deficit corrected for interest payments. This noninterest deficit best captures current government behavior since interest obligations are the consequence of past deficit spending practices and a reflection of the fiscal policy stance in the past. As Table II.1 indicates, with the exception of 1986 the primary deficit was never reduced below 12 of GDP. Worse, the last four years have witnessed a deterioration of the primary deficit - an - 24 - indication of fiscal laxity. To reverse this trend and to support macroeconomic stability and growth, the new Government will face the difficult task of reducing the deficit to a sustainable basis. This task has to be accomplished under intensifying expenditure pressures stemming from (i) higher interest service obligations due to the liberalization of the exchange and the interest rates and (ii) the need to accelerate investments in the infrastructure and social sectors. While expenditure control will be of paramount importance, revenue-enhancement should receive primary attention in the design of fiscal policy. The nee? for a sound fiscal base has become even more important as the financial situation is aggravated by the likely reduction in access to external resources (given Guatemala's external arrears) and the resulting deterioration of the country's external creditworthiness.
2.03 As will be elaborated below, the most urgent challenge for fiscal policy in the 1990s will be the establishment of a broad-based, efficient tax system accompanied by a serious enforcement effort. If a tax system is established that will apply low rates to a large number of taxpayers, the inequity and inefficiency of the present system can be reduced. At the same time, there is ample room for collecting more tax revenues without adverse supply-side effects. The tax policy should be complemented by expenditure restraint through better allocation of budgetary resources toward priority areas and a control of government indebtedness.
B. Government Revenues and Tax Structure
2.04 In determining guidelines for a sound tax policy in the 1990s, the first step should be to compare the country's revenue potential - i.e., amount collectable through proper administration and enforcement of existing taxes - with the current tax effort. Given Guatemala's very low tax burden, the country cannot be considered to be close to its actual revenue potential. In addition, the unsatisfactory 1989-90 revenue performance cinnot be reversed without major changes in the tax system. One of the critoria for comparison may be Guatemala's own tax effort in the past. Whereas tax revenues averaged 9.12 of GDP during the second half of the 1970s - reaching 10.2Z of GDP during 1977 and 1978 - they averaged only 7.7Z of GDP during 1986-90 and displayed a falling trend. A restoration of the pre-1980 tax effort would provide the country with a much sounder fiscal footing on which it could base a stabilization effort. In order to assess the task ahead, this report will concentrate on the main tax sources and on the required adjustments in their status.
2.05 Trends. From 1980 through 1986 tax receipts, excluding export taxes, showed an almost steady decline. The 1987-88 period showed a temporary increase of revenue, which was sharply reversed during 1989-90, falling to a low 6.9Z of GDP in 1990. A major contributing factor to the instability and weak buoyancy of tax revenue during the 1980s was inadequate implementation of tax reforms. - 25 -
2.06 While the revenues of the economically more efficient taxes, including income and value-added taxes, could not be increased for political reasons, distortionary tax handles were used for raising revenue. The tax handles in the second half of the 19809 were the temporary introduction of export taxes and a 4t surcharge on imports during the 1987 tax reform. These taxes may have contributed to an improvement in the deficit, but they had drawbacks. Among them: (i) they were not permanent and therefore contributed to the variability of tax revenues. (ii) they introduced more distortions into the economy, and (Mi) they caused administrative problems. Deficit reduction needed to rely on more standard and efficient tax instruments rather than ad hoc measures such as tax handles.
Table 11.2 t Central Covernment Revonue, 1980-98. ( As Percent of CDP )
1980-82 1988-86 1986 197 1988 1989 1998 I/
Total Revenuo 8.8 7.6 8.9 9.4 10.1 9.6 8.0
Tax Rovenue 7.9 6.9 7.a 7.9 6.8 7.9 6.9 Direct Taxes 1.a 1.2 1.2 1.6 2.2 1.9 1.6 Corporate Income 0.9 0.8 0.7 1.0 1.6 1.4 1.4 Personal Income 0.8 0.8 0.8 0.4 0.6 0.8 0.1 Property 0.1 0.1 0.1 0.1 0.2 0.2 0.1 Internet. Indirect 2.8 1.2 2.4 2.4 2.4 1.9 1.6 Imports 1.2 0.8 0.9 1.6 1.9 1.7 1.6 Exports 1.1 0.8 1.8 0.9 0.5 0.2 0.0 Other 0.0 0.2 0.2 0.0 0.0 0.0 0.0 Domestic Indirect 4.2 8.6 8.4 4.0 4.2 4.0 8.8 Value Added 0.0 1.8 1.9 2.8 2.4 2.4 2.8 Other 4.2 2.2 1.6 1.8 1.8 1.7 1.4 Nontax Revenue 0.9 1.6 1.9 1.6 1.8 1.6 1.0
1/ Preliminary. Source: Statistical Appendix, Table 6.2.
2.07 In the 1980s nontax revenue fluctuated mainly because of changes in revenues of the surcharge on petroleum products (transferencias sobre carao compensatorio). Without this surcharge, nontax revenue was rather stable, averaging 1X of GDP during the 19808. During the second half of the 1980s, the petroleum surcharge yielded the equivalent of 0.92 of GDP in 1986, and 0.4Z of GDP per annum from 1987 through 1989. Owing to the way this surcharge is calculated, though, it can also become a subsidy source, especially if
1/ The surcharge is calculated as residual, i.e., the differenceo between the price st 6y the Government for gasoline, diesel, and propane oas and the sum of the international prices for those fuels, tax, and commerclali:ation cost. - 26 -
domestic prices are not adjusted in a timely manner in response to international market trends. This waa the case in 1990, when increases of fuel prices - and especially diesel - were delayed. As a consequence, instead of receiving revenues from the surcharge, the Government paid a subsidy to the private sector that amounted to about 0.5Z of GDP in 1990. The potentially sizeable fiscal cost of this petroleum surcharge/subsidy, as evidenced in 1990, should be eliminated by means of liberalizing petroleum prices.
2.08 The Tax Reforms in the 1980s. In order to boost tax revenue, reduce deficit, and stimulate economic growth, the Government introduced two major tax reforms in the 1980Q. The July 1983 and October 1987 reforms aimed at strengthening income and value-added taxation to bring the fiscal deficit down. In 1983, the Government substituted the value-added tax for the existing stamp (turnover) tax. Both tax reforms attempted to modify and simplify income tax legislation. An evaluation of the experience with the VAT and income taxes shows that both reforms fell far short of expectations. Tax revenues were not raised on a sustainable basis mainly because of (i) the continued existence of excessive deductions and exemptions applied to both income and value-added taxes, (ii) lack of political commitment to implement the reforms rigorously, and (iii) deficiencies in tax administration.
Tax Structure 2.09 Guatemala's tax system is characterized by heavy reliance on indirect taxation and relatively low reliance on direct taxes. Indirect: taxes accounted for an average of about 80? of total taxes during the 1980s. Their importance, however, has been declining since 1986. From 1986 through 1989 the share of direct taxes increased from about 17? to 24? of total tax revenues. This shift reflects, in part, the intention of the 1987 reform to strengthen direct taxation and to gradually phase out export taxes.
Indirect Taxes 2.10 Value-Added Tax. Introduction of the VAT formed the cornerstone of the fiscal component of the adjustment program in 1983. Initially, the VAT rate was set at 10?, and VAT revenues were expected to yield about 4Z of GDP in 1984. By October 1983, however, the Government already had modified the VAT, reducing the rate to 7?. It also significantly increased exemptions. As a result, VAT revenues yielded only 1.5? in 1984. In the following years the VAT tax base was progressively broadened and economic growth resumed, resulting in an increase in revenue to an average of 2.4? of GDP in 1988-90. This yield is still about 1.7 percentage points of GDP less than was originally planned in the 1983 reform. Given the need for increased revenue, the Government should consider returning to the goal of the 1983 reform and increase the VAT rate to 10Z. This increase of the rate could yield 1S of GDP more in VAT revenue. 2.11 &mDort Taxes. Direct taxes and the domestic VAT may increase more in their importance as a policy of tariff reductions is pursued as part of liberalizing Guatemala's trade regime. Over the last couple of years the country has made significant progress in this area by progressively reducing tariffs. The last reduction took place in March 1990, when the Government - 27 -
lowered the ceiling of tariffs to 37Z.W Tariff reduction is not incompatible with increases of import tax revenues. A reduction of the widespread application of import exonerations, coupled with an improvrement in customs administration, should successfully compensate for the revenue loss due to tariff reductions.
Direct Taxes
2.12 Corporate Income Tax. The corporate income tax is by far the most importakzt direct tax. It accounted for 70? of total direct tax collection in the 1980s. Modifications to this tax, introduced as part of the 1983 reform, were barely visible in the revenue performance because the revenue trend of corporate income tax until 1986 largely reflected the depressed level of economic activity. The 1987 reform reduced the number of corporate tax brackets from five to three. In addition, the scope of several tax deductions was reduced.
2.13 The result of the 1987 tax reform can be assessed by looking at the changes in the effective tax rates (ETR) - i.e., the taxes paid as percentage of gross corporate income. Whereas the average ETR in 1987 was 1.6Z, it increased slightly to 1.8? in 1988. This increase was largely due to a higher ETR for companies with a gross income in the range of 100,000 to 300,000 quetzales. Companies outside this range remained unaffected.
2.14 Personal T=come Tax. The most important change in personal income tax in 1987 was the reduction of both the number of income brackets and tax rates from 68 to 16. The top tax rate was reduced from 482 to 342 and the lowest rate from 52 to 4Z. Tax rates in the middle- income bracket remained the same or slightly increased. At the same time, deductions and exemptions were expanded, with personal deductions increasing markedly. As a result, the head of a family can claim up to Q20,000 in deductions - i.e., about six times the average annual salary of an employee registered by the Social Security Institute (IGSS) in 1989. A comparison of the number of taxpayers with the number of workers registered by IGSS indicates that with this system of personal deductions only 32 to 5? of all workers pay taxes. This contrasts sharply with a system that should aim at a broad tax base with low rates.
2.15 Despite the 1987 reform, the evidence shows that in 1988 the effective tax rate for employees remained almost the same as in 1987. This indicates that the changes in tax rates were not as effective in revenue enhancement as they could have been, given the plethora of deductions still allowed by law. However, one group, namely those earning more than Q300,000, clearly benefitted from the reform. The Q300,000 and higher income earners had their ETR reduced from 36? to 30?. The highest income group of self- employed (Q300,000 and higher) also gained considerably from the 1987 reform. Their ETR was reduced from 112 to 5.7?, whereas the ETR for self-employed as a whole was lowered from 22 to 1.7%. Given that the revenue performance of
Chapter XX In Part II will elscu.s Inmore detail th- trade liberalization In - 28 -
peLsonal income taxes deteriorated during 1989-90, the new Government should consider raising the ETRs through adjustments in the tax rates, further reductions in the number of tax brackets, and limitation of deductions.
2.16 ProDerty Tax. The 1987 tax reform simplified the property tax and now applies the tax rate to the sum of all properties a taxpayer owns countryride. The three statutory rates fall in the range of 0.2% to 0.9Z of the assessed property value. These rates are low by international standards, particularly considering that the tax declaration is based on self-assessment. Following the 1987 reform, property tax revenues increased to about 0.2Z of GDP. That is still well below the Latin American average of about 0.5 of GDP.
2.17 It may be worthwhile to consider a further simplification of the property tax by introducing a flat rate. As a first priority, though, the Government should try to increase the number of registered properties and improve its cadastre system. (In 1989 only 29.32 of an estimated 1.7 million parcels in Guatemala were registered.) Additionally, the value of registered properties should be adjusted for inflation to ensure that revenues do not decline in real terms.
Main Issues
2.18 Regarding corporate and personal income taxes, two main issues require Government action for improving revenue performance and these taxes' effectiveness. They are (i) the appropriateness of the current rates in an inflationary environment and (ii) the numerous deductions, which have seriously eroded the tax base.
2.19 The Issue of Progressive Average Rates and the Need for Fiscal Indexation. The existence of a progressive income tax schedule means that an increase in income could move taxpayers into higher income brackets, thereby automatically raising their real tax burden. This problem has become more acute since the 1987 tax reform because the progressive tax rates apply to total income in a given income bracket. Thus the movement from a lower to a higher taxable income bracket creates marginal rates in excess of 10OZ. These notches generated by this progressive average rate structure can lead to underreporting of income and/or to overstating of deductions to avoid moving from one bracket to another. A return to a system of marginal taxation is therefore desirable. In addition, inflation has moved taxpayers more quickly into higher income brackets. To correct the inflation-induced increases of the tax burden, the Government should index the tax brackets according to the annual inflation rate. This policy is widely practiced in developing and industrialized countries alike.
2.20 Excessive Deductions. Exmetions. and Allowances. The present Guatemalan tax statutes are replete with exemptions, deductions, and allowances that erode the tax base and enLourage tax evasion. Moreover, the tax code unduly complicates the process of tax collection and auditing. Such a legal code adversely affects the performance of income taxes, VAT, and customs duties. - 29 -
2.21 Currently, deductions for the corporate income tax average about 94t of gross income. A lowering of deduction possibilities or simply restricting the maximum amount of deductions to, for example, 902 of gross income could translate into an increase in tax payments of around 70S. The same argument holds true for personal income taxation of the self-employedg they can also claim deductions for up to 93? of gross income. A decrease in allowable deductions would not only raise revenue and simplify tax administration but also significantly broaden the tax base. Perhaps the largest tax benefits to taxpayers are the existing exemptions from customs duties. In 1989 total exemptions amounted to Q751 million, or 3.2Z of GDP. In 1990 a new tax bill proposed a significant reduction in the exemptions and deductions, a step that would help increase revenue, simplify customs procedures, and reduce the widespread administrative irregularities in customs.11 Reflecting the mission's findings, a set of recommendations has been detailed in Annex A with regard to deductions, exemptions, and allowances for the VAT and income tax.
C. Tax Administration
2.22 Although Guatemala's tax structure is based on standard and widely used taxes such as the income and value-added taxes, the practice deviates significantly from the design. This gap is largely the product of serious tax administration deficiencies. These administrative issues have been repeatedly analyzed by international organizations and complemented by numerous technical-assistance programs. But the impact of these efforts has been minimal. The Guatemalan tax administration is now in a state of crisis.
2.23 IndLcations of the Tax AdminLstration Crisis. The extent of the crisis may be best documented by estimates suggesting that during the period 1983-88 the Ministry of Finance failed to collect some Q9 billion in income taxes alone because of administrative deficiencies and tax evasion. This amount represents over 10 of GDP during the same period. Although this revenue shortfall is only an estimate, it nevertheless indicates that there is room for improvement. Ministry of Finance estimates show that if all legal tax obligations were met, collections from the domestic VAT and income taxes could easily double. In 1989 this alone would have meant an increase in the tax ratio from an actual 7.8? of GDP to a potential 10.6S of GDP. It is estimated that over the medium term, improvements in tax administration alone could yield a 50? increase in real VAT and income tax revenues.
g/ In May 1990 the Government submitted the Bill to AbolIh Fiseel Privileges. It proposed the elimination of 27 laws and la regulations providing tax incentives to certain sectors as well as the abolishment of most Income tax exemptions. - 30 -
main Issues
2.24 Improving the efficiency of tax administration in Guatemala will be largely determined by three factors. They are (i) the political will to implement existing tax legislation, (ii) improvements in the organization and performance of the tax administration itself, and (iii) the extent to which the tax administration enforces taxpayer obligations, which, in turn, will determine taxpayer compliance. While political support will be a sine qua non of formulating and enforcing any new strategy for improving tax collection in the 19909, this report concentrates on points (ii) and (iii). A detailed matrix on tax-administration issues and recommendations is included in Annex A.
2.25 TaxDayer Identification. Estimates of the degree of evasion due to "stop-filersn and "nonfilers" (taxpayers who ceased to file a tax return, or who never filed a return) for value-added and income taxes range from S0O to 1002 of total income tax and VAT collection. That translates to roughly 2? to 4? of GDP for 1986-89. Considering that the cost of tax collection may amount to 5 to 10Z of total taxes collected, controlling nonfilers and stop- filers may result in relatively high returns for the General Directorate of Internal Revenue (DGRI). This effort may have the further effect of bringing into the tax net a certain number of both nonfilers and stop-filers.
2.26 Tax Audits and Enforcements. To ensure the credibility of the tax system, taxpayer compliance must be improved. Strengthening of the audit function will be crucial to correct the problem of rampant tax evasion. Currently several problems exist with regard to tax auditing.
2.27 First, there is a duplication of efforts as income tax and VAT auditing are undertaken separately. This problem has been pointed out on numerous occasions. It can be resolved by reorganizing the DGRI along functional lines (i.e., tax auditing, collection, enforcement) instead of concentrating on administrating each individual tax, as is currently done. Second, auditors generally make poor use of their time, because of either poor scheduling, lax supervision, or lack of motivation. The latter may be the result of low salaries and the lack of any sort of incentive system for good performance.
2.28 There exists, however, considerable potential for improvement in auditing and control. It is estimated that with more appropriate procedures, field auditors could double the number of audits; desk auditors could almost triple their audits. For 1989 this would have meant a doubling of payments for adjustments to tax declarations from the actual Q31 million to over Q60 million (or 8.42 of total income tax and domestic VAT collection). To achieve higher productivity in the rumber of annual audits per auditor, the Government should consider establishing monetary incentives for auditing and enforcement personnel in the DGRI. This may help to reverse the low morale and to stem the flow of qualified personnel from the public to the private sector. - 31 -
2.29 Another way of reducing the cost of collecting taxes from delinquent taxpayers is to enforce sanctions. In the Guatemalan context, sanctions are rarely applied. The tax code dictates that fines and other penalties be imposed for tax evaders but fails to make any mention of prison terms, embargoes on goods, or closure. One effective means of combating VAT evasion is closure. It has been used successfully in other Latin American countries (Chile and Bolivia, for example). Fines should not be increased, since low fines should give the delinquent taxpayer a chance to rectify his situation before sanctions are applied.A The existence and implementation of sanctions not only serve to punish the actual tax evader but also constitute a psychological tool to dissuade the potential evader.
2.30 ADpeala. Amnesties, and Tax Arrears. The Guatemalan tax system provides the taxpayer with strong incentives to appeal the determination of tax obligations. Such is the case because (i) on average it takes three years to resolve a tax dispute, (ii) no minimum deposit is required from the taxpayer; (iii) interest rates charged against tax obligations are negative in real terms, (iv) there is no indexation for inflation, so the real tax burden is eroded, and (v) there is a high probability that the final determination of the tax adjustment will be less than the original adjustment. However, the appeal process may not even proceed very far, as tax amnesties have been granted annually, at least since 1987. They were designed as a quick revenue- raising device but have proved to be ineffective. For example, the 1989 amnesty law projected a collection of over Q100 million, but only about 20Z of this amount was actually collected. These amnesties have encouraged tax evasion. They should be canceled.
2.31 It is probable that the amnesties have also stimulated and exacerbated the tax-arrears problem. As of Hay 1990 some Q320 million in outstanding arrears, including taxes and penalties, has been identified. The amount may go as high as Q400 million, of which 802 is due to income taxes. The significance of this amount may be indicated by referring to total 1989 income collections, Q406 million. However, it is expected that less than half of the identified arrears will eventually be recovered. That's because a combination of lengthy appeal processes, a tardy audit process, a regular amnesty policy, and, finally, inflation causes a significant fall in the effective yield of arrears.
2.32 Customs Administration. The Guatemalan Customs Administration, DGA, is beset by all sorts of administrative deficiencies. They range from internal procedures and controls to systems of valuation and classification. More specifically, the deficiencies Involve outright administrative irregularities, the misclassification and erroneous valuation of imports, incorrect and poor inspection procedures, smuggling, lack of specialized and generalized information systems, lack of computerization, inadequate training programs, and superfluous documentary procedures.
i/ The system of lower fInes has worked well in Colombia and, as a result, tax collection hoe increased. - 32 -
2.33 A well-run customs administration essentially free of irregularities would most likely more than double import duty and import VAT fiscal revenues. All things being equal, this would mean an increase over the 1989 revenue collections of at least Q700 million, or a rise in the tax ratio from 7.8 to 10.72 of GDP. Toward that goal a plan of action should concentrate on the following areas: (i) merchandise entry and transit procedures, (ii) fiscal warehouse controls and audits, (iii) classification and valuation of vehicles, (iv) valuation and classification of procedures, (v) a posteriori review of invoices, (vi) improvement of control over specialized tariff regimes, and (vii) inspection of control functions.
D. Central Government ExDenditures
2.34 Budgetary policy in the 1990s needs to include (i) the targeted reduction of the deficit and the availability of financing, (ii) the feasibility of raising tax revenues to their desired levels, (iii) the minimum investment requirements in priority areas, and (iv) contingency planning when revenue and deficit targets are not met. During most of the 19808 the Government was unsuccessful in incorporating these four determinants in an overall budgetary policy. As a consequence, consistency and fiscal discipline were often compromised for political and short-term economic considerations. When the tax reforms did not yield the expected revenue increases on a sustainable level, expenditures were not corrected downward to the extent required. That in turn caused larger deficits. Moreover, as indicated, the expenditure cuts tended to be concentrated on capital outlays, because they could be reduced more easily. This concentration exacerbated the problems of project execution and sacrificed the completion of priority projects.1A On the other hand, noninterest current expenditures, difficult to control politically, were hardly checked after 1983-85. They therefore steadily increased.
Main Issues
2.35 Given the need to exert expenditure restraint while simultaneously improving Central Government services to the public, actions will be needed in the following areas: (i) changes in wage policy and in hiring practices of public employees, (ii) a thorough review of expenditures on goods and services as well as on transfers, (iii) more effective debt management in the wake of the changes in the exchange rate system and in the domestic financial market, and (iv) improvement in investment planning and the capacity to implement projects.
yj This assessment does not a pl to the early 19809, when the sharp fall in capital expenditures was due to the comptiron of the ChIxoy and Aguacapa hydroelectric projects as well as of the port facility In Puorto Quetzal. - 33 -
Tabl 11.8 s Contral Government Expenditure, 1980-90. ( As Percent of CDP ) ------…------_------_------__---- __-- 1980-82 1988-86 19986 1987 1988 1989 1990 I/
Total Expenditure 14.4 10.7 10.8 11.8 13.0 18.2 10.9
Current Expenditure 8.2 7.8 9.9 9.7 10.2 10.1 8.7 Wages A Salaries 4.4 4.2 8.9 4.2 4.2 4.1 8.2 Goods & Services 1.7 1.6 1.8 1.9 2.2 2.2 1.9 Interest 0.7 0.9 1.8 1.4 1. 1.4 1.8 Domestic 0.6 0.6 1.1 1.1 1.3 1.2 0.9 Foreign 0.2 0.2 0.2 0.8 0.2 0.2 0.8 Transfers 1.8 1.8 1.9 2.2 2.4 2.6 2.8 Capital Expenditure 2/ 6.0 2.8 1.9 2.1 2.8 8.2 2.2 Transfers 2.9 1.2 1.0 1.1 1.8 1.6 1.0
1/ Proliminary. 2/ Includes not lending.
Source: Statiotical Appendix, Table 6.2.
2.36 Wage Policy and Emalovment. Although real wages fell steeply (more than 30?) during the 1980S, wage policy for the public sector appears to discriminate against the better qualified. Unskilled labor and lower level administrative staff receive salaries that are often higher than those in the private sector. At the same time, higher level public sector professionals tend to earn less than their private sector counterparts. As a result, qualified personnel of the public sector have increasingly accepted positions in the private sector, and this development has further contributed to the decline in the quality of public services. The scarcity in particular of highly skilled staff and experienced managers has exacerbated problems in the tax and customs administration and in project implementation. The Government should make attraction of higher skilled people a top priority in the 19908. Employment should be linked to performance criteria as well as to competitive wages.
2.37 The main explanation as to why the wage bill, as a percent of GDP, has not fallen more than would be suggested by the decline in real wages lies in the hiring policy of the Government. Employment grew through 1982, stagnated the following three years, and since then has been steadily growing at a rate of 3? a year. Moreover, a major job-grading exercise converted more than 10,000 people into permanent staff. As a result the Central Government employed almost 149,000 people in 1989 - 30,000 more than in 1985 and 44,000 more than in 1980. Given the need to constrain the wage bill, the Government should be more selective in its hiring. It should decrease rather than - 34 - increase employment as a means of achieving both i;igher efficiency and staff productivity.
2.38 Goods and Services. During the first half of the 19809, expenditures for goods and services averaged 1.82 of GDP, while in the second half expenditures grew much faster than the economy. The second-half jump resulted from a rapid increase in expenditures called global assignments. This item grew by 602 a year in real terms during 1987-89. It finally accounted for almost 402 of expenditures in goods and services. Rapid growth in expenditure items that provide little transparency and accountability should be avoided, as they undermine the proclaimed fiscal policy of the Government.
2.39 Interest Payments. External interest obligations have become a major issue for the Guatemalan Government. In 1990 the fiscal and foreign exchange constraints have led to the suspension of debt service to almost all external creditors. The ensuing accumulation of external arrears has already tightened maneuvering room for the new Government. If the Government wants to regain access to external finance, there will be no alternative but to seek a rapid settlement of the arrears issue. For this reason external interest obligations will become an important expenditure item in the years to come. 2.40 The relatively small share of external interest obligations to GDP - namely, 0.22 of GDP during the 1980s - is somewhat deceptive. First, the Central Government has assumed part of the debt service of public enterprises such as INDE, but Y:ecords these outlays as transfers. For example, if these transfers hpd been allocated to the external interest payments in 1989, the Central Government would have shown external debt payments of 0.6X of GDP instead of the actual 0.22 of GDP. Second, during 1984-87, when multiple exchange rates were used, the Government serviced its debt with the lower official rate. However, with the unification of the exchange ru.e and then with the floating of the exchange rate in November 1989, the Government's external debt service in local currency has increased. 2.41 In the 1990s the Central Government will face additional external obligations because it needs to find a final settlement for the external debt owed by the National Financial Corporation (CORFINA), which is now technically bankrupt and insolvent. If the new Government reaches an agreement with CORFINA's largest creditor, it is likely that the Central Government will have to assume the debt service for CORFINA. That should increase the Government's debt service burden even more.
2.42 With regard to domestic debt, throughout the 1980s the Government paid interest rates below the inflation rate. During 1980-85 the implicit interest rate was a mere 3.12. In 1986 the Bank of Guatemala raised its 4iterest rate on Government debt significantly, leading subsequently to an average rate of 8.3? for 1986-89. The process of opening up the Guatemalan economy resulted in a formal liberalization of interest rates in August 1989. Interest rates have moved rather slowly since ther. and have become increasingly negative in real terms. Still, the new Government will face the challenge of paying market-determined interest rates on its domestic debt rather than the currently subsidized rates. This will certainly increase the - 35 -
interest bill. At the same time, though, it will enhance the credibility of a Government following market principles and seeking a fiscal solution to part of the Bank of Guatemala's losses, which are due to these interest subsidies.
2.43 Transfers. Current and capital transfers have introduced an element of rigidity in the budgetary process. According to the 1985 Constitution, the Central Government has to make mandatory current transfers to the University of San Carlos, the Judiciary and the Autonomous Confederation of Sports. They accounted, on average, 'or 27Z of total transfers during 1986-89. In addition, the Central Government is obliged to make mandatory transfers (recorded in the capital exrenditures) of 82 of ordinary tax revenues to the municipalities. Therefore, the Government - at least in practice - cannot determine this transfer amount and judge it on its merit.
2.44 Direct subsidies are relatively small in number and in size. This should not hide the fact that the Guatemalan system relies heavily on "tax expenditures.' These are tax allowances rather than direct subsidies. They are used to achieve certain economic goals. The best known subsidy items are the transfers granted to the public transport sector and INDE. Subsidies to urban transport increased rapidly over 1986-89 - from Q30 to Q75 million a year. To decelerate the growth of this subsidy, the Government should verify whether the subsidy reaches the ultimate beneficiaries and whether the program is well targeted. In addition, the City of Guatemala may be asked to share in the subsidy burden.
2.45 Transfers to INDE also grew rapidly during this period. INDE's financial problems, which have become more serious because of its relatively large external debt service and the postponement of tariff adjustments, have necessitated larger transfers from the Central Government to INDE. From 1986 through 1989, transfers to INDE doubled to 0.4? of GDP. In order to contain and then gradually reduce the transfer requests, electricity rates have to be adjusted on an automatic basis. Any postponement of a major change in electricity prices will perpetuate the financial problems of INDE, which constitute a drain on Government resources.
2.46 Capital Expenditure. Because the capital-expenditure cuts were the main instrument for restraining overall expenditures in the 1980s, fixed capital formation fell from an average 3? of GDP in 1980-82 to 1.6Z in 1983- 85. It declined further to an average 1.1? during 1986-90. The repercussions of cutting capital expenditures were twofold. First, it harmed long-term growth prospects. Low investments in infrastructure and education caused serious problems in transportation (roads, ports, airports) and a shortage of skilled manpower. The cuts may slow down the further expansion of the export industries. Second, it reduced the inflow of concessional external finance. Since most projects receive some form of foreign financing, the cutbacks meant that more than half of the contracted external debt has remained undisbursed. In addition, the current arrears problems will further delay completion of several foreign-financed projects.
§/ Chapter III in Part XX discusses the financial problems of INDE In greater detoil. - 36 -
2.47 Poor project implementation is well indicated in the ratio of the executed to the approved budget; during the period 1987 through 1989, the ratio averaged about 70Z. A survey of 31 investment projects with foreign financing was undertaken at the end of 1989. It found the main reasons for difficulties in project execution to be (i) lack of managerial capacity (26Z of answers), (ii) slow bureaucratic procedures (25Z), (iii) lack of counterpart funds (152), (iv) suspension of payments by the Government (7Z), (vi) inadequate project design (7Z), and (vii) issues related to the procurement law (72). Lack of monitoring and problems with local legal procedures accounted for the other complaints voiced by executing units.
2.48 The concern about the Central Government's ability to ensure the efficient use of resources could be addressed by searching for management techniques that can promote efficiency and productivity in executing project units. One approach could be to specify certain performance indicators by which to judge the effective use of resources by the implementing agencies. An alternative way would be to encourage the private sector to become involved in implementing public projects. In the transport sector, for example, there is a substantial need for replacement and expanding investments. Given the lack of financial and managerial resources in the Central Government, private sector participation could ease the situation. Through the utilization of private firms, paid by tolls, the Government could accelerate and carry out investments in roads, ports, and airports. Finally, the Government should consider contracting out certain public services that could also be provided by the private sector.
E. Central Government Deficit Financing
2.49 A significant change in deficit financing occurred after Guatemala returned to democratic rule in 1986. Since then, the country has received considerable external support in the form of grants. They covered, on averagte, 31Z of the deficit during 1986-89. This way of financing contrasts sharply with the pre-1986 period, when virtually no grant money was available. Instead, the country had to rely on internal financing to cover the deficit. As a result, domestic indebtedness grew rapidly while the availability of grants and external finance during 1986-89 allowed the domestic debt/GDP ratio to first fall and then to stabilize around 162 of GDP.
Main Issues
2.50 To reestablish fiscal stability, the Central Government has to ensure a noninflationary way of financing its deficit. In this context, three issues have to be addressed or anticipated: (i) external grants are likely to decrease in absolute and relative terms, (ii) net external financing faces limits because of the current arrears problems and the Central Government's debt-servicing capacity, and (iii) domestic financing is bound to become more expensive, and creation of floating debt does not constitute a sound way of financing. - 37 _
Table 11.4 : Financing of Central Government Deficit, 1980-90. (As Percent of Total D.ficit)
1980-82 1988-86 1986 1987 1988 1989 1998 1/
Overall Deficit 180.0 100.0 100.0 10.0 100.0 100.0 100.0
Grants 0.1 0.8 20.2 46.7 80.9 21.9 8.R Foreign Financing (net) 20.1 21.7 28.8 20.4 26.9 11.2 18.0 Internal Financing 70.7 78.1 65.6 84.0 87.1 67.0 69.2 External Arrears 19.2 Memo:
Overall Deficit (9 CDP) 6.6 8.1 1.9 2.4 2.9 8.8 2.9
1/ Preliminary. Source: Statistical Appendix, Table 6.1.
2.51 External Finance. Net foreign financing covered about 21Z of the deficit during the 1980s. For the 1990s the Central Government faces the task of controlling the accumulation of external debt. This has become evident in the wake of the current arrears problems and the Central Government's difficulties in generating the quetzales for the debt service. Hence any external debt strategy in the 1990s has to be linked to fiscal policy to avoid future debt-servicing problems. Moreover, the devaluation that followed liberalization of the exchange rate has considerably raised, in local currency, the external debt stock as well as the external debt service. If the Government settles the arrears issue on CORPINA's external debt and assumes the responsibility of servicing it, the foreign-debt stock of the Central Government may increase by as much as 3.41 of GDP.> In anticipation of this possibility and given that the Government has not been able to honor its external obligations with increasing external debt/GDP ratios, a sustainable fiscal policy should be pursued. This policy could result, at least, in a stabilization of the external debt/GDP ratio so as to avoid future debt-servicing difficulties.
7/ It should be clear that If the Central Government takes over CORFINA's oxternal 3ebt, this will affect only the distribution but not the level of external debt of tho nonfinancial public sector. - 38 -
Table 11.6 : Contral Government Debt, 1980-89. ( As Porcent of GDP )
--- _------1980-82 1988-86 1988 1987 1988 1989
Total Debt 19.9 29.1 28.1 26.8 25.4 27.6
Domestic Debt 16.8 22.0 18.7 18.4 16.8 16.1 of whIc',: Bonds 1/ 18.9 20.9 16.2 14.6 18.8 13.2 Floating Debt 1.4 1.0 1.6 1.9 2.0 2.9 External Debt 4.6 7.1 9.4 8.9 9.6 11.5
1/ Includes treasury bills and other obligations.
Source: Banco do Guatemala and World Bank.
2.52 Domestic Finance. Given that less external financing and grants may be available to cover the deficit, recourse to domestic financing has to guarantee that (i) it does not crowd out the private sector in an already small domestic capital market and (ii) the buildup of floating debt - arrears to domestic suppliers - is avoided. The stock of floating debt has steadily increased since 1985 and reached 2.92 of GDP at the end of 1989 about 182 of total domestic debt. The increasing importance of floating debt as a way to finance the deficit presents an area of concern. There is always the risk that the creation of floating debt will become inflationary once the Government cannot honor its domestic obligations promptly and will increase pressure on the Central Bank to provide essentially inflationary finance. It is therefore important that the Central Government hold floating debt to a minimum.
F. Conclusions 2.53 If Guatemala is to achieve higher levels of economic growth and investment - goals crucial to meeting the needs of its rapidly growing population during the 1990s - the country's main economic and political groups will have to reach e consensus on significantly improving public revenue and savings performance. If the tax effort turned out to not increase in the years to come, current and capital expenditures would need to be even more restrained. This scenario of budgetary austerity would continue to affect growth and investment negatively, since it would mean a continuation of the low growth/low investment scenario characteristic of most of the 1980s.
2.54 Any fiscal package should concentrate ons
(i) Raising tax revenues through a combination of selective changes in tax rates (of which an increase in the value-added tax rate from 72 - 39 -
to 10o is the most important); a sharp reduction in deductions, exemptions, and allowances; and a major improvement in tax and customs administration. (See Annex A for detailed recommendations.)
(ii) Restraining current expenditures by moderating increases in the total wage bill and through a strict control of expenditures on goods and services. In addition, overstaffing in ministries should be reduced as a means of achieving both higher efficiency and higher productivity in the Central Government.
(ili) Improving project implementation through (a) a hiring policy that sets clear performance and reward criteria for personnel, especially for task managers, (b) involving the private sector in the execution of projects as well as contracting out public services to the private sector, (c) better project design, and (d) resolving problems related to the procurement law.
(iv) Designing a debt strategy that is compatible with the Central Government's ability to service the debt. - 40 -
CHAPTER IIIs MACROECONOMIC PROJECTIONS
A. Introduction
3.01 Guatemala's medium-term outlook depends crucially on the Government's ability to implement the adjustment measures described in Chapters I and II. To assess the country's growth prospects, two scenarios were developed corresponding to alternative assumptions of policy implementation performance.V
3.02 The Base Case scenario assumes that the new Government adopts, in 1991, an adjustment program that includes ti) successful implementation of a comprehensive fiscal reform, (ii) adoption of monetary policies conducive to lower inflation and positive real interest rates, (iii) continued commitment to a flexible exchange rate system, and (iv) clearing of external debt service arrears with bilateral and multilateral creditors. A Low Case assumes the clearing of external arrears under an initial implementation of an adjustment program. In the following years, however, there are serious policy slippages, primarily in the fiscal area.
3.03 The behavior of variables outside the Government's control are taken as given and are identical in both cases.V These include LIBOR, international inflation rate, GDP growth rate of the five major industrialized countries (G-5), and terms of trade developments.
B. Prolections
Base Case Scenario
AssumDtions
3.04 Fiscal Reform. The main objective of the fiscal reform assumed in this scenario is to set correcting measures, from both the revenue and the expenditure side, leading to the generation of sustained public savings of the nonfinancial public sector. The Government is expected (i) to raise public savings from a 0.6? of GDP in 1990 to 1.2Z of GDP in 1991 and (ii) to aim at public savings of no less than 2.0 of GDP from 1992 onward. Furthermore, it is assumed that the budget consolidation is embedded in a medium-term strategy that would allow revenues to increase on a sustained basis.
3.05 Revenues. Guatemala's declining revenue performance in recent years suggests that this is an area that offers ample room for improvement.
^/ A summary of the underlying assumptions of each scenario Is Included In Annex B.
2/ Based on estimates by the International Economics Department of the World Bank. - 41 - This scenario assumes that the new Government will introduce a set of measures that will become effective in 1991 and additional measures that will need more time to materialize. With regard to the fiscal measures that should have an almost immediate impact on tax revenue, the Government is assumed to pass a fiscal package by Congress, of which the following measures would rank most prominentlyt
(i) Direct taxes: Elimination of a myriad of allowances, exemptions, and deductions along the lines recommended in Chapter II. In addition, the Government introduces a maximum amount allowed for deduction, defined as a percentage of gross income. This should widen the tax base and increase tax revenues significantly.
(ii) Indirect taxes: Increase of the value-added tax rate from the current 7? to 10? and complete elimination of exemptions on this tax, so that the resulting increase in the effective VAT rate may allc'w an increase in revenues on a sustained basis.
3.06 In addition to the fiscal package, better tax enforcement will form the second pillar of the Government's effort to increase tax revenues. In this context, it is assumed that major improvements in the tax and customs administrations will be implemented. The Government will set a goal to increase real domestic VAT and income tax revenues by 50? by 1992. 3.07 It is further assumed that trade liberalization is intensified and Guatemala will move toward a uniform tariff rate of 20? during the first half of the 19909. While a uniform tariff of 202 would actually increase tax revenues under the current trade structure (see Chapter II, Part II), any losses in tax revenues stemming from the transition toward this uniform tariff are expected to be fully compensated by a significant improvement in customs administration. 3.08 Expenditures. Fiscal consolidation will also depend on reforms aimed at containing expenditure growth. The Government will emphasize restraints on the growth of current expenditures - a necessary condition to bring about increased public savings. The Base Scenario assumes the following trends of the main current-expenditure items:
(i) Wages: The new Government will accept a modest wage increase in 1991 to partially compensate the erosion of real wages during 1990. This wage policy will be linked to a hiring freeze spanning 1991- 92. It will be followed by modest growth of public sector employment. In addition to these measures, the Government will introduce performance criteria as a means of improving public sector efficiency.
(ii) Interest service: Domestic interest payments are assumed to increase initially because of the application of market interest rates on the domestic public debt. These payments are expected to diminish in later years as fiscal discipline starts translating into a decline of the domestic debt/GDP ratio. External interest - 42 -
payments are expected to increase as Guatemala clears its external arrears. The share of these payments with respect to GDP, however, is expected to decrease over time as foreign financing requirements diminish with the declining fiscal deficit.
(iii) Transfers: It is assumed that subsidies to urban transport will be reduced and that no oil subsidies will be granted out of the Central Government's budget. Furthermore, it is assumed that transfers to INDE will be reduced as a result of major electricity price adjustments (see Chapter III, Part II).
3.09 Capital expenditures are assumed to recover significantly from 1992 onward and reach around 4.6? of GDP by 1995 - about the average level of capital expenditures seen during the 1970s. This steady increase of capital expenditures will be necessary to carry out the overdue infrastructure and social sector investments (see Chapters I to IV, Part II). A determined reform effort in public administration, in particular the improvement of the incentives system, is expected to significantly strengthen investment planning and project-implementation capacity. In cases where the Government cannot implement certain projects, it is assumed that the Government will involve actively the private sector in their execution. Furthermore, the increase in capital outlays will not jeopardize efforts to reduce the fiscal deficit, since the Government will substantially increase its public savings.
3.10 Monetary Policy. Monetary policy in the Base Scenario is assumed to aim primarily at reduction of the inflation rate and a return to positive real interest rates. Consistent with this objective, the Bank of Guatemala is assumed to adopt a restrictive monetary policy. It would include the following actions:§
ti) Interest rate policy: Active employment of open-market operations, aimed at achieving and maintaining positive real interest rates. This will require continued commitment of the authorities to flexible interest rates. In support of this policy, the Bank of Guatemala will actively use the auction of government bonds held by the monetary authorities (Cenivacus).
(ii) Reser're requirements: Adoption of a flexible approach to setting reserve-requirement ratios and its use as an instrument to manage changes in broad money.
(iii) Reduction of the Bank of Guatemala's losses: This will entail elimination of the exchange rate guarantee for petroleum imports. In addition, the Bank of Guatemala will be allowed to charge the government market rates on its bond issues. Both measures should help reduce the losses of the Bank of Guatemala to around 12 of GDP.
I/This seonario preoupposet that the Monetary Board (Junta Moneteria) will provide Bank of Guatemals the capacity to tmplement such a policy. 43 -
3.11 External Sector. The negative evolution of national savings mentioned in Chapter I resulted in increasing current-account deficits in Guatemala's balance of payments. This trend is assumed to be redressed by the implementation of the fiscal and monetary adjustment measures and a flexible exchange rate management. The clearing of external debt-service arrears with bilateral and multilateral creditors is an added assumption aimed at restoring access to external financing. The combination of these measures is expected to improve Guatemala's balance of payments.
3.12 Aggregate demand is expected to be restrained in the period 1991-92 in response to the fiscal and monetary adjustment program to be implemented by the incoming administration. The reduction in aggregate demand, together with the trade-liberalization measures recommended in Chapter II, Part II, should improve significantly the trade balance. As a result, the current-account deficit is expected to decrease to about 3.1X of GDP by 1992 from the 1989-90 average of 5.1Z. The declining current-account deficits projected for the 1990s would allow net international reserves to recover and (through reduced external financing requirements) to avoid further increases in the external debt/GDP ratio.
3.13 Arrears Clearing and Debt Strategy. Stabilization of the external debt/GDP ratio is fundamental to the viability of the adjustment program underlying the Base Case scenario. This ic evidenced by Guatemala's external arrears situation, which indicates that the country has reached the limit of its debt-servicing capacity. The return to normal relations with official creditors is therefore a prerequisite for the success of this strategy. Consequently, it is assumed that all external debt-service arrears, except those of CORFINA, will be cleared in 1991. CORFINA's debt-service arrears are assumed to be cleared during 1992. Commitment on the part of the Serrano Administration to stabilization and adjustment measures akin to the ones described thus far is expected to draw the support of multilateral institutions. That will permit the mobilization of resources required for the elimination of these arrears. Specifically, the Base Case assumes that Guatemala reaches an agreement with external creditors as follows:
(i) IMF: Conclusion of a standby agreement in 1991.
(ii) World Bank: Clearance of arrears followed by adjustment operation accompanied by cofinancing, following the approval of the standby with the IMF.
(iii) Other multilateral institutions: Clearance of arrears and resumption of lending program in 1991.
(iv) Paris Club: Rescheduling of arrears.
(v) Financial institutions: Rescheduling of arrears in 1991.
(vi) Exterior Bank of Spain: Rescheduling of CORPINA's debt in 1992. - 44 -
Results
3.14 The results of the projections based on this scenario indicate that the implementation of an adjustment program in line with the one described above could result in a sustainable path of economic growth for Guatemala. During l991-92 real GDP growth would be modest (2.0? and 3.0? respectively), owing to the contraction in demand. Thereafter, it would accelerate steadily to 4.2% by 1995. As a result, annual GDP per capita growth would reach 1.3? in 1995 and 2.22 by 1998. 3015 Further opening of the economy, through continuation of the trade- liberalization reform and implementation of sound macroeconomic policies, should cause existing resources to be better utilized. It should thus raise productivity in those sectors involved in foreign trade. This structural transformation would increase value added and income in agriculture and manufacturing, allowing the incorporation of unemployed and underemployed labor into the formal economy. Agriculture and manufacturing are expected to represent major sources of growth, as the expansion of nontraditional exports will provide a source of dynamism over the medium to long term. (Nontraditional exports are projected to grow from their current share of 23.0% of total merchandise exports to about 30? by the end of the decade.) Linkages with other sectors would result, since growing income in agriculture and manufacturing would raise domestic demand. Construction too would expand as the public sector, whose project-implementation capacity is expected to improve as a result of public-administration reform, will have to satisfy the demand for much-needed infrastructure investment. Private investment is expected to reinforce the demand for construction, in response to the sustained recovery of domestic savings triggered by the adjustment program. 3.16 This scenario shows that the nonfinancial public sector deficit would steadily decline from 2.32 of GDP in 1990 to about 1Z of GDP in the mid- 1990s. These deficits would be primarily financed by external grants and loans, representing about 701 of the financing sources required. Domestic bonds provide for the remainder. As a result of the public sector adjustment efforts, both domestic and external public indebtedness would decline as a percent of GDP. 3.17 In the scenario, the sustainability of this growth results from the recovery of domestic savings and investment. Domestic savings increase from an estimated 8.1? of GDP in 1990 to 11.5Z and 14.8? of GDP in 1995 and 2000, respectively. The recovery of domestic savings is partly explained by the behavior of public savings. Public savings increase from 0.6Z of GDP in 1990 to 3.4? by 1995 and 3.6Z by 2000. In addition, the implementation of policies conducive to positive real interest rates stimulates private savings. These grow from 7.3? of GDP in 1990 to 8.5? of GDP by 1995 and to 11.61 of GDP by 2000. 3.18 The growth of domestic savings would more than offset the fall in foreign savings, as evidenced by the decline in the current-account deficit of the balance of payments. This would allow an increase of total investment from 12.3? of GDP in 1990 to 16.5? by 2000. Again, one of the principal sources of this growth is to be found in fiscal reform. By enhancing - 45 -
investment planning and implementation capacity, the reform would allow public investment to increase from the current level of 2.6Z of GDP to 4.32 by 1995. It would ultimately stabilize at around 4.52 of GDP after 1998. Similarly, private investment would experience an increase from 9.72 to 12.0S of GDP. The increase would arise from a deepening of the financial sector stemming from implementation of the monetary component of the adjustment program.
3.19 On the external side, continuation of trade reform and a flexible exchange rate management would have a positive effect on the trade balance. That component would improve from -2.9S of GDP in 1990 to -1.7X by 2000. The current-account balance then would move to -3.22 of GDP in 1995 and -1.32 in 2000. The clearing of external debt-service arrears, followed by the agreement with external creditors, would provide external financing consistent with these levels of current-account deficits. This is best evidenced by the manageable amounts of unidentified financing that result from the projections. The amounts should average 0.22 of GDP a year between 1991 and 2000, while net official reserves are projected to grow in the same period by an average of approximately US$46 million a year - about 0.4Z of GDP. Guatemala's external position would improve as indicated by its degree of external indebtedness. After averaging around 362 of GDP in 1991-1992, the foreign debt would decline steadily. By the year 2000, it would reach 23.12 of GDP.
Low Case Scenario
Assuantions
3.20 The Low Case scenario is based on the assumption that the Guatemalan authorities clear external debt-service arrears and are successful at partial implementation of the adjustment program, as spelled out under the Base Case, during 1991. In the years that follow, however, the fiscal and monetary components of the program are not fully carried out. Policy slippage in the fiscal realm would translate into a lowering of the public-investment program owing to lack of implementation capacity. Nontraditional export growth is assumed to be constrained by the resulting decline in necessary infrastructure investments. Import growth would accelerate by virtue of the lack of demand constraint. A significant improvement in the trade and current account balances would therefore not be expected to be feasible from 1992 onward. Simultaneously, monetary policy is not able to reduce inflation and keep interest rates positive in real terms. That inability carries the corresponding adverse effects in capital flight and private savings.
Results
3.21 As a result of policy slippage on the fiscal side, public savings would decline steadily after 1991 and average 02 of GDP during the second half of the 1990s. Private savings would also show a falling trend stemming from negative real interest rates. The fall in public investment and deterioration of domestic savings would lead to a decline in total investment during 1992-95 and to a stagnation of investment at 12.52 of GDP during the second half of the 1990s. Economic growth in this environment would stall, remaining at 2.5Z a year in the 1994-2000 period. - 46 -
3.22 Despite the slow growth of output, the balance of payments current- account deficit would remain significant, growing from 3.1 of GDP in 1992 to 4.62 by 1995. Total external debt as a share of GDP would grow as a consequence, from 36.4Z in 1992 to about 40? by the year 2000. The servicing of this level of external debt would mean that unidentified financing would increase from US$41 million in 1993 (0.5Z of GDP) to US$502 million in 2000 (3.5? of GDP). Such financing-gap levels are clearly unmanageable on a sustained basis given that external credit required is unlikely to be forthcoming.
C. Conclusions
3.23 The projections just described indicate very different long-term prospects for the Guatemalan economy. Although the country is expectea to remain vulnerable to external developments, domestic policy is demonstrated to be crucial in the determination of the economy's outlook. Rapid implementation of a stabilization and adjustment program by the new Administration, including the components mentioned in the Base Case, would offer the best prospects for sustained economic growth in the medium to long term. Such implementation would allow for a steady recovery of per capita income. The Government's continued commitment to such a program would be decisive, as evidenced by the outcome of policy slippage under the Low Case. - 47 -
00-. - - mU UCRIlG IllDtCPS. U35 CAN SCOIUO
Lot. Pro. Projected ... _ ...... _____.____._.._...... _____.__._.______..._....___, 1980 1990 1991 1992 1993 1994 1995 1996 1997 l99o 1999 2000 __._._._...... __._...___....._._._...... __._.___._...... __..._._.___.______...... __...___ GOowth Rates (percent)* DP ...... 4.0 3.5 2.0 3.0 3.5 4.0 4.2 4.4 4.5 5.0 5.0 5.0 per GDP capita *...... 1.0 0.5 .0.9 0.1 0.6 1.1 1.1 1.6 1.7 2.2 2.2 2.2 ConAuAPtiou ...... 2.9 0.7 2.3 3.2 2.9 3.0 3.6 3.8 3.8 4.0 4.1 4.7 Cnmption per capita ...... -0.0 -2.2 .0.6 0.3 0.0 0.1 0.7 1.0 0.9 1.2 1.2 1.8 Debt Indicators a Total DOD (llln 08$) a/ ...... 2.648 2.797 5,050 3,113 3,193 3,318 3,453 3,572 3,682 3.759 3,829 3,658 DIP CDlIT (KllonUSS) . .3 0 119 so9g SO 30 -0 -0 -0 -0 o 0 -0 Total DOD/lzports 048 (2) . . 162.3 176.5 173.2 160.6 156.1 153.5 144.2 135.9 127.4 117.5 108.2 98.6 Total DWD/lurret GDP (2) ...... 31.7 37.0 56.1 36.2 35.2 3S.6 32.0 30.6 29.2 27.1 25.2 23.1 Debt service MSL (lllian 58) bI ...... 255 340 357 381 428 415 397 378 463 471 473 497 Debt coice ILTICLurrent GDP (X) ...... 5.1 4.5 4.2 4.4 4.7 4.2 3.7 3.2 3.7 3.4 3.1 3.0 Debt segvice HLtJhports 0&8 (Z) ...... 17.6 21.5 20.4 19.6 20.9 19.2 16.7 14.4 16.0 14.7 13.4 12.7 Interest tLT (Million US$) b/ .I...... 96 136 147 168 178 176 176 178 182 185 186 187 Intereat ELTI/eporte G0S8 ) ...... 6.6 8.6 8.4 8.6 8.7 8.2 7.4 6.8 6.3 5.8 5.3 4.8 tnterect MLT/Current GDP (2) ...... 1.1 1.6 1.7 1.9 2.0 1.8 1.6 1.5 1.4 1.3 1.2 1.1 National Acceuts (a" S of current GDP)1 Tot*. lv.t_ct ...... 13.5 12.3 12.9 13.5 14.0 14.7 15.0 15.2 15.5 16.0 16.5 16.5 Public Itv*@at ...... 3.1 2.6 2.8 3.7 4.2 4.5 4.3 4.4 4.4 4.5 4.5 4.5 Private Itvestmnt el ...... 10.5 9.7 10.1 9.8 9.8 10.5 10.7 10.9 11.1 11.6 12.0 12.0 Domestic Svings ...... 8.3 8.1 9.1 10.2 10.5 10.8 11.5 12.1 12.8 13.7 14.5 14.8 National Svin d/ .6...... 7.7 7.8 9.3 10.4 10.7 11.2 11.8 12.4 13.2 14.0 14.9 15.2 Public Saving ...... 0.3 0.6 1.2 2.3 3.3 3.3 3.4 3.6 3.4 3.3 3.5 3.6 Private Sav^igs ...... 7.4 7.3 8.1 8.1 7.4 7.9 8.5 8.9 9.7 10.7 11.4 11.6 Forei Saving ...... 5.7 4.5 3.6 3.1 3.5 S.S 3.2 2.8 2.3 2.0 1.6 1.3 COR ...... 3 .4 3.9 6.5 4.5 3.9 5.5 3.5 3.4 3.4 3.1 3.2 3.3 External Trade Indiectors (percent)s Eaports GSIIS real gr th rate ...... 13.9 10.0 3.7 3.0 3.5 4.2 4.5 4.9 5.0 5.1 5.2 5.3 Exports GSMNnmial growth rate ...... 24.5 74.2 29.7 27.6 16.0 14.0 17.8 18.7 18.8 18.5 18.7 18.7 Exports of GWO/Current GDP ...... 17.2 20.8 20.5 22.1 22.1 21.6 21.8 22.1 22.5 22.6 22.8 23.1 Imorts GII8 real growth rate ...... 6.5 -4.6 4.1 6.8 3.6 3.6 3.5 3.6 3.4 3.6 3.9 3.9 Isports GIIS noml growth rate ...... 19.0 61.2 28.1 23.8 16.8 13.9 16.1 16.6 16.6 16.7 17.0 17.0 Imports of GWS/Current GDP ...... 22.4 25.0 24.3 25.4 25.6 25.5 25.3 25.3 25.2 25.0 24.8 24.7 NBB (Mcil. S) ...... 1.0 -1.3 2.0 2.3 1.0 0.9 0.8 0.8 0.8 0.7 0.8 0.8
current hccounatCurrnt GDP ./ . . -S.7 -4.5 .3.6 -3.1 -3.3 -3.5 -3.2 -2.8 -2.3 -2.0 -1.6 -1.3 Resource alancluCrrent GDP ...... -5.1 .-4.2 -3.8 -5.3 -3.5 -3.9 -3.5 -3.1 -2.7 -2.3 -2.0 -1.7 Tonr of Trade tndex (1989 -I 1 )...... 100.0 91.9 93.9 102.5 101.6 98.5 99.1 99.7 100.2 100.4 100.7 100.8 BOP (ilion US$ Current Account ...... -480 -340 -306 -270 -304 -342 .339 -322 -296 -275 -251 -220 Exports of Goods & Services ...... 1,453 1,585 1,749 1,938 2,046 2,161 2,381 2,628 2,890 3,198 3,537 3,912 News Unidentified Sources ...... -0 0 2 -1 12 37 30 -1 26 26 22 20
GDP (mllon US ...... 8.352 7,564 8,599 8,608 9,079 9,810 10,723 11,665 12,629 13,071 15,205 16.668 GOP conversion factor .2.83 4.50 5.35 6.18 6.80 7.33 7.82 8.41 9.09 9.73 10.44 11.20 …______--_--_-_-_--_-___-____-----.-._._...._.___._.--.--.-_.__._._._...._.-.--..-.-_.-.._._._._._..___...... _.._._...._.._...______..____ a*. Includes uso of II credit, refinacing, accusmlated debt service arrero nd bonded arrears. b/. Includes bonded arrare ad refinancing, excludes N. Calculated on accrual basis. cl. Includs change In invetories. dl. Including currnt trasfern. a/. Excluding official grantos p mOm .... NO @ a .. m. v4S n o 4-oo -nNereno.wam v o0 _o_ia o4 _NOP t m e . N .a 4.. 4.I 0 .N, * (44.nO * *ONN. er 4.4.e0.no nOnNoVP _ NVIIc n VPV VP -
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0~~~~~~~~~~~.S ; AA W h |~t MS ' PART II
SECTOR ISSUES - 49 -
CHAPTER I: AGRICULTURAL SECTOR
A. Overview
1.C02 Agriculture constitutes a major sector of Guatemala's economy. Throughout the 1980s it accounted for about 25% of the GDP, provided about 75Z of export revenues, and employed about half the labor force. Sixty percent of the population reside in rural areas. The'r economic well-being is closely related to agriculture and agroindustry.
1.02 Food crops (maize, beans, rice, sorghum, and wheat) for internal consumption typically provide about 20Z of agricultural GDP. Export crops, including cotton, coffee, sugar, and vegetables, account for 40% more. The remainder of the agricultural product consists of industrial crops, livestock, forestry, and fishing (Table I.1).
Table 1.1: Composition of Agricultural Production, 1980-89 (In Percent)
------_------_------__------__------1980-82 1983-86 1986 1987 1988 1989 I. Total Crop Production 80.7 60.9 62.1 82.7 82.8 61.2 Export Crops 1/ 81.2 29.2 29.4 29.6 28.0 28.8 Internal Consumption 2/ 19.2 21.1 21.9 21.8 21.4 20.7 Industrial Use Crops 8/ 10.3 10.6 10.8 11.6 12.9 12.2 II. Livestock, Aviculture 80.7 81.1 29.6 29.0 29.4 80.4 III. Forestry and Fishing 8.5 8.0 8.8 8.8 8.8 8.4 IV. Total Production 100.0 100.0 100.0 100.0 100.0 100.0 Memorandum
Agricultural Product/GDP 26.0 26.6 26.6 26.7 26.8 26.7 Agricultural Sector Growth (1980=100) 99.8 97.6 97.6 101.0 105.9 109.7 1/ Coffee, cotton, bananas, cardamon, othor export crops. 2/ Corn, beans, fruits, vegetables, others. 3/ Sugar, wheat, others. Source: Statistical Appendix, Table 7.1.
1.03 Land Distribution. The most recent agricultural census (1979) showed that land was unequally divided among farm sizes and that it had become more so from 1964 and from 1950, the dates of the previous censuses. Differences in farm size and in agricultural environments create distinct farming populations. Smaller holdings have more basic grains, and larger ones have more commercial crops and livestock.11 Smaller holdings use fewer
al There are no data on size of holding and factor or Input use. - so - purchased inputs and more labor. They have weaker capacity to pay for research, extension, and other public services.
1.04 Production. While the value of crop production grew at a rate of 5? annually from 1965 to 1980, it rose by only 1.12 annually from 1980 through 1989 (Table I.2). Basic grains grew at an annual rate of 2.5Z, and livestock production grew at a rate of 2.4?. No data are available on forestry. Crop yields were generally better in the 1980s than in the previous decade. Land under basic grains grew less than 10?. Land under the main exports (cotton, coffee, sugarcane, bananas, and cardamon) contracted somewhat, mainly because of a sharp decrease in cotton and a smaller one in coffee.
Table 1.2: Production ot Basic Grains and Solected Export Crops (Index 1980 = 100) ------__-----__------1980/82 1983/86 1985/86 1986/87 1987/88 1988/89 1989/90 ------__------__------Baslc Grains ______Rice Production 119.8 120.8 115.1 118.5 184.9 212.7 119.8 Yield 134.9 170.9 139.6 123.8 214.2 262.4 168.8 Boons P oduction 146.4 174.0 203.1 191.0 148.7 161.8 166.6 Yield 112.6 90.8 77.0 71.1 66.8 74.4 104.1 Maize Production 110.8 121.4 120.6 119.4 184.8 146.7 188.2 Yield 109.0 124.4 120.5 116.1 116.2 160.0 161.8 Sorghum Production 102.9 106.3 129.2 113.2 74.8 174.1 108.4 Yield 101.9 82.6 87.5 68.4 68.3 114.0 66.8 Wheat Production 94.7 107.6 160.0 117.0 69.8 94.8 110.0 Yield 96.7 106.7 160.0 114.5 112.6 104.8 110.0 Export Products Cotton Production 66.9 44.8 42.0 21.9 87.8 82.9 82.8 Yield 80.7 77.2 63.7 73.0 96.7 88.6 88.8 Banana Production 98.9 88.6 106.6 82.8 82.1 88.8 89.6 Yield 99.2 84.9 101.8 76.0 76.6 81.8 84.2 Coffee Production 106.8 108.9 102.4 110.8 108.9 101.1 108.9 Yield 98.8 102.1 108.7 114.2 122.8 105.1 118.2 Sugar Cane Production 105.1 102.2 104.0 118.9 129.8 127.7 132.6 Yi-ld 100.1 100.1 100.1 100.0 100.0 100.1 96.8 Source: Statistical Appendix, Table 7.2.
1.05 Exports. In the 19809, the overvaluation of the quetzal. aggravated by a drop in international prices (notably cotton) harmed exports seriously. Whereas exports grew at about 3.6? annually in the 1970s, growth in the 1980s was weaker (Table I.3). The real value of agricultural exports declined from US$860 million (1980-82) to US$610 million (1987-89). Traditional agricultural exports (cotton, coffee, and sugar) failed to recover significantly, even in the second half of the decade.
Table 1.3: Agricultural Exports, 1980-99 (InMillionI of US Dollare and Percont)
Growth Rates 1980-82 1983-86 1988 1987 1988 1989 1980-89 1985-89
Total Exports 1289 1101 1082 987 1020 1108 -2.7 2.1 ______of which: Agricultural Exports U54 783 877 763 784 885 -1.2 2.9 Traditional 1/ 672 889 749 585 692 640 -2.4 0.7 Nontraditional 182 144 128 177 192 246 8.2 16.8 Memorandum: Agric. Exports/Total Exports 66.2 71.4 82.6 77.2 76.8 79.9 Trad.Exports/Total Exports 62.0 68.8 70.6 69-3 68.0 57.8 Non-Trad.Exports/Total Exports 14.3 18.1 12.0 17.9 18.8 22.1 …------__------__------1/ Traditional products are coffee, bananas, sugar, cotton, cardemon, and meat. Source; Statistical Appendix, Table 3.5.
1.06 After falling until 1985, nontraditional agricultural exports revived to US$245 million in 1989. The best performers were sesame, shrimp, fish, lobster, fresh and processed fruits, wood and wood manufactures, and vegetables. Exports of fruit and vegetables from smallholders in the Altiplano, after falling from the 1980-81 average of US$70 million, reached US$77 million in 1988-89. The drop in nontraditional exports reduced rural employment and income. In response to reduced export employment, a return of labor to basic-grains production may have stimulated the latter in the late 1980s. It is not possible, though, to measure this precisely for lack of data on labor use.
1.07 Prices. Producer prices of agricultural commodities in Guatemala fell in comparison with those of nonagricultural goods. Price indices for basic grains were generally worse throughout the 1980s than at the beginning of the decade (Table I.4). Prices fell markedly in beans and wheat. They were somewhat better for sorghum and maize, and they rose slightly for rice. Much of the domestic price weakness reflected falling international prices of agricultural commodities. - 52 -
Table I.4: Basic Grains Price Indices, 1980-89 (1980 a 100)
------__-----__------1980/82 1988/86 1985/88 1988/87 1987/88 1988/89 …------__------__------Corn White 97.9 82.8 94.8 108.6 88.6 92.2 Yollow 89.7 75.6 88.7 98.1 87.0 86.6 Rice 101.1 89.0 87.6 137.6 108.4 88.0 Sorghum 88.6 71.8 87.1 96.0 88.0 79.1 Boans 71.3 62.7 67.2 87.4 66.8 75.3 Whoat 92.0 95.8 81.8 74.0 75.3 71.2 ------__------__------Source: Ministry of Agrlculture and World Bank staff cotliates.
1.08 Food Availability. From 1970 to 1980, supply (production minus net exports) of basic grains held at 180 kg per capita (Table 1.5). From 1980 through 1987 average supply was about 171 kg per capita. Although there was only a minor change in supply per capita, the contribution of food aid to supply rose substantially in 1985, 1986, and 1987. Food aid per capita grew from about 1.0 kg in 1980-84 to nearly 20 kg in 1985-87. The expansion of food aid appeared to displace some commercial imports, particularly of maize.
Table I.5: Availability of Basic Grains, 1980-87 (In Thousands of Metric Tons)
------___------__------1980 1981 1982 1988 1984 1985 1988 1987 ------__------__------Total Availability 1187.0 1121.2 1198.9 1271.3 1227.0 1432.6 1462.9 1825.4 ______National Supply 1/ 1010.0 918.1 1016.6 1148.3 1080.8 1188.4 1126.6 1226.1 Commorcial Imports 177.0 205.1 180.2 123.0 146.8 244.1 827.4 399.3 Food Aid 9.3 13.4 8.0 16.6 92.6 146.6 224.8 Availability per Capita (kg): ______Total per Capita 171.6 167.8 163.6 169.0 168.6 179.9 177.8 192.7 National Supply 1/ 148.0 128.8 139.0 162.6 139.6 149.2 137.3 145.4 Commercial Imports ..26.6 27.5 22.8 15.8 18.8 19.0 22 2 20.7 Food Aid 0.0 1.3 1.8 1.1 2.1 11.6 17.8 28.7 ------_------__------__------1/ Domestic production minus exports and net changes in stocks. Source: Statistical Appendix, Table 7.3.
B. Agricultural-Sector Issues
1.09 Previous objectives of Guatemalan agricultural policy were to raise production of basic grains while ameliorating nutritional status and food security through public interventions in markets. The agencies enlisted to achieve those objectives were the National Agricultural Marketing Institute (INDECA) to market basic grains, the National Bank of Agricultural Development (BANDESA) to provide credit, and other agencies to manage nutritional
g/ The actual increase was probably less due to re-exports of food aid. - 53 - programs. Other services, such as agricultural research, extension, market information, and product standards, were neglected. The lack of such services, coupled with inefficiencies of the marketing and credit structures and macroeconomic developments, caused the policy to fail.
Policy Orientation
1.10 Since 1987 the Government has sought to devote more resources to smallholders and to the rural poor (with emphasis on the Altiplano) while reducing the overall level of public intervention. Specific goals are the ir.crease of smallholders' incomes through enhanced agricultural growth, notably in basic grains. These goals are to be achieved through generating and transferring technology, impro ing smallholders' access to inputs and market information, and investing in rural infrastructure. There is broad agreement on the development objectives and the implementation strategy. Nonetheless, the Government faces serious, specific problems of (i) economic incentives to agriculture, (ii) food consumption and nutrition, (iii) the role of public institutions, and (iv) natural resources and the environment.
Incentives to ARriculture
1.11 The development strategy for commercial agriculture is consistent with a macroeconomic policy moving toward a more open economy. Macroeconomic changes (particularly in the exchange rate and trade system) have contributed to the recovery of commercial agriculture. Still, many areas of contention remain. These include exchange rate and trade policy, in which some trade policies continue to distort despite the favorable effects of exchange rate reforms on traditional and nontraditional exports. Another area is Rrice policy. Though price policy was intended to provide adequate incentives to producers, to control marketing margins, and to restrain consumer prices, it has largely failed. A third area is input policy. The Government has regulated imported inputs through quotas and differentiated taxes. Due to these regulations, and to lax competition among traders, producers may pay well above world market prices for some inputs.
Food Consumption and Nutrition
1.12 Food-security policy was designed to improve the nutritional status of the poor by linking it to interventions in agricultural production and trade. Despite a rise in food aid and a general increase in food availability per capita, Guatemala's nutritional situation has worsened recently. Some 1.8 million individuals, or 20Z of the population, receive nutritional assistance. While food aid has recently grown to be an important part of consumption, it has not significantly improved access of the poor to food. It may even have harmed incentives for domestic production by depressing prices.
Public Institutions
1.13 As the government tries to reduce its role in some areas, it confronts major problems in financing remaining public expenditures, :.n targeting services to producers (including research, extension, and credit), - 54 - and in implementing policies to protect the agricultural environment.
1.14 Level and Financina of Public ExPenditures. Guatemala's agricultural tax burden is light. Public expenditures in many subsectors are low, and services are inadequate and sometimes misdirected. Thus the main issue is how to improve agricultural services without raising the tax burden unreasonably.
1.15 Research and Extension. The Institute of Science and Agricultural Technology (ICTA) is responsible for agricultural research. Extension is the responsibility of Directorate General of Agricultural Services (DIGESA), Directorate General of Livestock Services (DIGESEPE), and Directorate General of Forestry Services (DIGEBOS). Several projects, including PROGETTAPS (IDB/IFAD), assist smallholders development. Important issues concern funding, the organization of research and extension, and methodologies.
1.16 Agricultural Finance. Increasing smallholder productivity will require increased access of producers to credit and improvements to the technology-transfer and input-distribution systems. The Government has previously tried to direct credit to smallholders - without much success - while incurring high subsidies to public banks like BANDESA. The main issue: how to finance those who cannot get commercial loans while reestablishing the solvency of the public agricultural credit system.
Natural Resources and the Environment
1.17 Landholding in Guatemala is one of the most unequally distributed in Latin America. There is a heavy concentration of smallholders and landless laborers in the Altiplano. They have only limited access to productJ3re assets and infrastructure. Fragmentation of landholdings, the impoverished resource base, the fragile environment of much of the Altiplano, and the subsistence nature of agriculture - all are closely linked to low productivity and to degradation of the resource base.
C. Analysis and Recommendations
Policy Orientatton
1.31 The duality of Guatemala's agriculture makes it advisable to differentiate the Government's role in the commercial and smallholder subsectors. Except for neutral incentive policies and provision of basic infrastructure, research, and information, the commercial subsector does not require direct government intervention.
1.19 Greater public intervention is required in the smallholder sub- sector. Notwithstanding its potential impact, expansion of export crops on the Altiplano will benefit only a small fraction of farmers and landless laborers. The Government therefore needs to take measures - in the form of further intensification - to increase productivity of the activities that - 55 - provide the livelihood for the Altiplano's population.
Incentives to Agriculture
1.20 The goal of policy reform should be to improve producers' access to export markets in crops for which Guatemala has a comparative advantage in exports, and to lower consumer prices of goods in which the country will remain a net importer. The Government has begun some reforms. For example, price controls now apply only to white maize tortillas, beans, some beef cuts, and milk. Still, other reforms are necessary. Exchange rate and trade policies (quantitative restrictions, trade prohibitions, differentiated duties, and, until recently, export taxes) have contradicted policy objectives of increasing grain production and bettering food security. Average effective protection rates for grain production during the 19809 were -60Z to -531 for rice, -331 to -28Z for maize, and -722 to -681 for beans. The figures indicate disincentives to produce those crops. The only protected crop was wheat, which averaged a protection of 122 in the decade. While protection of grains other than wheat increased somewhat in recent years, prices of beans and rice are still below international prices.
1.21 Guaranteed producer prices, paid by INDECA, did not maintain real prices for grain producers. INDECA's purchases have been insignificant; from 1983 through 1988 it bought less than 12 of the national maize and bean harvest. The result has been that guaranteed producers' prices have generally been below market prices.
1.22 Various subsidies exist in Guatemala's agriculture. Sources of open or hidden subsidies are such measures as development laws for poultry, dairy, and banana; the import regime for wheat and maize; the domestic prices for wheat; and the operations of BANDESA and INDECA. Pricing policies of sugar and poultry have also subsidized producers.
1.23 Trade restrictions and sectoral development laws give preference to a select few producers. For example, imports of inputs and equipment for poultry, dairy, and banana subsectors are exempt from taxes and tariffs. ASAZGUA and ANACAFE monopolize sugar and coffee exports. The Association of Millers controls wheat import and distribution. Permits for yellow maize imports, wheat imports, distribution and sales of milk, beef, and livestock exports - these are the privileges of a few firms. Such barriers have well- known efficiency costs and should be dismantled.
1.24 Trade and Distribution of Inputs. Trade, exchange rate, and legal reforms will not be fully felt until additional measures are taken to improve producers' access to modern inputs. In a previous reform attempt, in 1986, the Ministry of Agriculture distributed fertilizers and agrochemicals to smallholders to facilitate access of producers to inputs at "reasonable" prices. However, there were problems in distributing the fertilizers and difficulties in reaching the target population. Direct public intervention in the input distribution system has thereby failed. Other measures will have to be tried. - 56 - 1.25 Recommendations
(i) Eliminate quantitative restrictions on imports and exports of basic grains. Replace quantitative restrictions on imports with tariffs. (ii) Standardize grain tariffs to give agriculture protection like that of other productive sectors. Apply those tariffs to all grain imports except food aid distributed directly to the target population. (iii) Assess remaining distortions from trade and price policies affecting maize, wheat, and sugar, and formulate a policy to eliminate them. (iv) Eliminate import exemptions and laws promoting particular activities, such as poultry.
(v) Consider eliminating INDECA. It would have no meaningful role after the preceding reforms.
(vi) Except for those related to human and animal health, remove all input-trade restrictions, notably quantitative restrictions that allow a few importers to control the agricultural input market. (vUi) Review the impact of the 1986 program on competition in input supply. Propose measures to eliminate direct Government intervention while ensuring the financial viability of the system.
Food Consumption and Nutrition 1.26 The policy goal should be to improve food security and reduce the impacts uf macroeconomic reforms on the poor. The more frequent problems in improving national nutrition are (i) low coverage, (ii) poor targeting, (iii) low nutritional contribution, (iv) poor integration with health programs, (v) distribution and storage of commodities, (vi) lack of continuity, (vii) little participation of beneficiaries, (viii) absence of criteria to add new beneficiaries, (ix) l&ck of assessment information, and (x) absence of standardized health criteria, hindering selection of beneficiaries and measurement of program impact. 1.27 Increasing the coverage of nutritional programs to provide at least a minimum coverage would require an increase from US$21 per family/year to US$120 per family/year. Despite these apparently high costs, the scope for improving implementation is broad. Total program costs, distribution, and administrative costs all vary across observed programs, suggesting that there is scope for economies in program management.
1.28 Food Aid. While food aid totaled less than 1% of national grain supply at the beginning of the 1980s, it amounted to approximately 141 in 1987. Food aid has contributed to an increase in the per capita availability of cereals, but it has had no significant effect in improving access of the - 57 - low-income population to food. Only about 20Z is distributed directly to low- income families through targeted programs, meaning that as much as 80Z of food aid competes directly with domestic production and commercial imports. Despite the importance of food aid, there are no clear policles to administer it or to monitor its impact on agriculture. While there is evidence of a negative impact of food aid on agricultural production in Central America, such evidence is not well quantified in Guatemala, ~
1.29 Recommendations
(i) Improve targeting in food aid programs so as to better the access of the poor to food.
(ii) Set tariffs on commercialized food aid equal to those on other grain imports.
(iii) Review the procedural, financial, and economic aspects of food aid and recommend a system to monitor food aid, showing how it should be integrated into agricultural policy.
(iv) Initiate education campaigns to improve family-budget utilization and food self-selection.
(v) Strengthen nutritional surveillance to report on child malnutrition, nutritionally related morbidity, and mortality.
Public Institutions
1.30 The smallholder sector should be the main objective of the government's investment program. Sufficient operational resources must be provided to complement investments in basic infrastructure. Service priorities should be set to benefit smallholders.
1.31 Level and Financing of Public Expenditures. Because of fiscal and operational constraints, public expenditures on agriculture have not promoted growth. Only a small share of the budget has been allocated to agriculture compared with other sectors (Table I.6). The sector's budget depends too much on foreign financing. That at times distorts priorities. Substantial resources go to the losses of the agricultural marketing and credit agencies.
1.32 Agricultural expenditures as a share of GDP fell from the 2Z level typical of the 1960s to slightly more than 1Z in the second half of the 1980s. The agricultural sector also lost weight in relation to other sectors during the 1980s. Public agricultural investments at the beginning of the 1980s
!/ The problems of dairying are widely attributed to the unfair competition of aid. - 58 - averaged 0.81 of agricultural GDP and dropped to 0.5? in 1988-89 (Table I.7).
Table .6: Public Expenditures on Agriculture, 1980-89 (In Percent)
1980-82 198B-86 1986 1987 1988 1989 Pub.Exp.Agric./ODP 2.2 1.6 1.1 1.1 1.0 1.1 Pub.Exp.Agric./AgrIc. CDP 7.1 6.0 4.4 4.2 8.9 4.1 Pub.Invest.Agric./AgrIc. CDP 0.0 0.7 0.8 0.6 0.5 0.6 Put.Invest.Agrlc. (ncl.BANDESA)/ Agric. CDP 2.9 1.8 1.7 1.7 1.0 1.6 Pub.Current AgrIc./Agric.CDP 4.2 7.0 2.7 2.6 2.9 2.6 Pub.Current Agric./Pub.Exp.Agric. 69.2 70.4 81.4 69.6 74.4 88.4 External Share In Expenditures 6.6 10.6 17.0 21.0 81.0 72.0 Current Expenditures --- 8.7 14.0 7.0 9.0 28.0 Capital Expenditures 14.7 27.8 19.0 84.0 61.0 98.0
Source: Ministry of Finance and World Bank staff estimates.
1.33 During 1986-89 approximately 65? of the Miniscry of Agriculture's total expenditures went to current expenditures. Of current expenditures, 85? goes for salaries and benefits, with the result that staff lack operating funds. Foreigr. financing, which averaged 92 of total expenditures of the Ministry of Agriculture during 1980-86, reached 72Z of total expenditures in 1989. It paid for 281 of recurrent expenditures and 96Z of investment.
Table 1.7: Allocation of Public Expenditures, 1980-89 (In Percent)
Current Expenditures Capital Expendliures Total Expenditures
1980-84 1986-89 1980-84 1986-89 1980-84 1986-89
Centralized Agencies 1/ 20 81 2 16 14 26 Decentralized Agencies 80 69 98 84 86 74 of which: BANDESA 17 1 67 67 383 4 INDECA 87 86 8 4 28 24 Other 2/ 26 18 28 18 26 16 Total l00 100 100 100 100 100 1/ Ministry, DIGESA, DIGESEPE, DIGEBOS, Others. 2/ INTA: INAFOR, ICTA, PROLAC. Source: Ministry of Agriculture.
4/ These figures exclude capital outlays by BANDESA. The situation in 1991 may even be worse, as real expenditures may continue to drop, and delays In funding may arise from Guatemala's difficulties In servicing Its external debts. - 59 - io34 Overall budget implementation dropped from 81 in 1981 to 502 in 1989. The implementation of capital budget has also been poor, decreasing from 75 in 1986 to 39? in 1989. Inadequate planning and lack of funds to finance nonsalary expenditures account largely for the deterioration in budget-execution capabilities.
1.35 About 60Z of public agricultural expenditure goes to BANDESA and INDECA. Resources for other institutions--ICTA, DIGESA, DIGESEPE, and DIGEBOS-- are inadequate. Those agencies accounted for 26Z of total public expenditures on agriculture - a mere 0.271 of GDP - during the last five years.
1.36 Institutional problems further prevent the Ministry of Agriculture from implementing sectoral development policy. Responsibility for implementation is spread among seven agencies. No mechanisms exist to coordinate implementation, integrate policy with resource allocation, define investment priorities, and monitor the results of policies and investment decisions. Isolated projects to improve policy planning and implementation have generally weakened institutional capabilities. A global reform is required.
1.37 Taxation. As was explained in Chapter II, Part I, Guatemala's tax regime is characterized by a low overall burden, high reliance on indirect taxes, and poor tax administration. Despite its importance in the economy, the agricultural sector is taxed lightly. The gradual phasing out of export taxes - formerly the major revenue source from the sector - left a gap in tax revenue that has not been filled from other sources.
1.38 It has been argued that property taxes cannot be captvred because the lack of land titles prevents the government from identifying its tax base. In point of fact, however, this would be a problem only if the goal were to tax smallholders. Although the lack of titling does affect the Altiplano and Pet6n regions, the majority of smallholders would be exempt from taxation because of low incomes. Commercial land in the Pacific and Atlantic lowlands, coffee farms, and commercial livestock ranches have stronger title and could be taxed more aggressively.
1.39 Recommendations
(i) A comprehensive effort must be made to modernize institutions in the public agricultural sector. That effort should alleviate both budgetary and institutional problems.
(ii) Redirect expenditures toward programs and projects that are clearly contributing to growth, food security, and sectoral revenue generation.
(iii) Complete land registration and titling, including updating of land- u1se maps.
(iv) While the ove;.1 .l tax syste-1 is being revamped, increase the fiscal contribution of the sector through temporary measures such as increasing the tax rates and/or the base assessments of rural - 60 -
properties. Increasing revenues through the idle land tax is not viable because there are no objective criteria to impose it.
1.40 Research and Extension. The principal goal of the public agricultural research and extension system should be to generate profitable and sustainable production techniques for smallholders. Much of agricultural research and extension for larger, commercial enterprises can be left to the private sector. The Government's policy in these areas has not fully attained the goals of generating and transferring technology for its target group. The reasons: lack of funds, administrative and coordination problems, inappropriate resource allocatiuns, biased technology, and inefficient methods o( technology transfer.
1.41 On average, Guatemala allocates to research and extenrsion only half of what countries with similar per capita income do, which is to say as much as 1.75Z of their agricultural product. The general insufficiency of funding was aggravated by cuts in recurrent expenditures (34Z during 1980-84 and 1985-89), that hurt staff efficiency.
1.42 There is not enough information to assess the adoption of technology by farmers or its impact. In general it aDpears that ICTA's crop-production recommendations are biased to genetic aspects, without a similar emphasis on agronomy. The use of available technology and improved varieties by smallholders is limited to areas where production is for the market, and the overall impact of recommendations for corn and beans has been insignificant.
1.43 One cause of poor technology .ransfer is weak extension. The existence of three extension agencies working with the same group of beneficiaries reduces overall efficiency, multiplies coordination problems, duplicates efforts, and increases operational costs. The fact that many projects compete for scarce qualified personnel aggravates these problems. It weakens the public sector and concentrates professional staff ir.Guatemala City.
1.44 The extension effort is thinned partly because the main responsibility of the agencies is not technology transfer. Only 10? of DIGESA, DIGESEPE, and DIGEBOS staff (910) are classified as extensionists, and even they do not work full-time on extension. For example, 53? of DlGESA's budget and 20? of DIGESEPE's budget are allocated to management and control. Moreover, the technology-transfer system mixes productive and social services. That lowers overall efficiency.
1.45 The traditional extension utilized by the agencies is considered ineffective as it achieves a low farmer/extension worker ratio and fails to use enough on-farm methods. In contrast the PROGETTAPS project (IFAD/IDB) has achieved higher efficiency by using training and visit (T&V) methods of group technology transfer.
1.46 The responsibility, objectives, and scope of the services have not been clearly defined. The definition of the smallholder includes all farmers with less than seven hectares of land. The criterion is too general, and it does not include technical factors. - SI -
1.47 Recommendations ti) Assess current research and extension to ensure that it can solve the smallholders' problems, especially in the Altiplano. Use that study to define a national research and extension priority program.
(ii) Study the constraints limiting the smallholders' adoption of ICTA and other recommended technology.
(iii) Unify the extension services of DIGESA, DIGESEPE, and DIGEBOS to eliminate duplication and improve management.
(iv) Organize extension along the PROGETTAPS methodology to help coordinate activities of participating agencies and to further T&V, especially group technology transfer.
(v) Further define the target population of the unified services, using agroecological and economic criteria. The defining process should distinguish smallholders who can generate adequate income from agriculture from resource-poor smallholders who cannot generate enough income and therefore cannot be helped through technology transfer alone. Research and technology transfer should concentrate on the first group.
(vi) Assistance to resource poor smallholders should be a responsibility shared by the Ministry of Agriculture with other public agencies and NGOs.
(vii) Give priority in resource allocation to the unified research and extension system and provide it with stable long-term financing. The increasing dependency on foreign resources does not guarantee stability.
Agricultural Finance
1.48 Subsidized credit has been used to foster both smallholder and grain production. This policy has neither had the desired effect nor always benefitted smallholders. It has, however, resulted in financial losses and an inefficient use of scarce financial resources. Despite efforts to increase the availability of agricultural credit through subsidized rediscount lines and targeted trust funds, real agricultural credit from the banking system declined by 58Z from 1980 to 1988. Agricultural credit from private banks fell by 74Z and was only partly compensated by the expansion of BANDESA credit. The increase of loans has aggravated BANDESA's problems - high operating costs and low portfolio recovery - as it attempted to serve high-cost small producers. BANDESA has further suffered from outside interference in its management, from dependence on external funding, and from its vague and often contradictory objectives. Despite these criticisms, because acceptable alternatives cannot develop rapidly, BANDESA will continue to play a major role in agricultural credit to smallholders. Di
S/ee Qust=la. Financial Sector Repor , World Bank, July lo99, for addtilonal detail a. - 62 -
1.49 Recommendations
(i) Eliminate interest rate subsidies and otherwise make BANDESA's practices compatible with the rest of the banking system.
(ii) Decentralize BAZNDESA's operations and focus them on smallholders' credit. Narrow the definition of smallholders to those who can present viable projects and eliminate those producers who can be assisted only through direct subsidies. The latter group of farmers should be supported by social programs, not by credit. (iii) Simplify BANDESA's procedures and widen the range of its services.
(iv) Clean up the portfolio in arrears and eliminate external interferences in regular operations. (v) Strengthen competing agencies such as the Rural Credit Unions, nongovernmental organizations, and other entities working with smallholders. (vi) Consolidate trust funds in a central rediscount facility to which all participating agencies have equal access.
Natural Resources and the ntvironment 1.50 The fragile environment for farming in the Altiplano highlights the urgency of reforms in agricultural practices and tenure. Natural resource degradation is high in terms of soil erosion and fuelwood scarcity resulting from overexploitation of the forests. Pesticide contamination, associated with crop diversification, has occurred. Concerted efforts and large resources are required to provide a minimum degree of flexibility to adjust cropping practices and land-use patterns in the Altiplano region.'
Recommendations ti) Allocate more resources to research, extension, and environment improvement in agricultural, particularly in the Altiplano.
(ii) Establish an environment unit in the Ministry of Agriculture to orient extension activities related to resource conservation. (iii) Clarify and reform pesticide legislation and develop the institutional capacity to enforce it.
(iv) Establish a pesticide-analysis facility to monitor domestic products and exports.
§/ Se also Environmental Issuos Paper, World Bank, June 1990. - 63 -
(v) Improve funding for forestry research and extension in the areas of multiple use management, integrated tree and crop farming, and promotion of vigorous species.
(vi) Rationalize regulations affecting fuelwood markets. - 64 -
CHAPTER IIs MANUFACTURING SECTOR
A. Overview
2.01 The regional economic crisis of the early 1980s prompted Guatemala and other members of the Central American Common Market (CACM) to implement a number of important structural policy reforms starting in 1985. Given low access to foreign savings and limited domestic and regional demand for Guatemalan products, policies that encourage export growth and diversificatior. assume even greater importance in promoting economic development. Under these conditions, trade policies that improve incentives for exporting relative to those for import-substituting are crucial, as are accompanying policies that maintain an economic framework supportive of efficient resource allocation in product and factor markets. In particular, higher growth through increased levels of investment in efficient projects requires a stable and neutral policy framewcrk in which biases toward particular subsectors, producers, and firm size are reduced.
2.02 In this regard, Guatemala's comprehensive reforms in the areas of exchange rate policy, import liberalization, export promotion, and price liberalization have been key in the effort to reorient the economy to extra- regional markets. From 1986 through 1989, nontraditional exports outside the region grew by 24? a year. Manufactured exports in total merchandise exports increased from 222 to 31Z. The pronounced growth of assembly manufactures in extraregional trade suggests that further reductions in the antiexport bias of the trade regime would increase (i) the importance of the sector as a source of foreign exchange earnings and employment generation and (ii) its potential backward linkages with agriculture. In particular, trade-policy reforms should achieve a significant reduction in the level and dispersion of effective protection to producers for the local and regional market. Financial-sector reform should contribute to an increase in the availability of investment finance and the capacity of producers to respond to changes in production incentives.
2.03 This chapter reviews the structure and performance of manufacturing and the principal policy factors constraining further export growth and diversification. Clearly structural weaknesses associated with cost and quality differences take longer to bring about. This chapter focuses on the principal policies that discourage the adjustment process.
B. Trends in ManufacturinR
2.01; From 1960 through 1980, real value added in Guatemalan manufacturing grew at 72 a year, and manufacturing's share in GDP increased from 12? to 16z. The structure of manufacturing was so highly oriented to the CACM, however, that by 1980 only 10? of manufacturing production was exported to extraregional markets. Without alternative market outlets, declining regional _ 65 -
economic conditions in the early 1980s were reflected in a pronounced deterioration of manufacturing performance. Manufactured exports fell by 45? during 1980-85. Real value added in manufacturing declined by 22 a year, outpacing the overall decline in real GDP growth. From 1986 through 1990 the manufacturing sector has experienced a modest rezovery, growing by 1.8? a year. However, the real value of output and investment in manufacturing has not yet regained its 1980 levels.
Table I.1: Indicators of Manufacturing Performance, 1980-1989 1/ (in U) 1980-82 198?-86 1988 1987 19o8 189a Share in Real GDP 16.1 16.9 16.9 16.7 16.4 16.1 Share In Total Exports 8.3880.0 21.8 29.8 30.7 81.5 Share In Intraregional Exports 85.0 87.2 87.7 84.2 88.2 89.0 Share In Extraregional Exports 11.2 11.4 7.8 12.6 18.6 14.6 Share in Employment 12.3 12.6 11.9 11.6 18.8 12.8 Growth in Real Output -1.6 -0.7 0.7 2.0 2.2 2.0 Growth in Real Mfg. Investment -3.8 -9.7 9.4 80.3 NA NA 1/ Figures include maqui Is. Source: Statistical Appendix.
2.05 Guatemalan manufacturing has two components: a large traditional sector specializing in production of a range of light manufactures for the local and CACM markets, and an emerging "maquila" sector covering garment assembly for foreign markets. Output and employment in the enclave maquila sector have increased significantly since the introduction of the export- incentives law in late 1984, and wages in 1989 are approximately double their value in 1986. In garment production, the principal maquila activity, currently 189 firms employ 35,000 workers. By contrast, in 1986 41 firms employed 5,120 workers. For the same period, net foreign exchange earnings have increased from US$3.7 million to US$36.9 million. Projections for the next three years suggest similar performance.
2.06 The traditional sector comprises about 2,000 firms producing food products, chemicals, textiles, and a range of consumer manufactures. Average firm employment is 20 workers, although a small share of firms in food processing and chemicals employ larger labor forces. Reflecting the pattern of tariff incentives, production structures are capital-intensive and highly import-dependent. Output is concentrated in the production of food, beverages, and tobacco, which account for nearly half of total output. Intermediate-goods production contributes another fifth. In contrast to trends in the maquila sector, the share of traditional-manufacturing employment has declined from 112 in 1980 to 8X in 1988. Factors explaining this trend are rapid growth in the maquila sector; real interest rates that became sharply negative in the mid-1980s and again in 1990; and the structure of the tariff schedule, which favors the use of imported capital goods over labor.
2.07 The share of manufactured exports in total merchandise exports has increased sharply since 19S6. The increase can be attributed largely to - 66 -
increased exports under the Caribbean Basin Initiative (CBI), increased maquila aclivity, and reforms in trade ana exchange rate policy since 1985. These factors also explain the dramatic shift in the composition of exports over the same period. Agro-based industry, textiles, and wood manufactures have become relatively more important in extraregional trade, while the shares of chemicals and metals have declined sharply. In the 1.traregional market, in contrast, trade is still concentrated in highly protected consumer products such as beverages, cosmetics and detergents, and paper and plastics manufactures.
C. Trade Reaime
2.08 Remaining antiexport biases in the structure of tariff and nontariff protection encourage production for the local and regional markets. At the same time, they discourage production for growth markets outside the region. Strong escalation in the tariff structure is particularly favorable to producers of final consumer products for the protected regional market, while additional distortions stemming from the exchange rate regime (see paras. 2.12-2.14), quantitative restrictions, and duty exonerations tend to reinforce existing tariff distortions.
2.09 Nominal and Effective Protection. Guatemala's legal tariff structure is composed of 1958 tariff positions. Under the Common External Tariff (CET), 90z of all tariff positions are common to other members of the CACM (Part I items). An additional 52 of all tariff positions cover imports of items such as textiles and apparel, paper, bevarages, and tires, whereby mutual-agreement nonuniform tariffs against imports from outside the region are applied (Part II items). The remaining tariff positions are excluded from the treaty. They generally cover noncompeting imports (Part III items). In 1986 CACH members modified the CET by three means. They replaced specific rates with ad valorem rates, eliminated a 302 surcharge on most imports, and modernized the tariff code to conform more closely with the Brussels nomenclature. The reform produced a sharp reduction in the average level of nominal protection to 25Z, but it left the structure of effective protection relatively unchanged. Effective protection to consumer nondurables produced for the regional market fell from 55.6Z to 51.5%, and effective protection to extraregional exports remained unchanged at -5.9ZY
2.10 On March 9, 1990, the Government simplified the tariff structure for most Part I and Part II items by reducing the number of tariff rates to six and the range of tariffs to 6Z to 41Z.V These latest changes reduced both the standard deviation and the mean level of nominal protection to fairly low values (152 and 20? respectively), but the basic structure of protection in favor of consumer goods remains largely unchanged. Approximately half of all tariff positions pay a tariff rate of less than 102, while the average
1/ S wGuatomala Economic Situation and Prospocts, World Bank, January 1987, for a more d tell.d discusslon of the tariff reform of 1988.
V Legal tariffs range from 2% to 87%. In March 1990 the Government froze the tariff surcharge at 4%. - 67 -
protection against imports of consumer goods is 26.4Z. Within manufacturing, final consumer products such as beverages, tobacco, wood furniture, and footwear receive average nominal protection in the range of 312 to 47Z. Nominal protection rates on intermediates such as chemicals and basic metal industries are much lower - 132 and 1SZ respectively.
Tabl I1.2: Legal Tariff Structure In 1087 and 1990 1987 1987 1-90 1990 Sector Unweighted Standard Unweighted Standard Mean Deviation Mean (#) Dovialton
Whole Economy 26.2 21.7 19.8 14.9 Agriculture 21.8 18.6 16.9 18.8 Mining 10.9 4.6 7.6 2.4 Manufacturing 26.7 22.0 20.2 16.0 Consumer Goods 86.2 26.2 28.4 16.2 Intenmediato Goods 17.6 18.9 16.2 10.6 Capital Goods 19.4 18. 6 17.6 16. 1
2.11 The impact of the tariff escalation on production incentives is reflected in the highly dispersed pattern of effective protection across activities. High tariffs on output and low tariffs on inputs combine to reward lower value-added production relatively more than industries generating higher domestic value added. This point can be illustrated by approximate measures of effective protection based on data from Guatemalan manufacturing.A Given average tariffs paid in manufacturing (26? consumer goods and 102 on inputs), effective protection rates can range from as low as 43Z in beverages production (value added in production is 55z) to as high as 1322 in leather textiles (value added in production is 24?). Without more detailed information on production structures, these estimates can yield only general ranges on effective protection rates, yet they illustrate the overall impact of the existing tariff structure. It overprotects (on average) the production of final goods and discourages the production of intermediate, capital, and agricultural goods. Given that many imports pay tariffs over 40?, th.t many producers access imported inputs at zero tariffs, and that nontariff restrictions generally reinforce distortions applied through the
8/ Precise estimates of effective protection requiro detailed Information on production structures. Estimates of effective protection In this section were made by the following calculations: ERP a VA(d)/VA(*), where VA(d) is value added in domestic prices and VA(*) is value added In foreign prices moasurod by the following estimation: VA(*) = Pi(d)/(1+ti) - (Pi(d) - VAi(d)]/(1.tJ) P1(d) is production in sector (t) in domestic prices, (ti) Is the tariff applied to imports in sector (1) VAI(d) Is value added in sector (i) In domestic prices, and (tJ) is the *verage tariff paid on Imported Inputs In sector (I). The estimates overostimate effective protection to sector (i)to the extent that (tJ) underestimates the true tariff paid on importod inputs, and to the extent that tariff protection generates an Increase in the price of nontradables through domestic price effects. - 68 - tariff regime, actual levels and dispersion of effective protection are likely to be higher than indicated by the simple estimates.
2.12 ExchanRe Rate. The most important variable in generating an increase in the domestic supply of traded goods - and thereby export earnings and savings - is th. real exchange rate.Y The incentive value of the official exchange rate is reflected in the underlying purchasing power of the local currency, so that both the level and the variation in the real exchange rate are important determinants of investment and production in the traded- goods sector. Although the real exchange rate is not itself a policy variable, policies that facilitate the adjustment of the real exchange rate to changes in its underlying determinants (tariffs, capital flows, terms of trade) are the most efficient means of maintaining competitiveness in the tradables sector while minimizing the impact of temporary fluctuations on economic activity.
2.13 In this respect, Guatemalan exchange rate policy over the past five years has been a principal deterrent to improved competitiveness in tradables production. Although the elimination of multiple exchange rates in 1986 was pursued with policies that facilitated real depreciation of the quetzal, the Government quickly reverted to foreign exchange rationing when balance of payments developments turned negative. Over the past two years the volume of unfulfilled foreign exchange requests through the Central Bank has increased sharply, forcing many importers to buy in the parallel market. The result has been increased uncertainty and speculation against the Government's nominal exchange rate policy. These conditions manifest themselves in high real exchange rate volatility and periods of increased activity in the parallel market.
2.14 At the end of 1989 the Government abandoned its managed exchange rate regime and adopted a freely floating regime. That was subsequently changed. As Chapter I, Part I explains, the Government experimented with a variety of exchange rate systems in 1990, without achieving the desired exchange rate stability. Only since December 1990 - with the adoption of yet another exchange regime - the exchange rate stabilized. However, without supportive macroeconomic policies, free entry by many bidders, and lack of collusion by bankers or participants, exchange rate instability could easily return, and with it rationing and a surge in black market activity.
2.15 Quantitative Restrictions. Nontariff barriers to trade increase the risks associated with producing for world markets and reduce the efficiency of domestic production by distorting domestic prices. On the one hand, quantitative restrictions on exports increase effective protection to particular industries by artificially depressing the domestic prices of inputs that could be exported at higher world prices. On the other hand, prohibitions against imports of basic grains and agricultural products, by
4/ The real exchange rate is the nominal exchange rate adjusted for changes In prices of tradable and nontradable goods. By using the prices of nontradables and tradables, the real enchange rate captures the extent of competItivenese of the tradable sector within the economy. A higher real exchange rate (i.e. real depreciation of the quetzel) indicate coteris paribus a higher degrco of competitiveness of the tradablo sector vis-a-vis the nontradaFre oector. - 69 -
raising their domestic prices above prevailing international levels, limit forward linkages with manufacturing by discriminating against producers that otherwise might be competitive.
2.16 In Guatemala 79 items covering 62 of domestic production were actually subject to some form of import prohibition. Nevertheless, many imports, including food, beverages, and tobacco, are subject to inspection or licensing procedures for health or security reasons. To the extent that bureaucratic requirements do not facilitate imports, health and security regulations on imports covering about 302 of domestic production represents a potential obstacle to trade. About 61 export products, including wood, skins and furs, and agricultural products, are affected by export licensing or prohibition.
2.17 Export Incentives. Measures to increase export activity and competitiveness should contribute to a reduction in the antiexport bias caused by effective protection. When immediate reductions in trade barriers are not feasible, a second-best solution is to compensate export producers through policies that indirectly reduce the size of domestic price distortions. From an efficiency standpoint, the key policy issue is to apply compensatory measures as equitably as possible. Although an across-the-board export subsidy offsets the impact of an across-the-board import tariff on relative prices, discretionary export subsidies may increase the micro-distortions imposed through the trade regime.
2.18 In this regard, the June 1989 modification of the export incentive law improved the efficiency of export promotion measures. Originally introduced in 1984, the law was modified to expand coverage and access to indirect exporters and to exporters of nontraditional agricultural products. Under the new law, exporters receive full exemption from customs duties, import taxes, and VAT on imports of machinery, intermediate products, and raw materials (excluding oil and lubricants). Additionally, all but indirect exporters receive full income tax exemption for ten years and complete exemption from all ordinary or extraordinary export taxes. During the first six months of 1990, fiscal losses associated with the export-promotion law totaled US$8.5 million. Going by nontraditional exports over the same period in 1988, the export-promotion regime generates a subsidy of 9X per unit of foreign exchange earned. Further improvements in the law can be generated by extendiag equal benefits to indirect exporters, by limiting the period of full income tax exoneration to coincide with further planned reductions in tariff distortions, and by reducing the transactions costs associated with receiving benefits (it currently takes up to eight months to register and receive export incentives).
2.19 Exonerations. In 1989 the rate of tariff collection per unit of imports amounted to 8Z. Given that the legal import-weighted tariff is 142, the rate of exonerations through the import regime totals nearly 50Z. Collected tariff rates on intermediate and capital goods are particularly low, reflecting the importance of sector-promotion regimes in the economy. Given that exonerations are concentrated at the low end of the tariff floor and that exonerations are generally firm rather than sector-specific, such widespread use of duty exonerations generally increases the dispersion of effective - 70 - protection across economic agents even further. An equally important policy issUe is the impact of high tariff exonerations on Government revenues at a tiL.a when the public sector deficit has become the principal constraint to restoring macroeconomic stability.
Table II.S Actual Tarlffs In 1989 (inthousands of US dollare) Import Tax Imjort coII ootEd Tri-fT Sector Revenue Value Rate (U)
Agricultural product. 1,042 45,188 10.4 Mineral products 265 89,781 7.9 Food beveragos and tobacco 8,086 136,179 17.1 Textile and lether products 9,829 78,664 19. 7 Wood wnd cork products 478 6,869 17.7 Paper and paper products 6,827 92,940 14.1 Chemical products 87,176 628,781 10 8 Rubber and Plastic 6,800 88,664 18.8 Nonmetal products 8,193 19,482 20.7 Motel products 7,242 98,747 8.0 Machinery Inc. loectric 24,998 816,337 7.9 Transportation equipment 20,848 143,462 18.9 Other manufacturing 8,543 68,407 12.6 TOTAL 182,928 1,668,711 8.0
D. Investment Finance
2.20 During the 19809, directed-credit policies and interest rate controls have sidestepped the problem of financial-sector distortions by selectively compensating preferred sectors and producers. The effect has been to protect preferred borrowers through the arbitrary taxation of the financial system, lower priority sectors, and potentially efficient but less well established producers. Typically, new and smaller producers have been forced to seek credit at a much higher cost in the informal sector while traditional producers (those most protected by tariffs) have had easy access to bank credit at low or negative real rates of interest.
2.21 Resource Allocation. Past efforts to direct credit to priority sectors and to regulate interest rates reduced the overall supply of credit and made commercial banks excellent assets for enterprises to control through partnership in economic groups. By 1987, 331 of industrial loans accounting for 90Z of industrial credit were being financed through Central Bank lines of credit at subsidized interest rates. Few small or new enterprises were able to tap these cheap sources of funds; commercial banks chose instead to lend - 71 - to partner firms or well-esta.'ished enterprises.V Over time, bank exposure to partner firms and associated economic sectors became greater, and the concentration of rents in the same firms increased with the rate of inflation. Though interest rates have recently been liberalized, it is widely believed that unacceptably high bank exposure in particular sectors has resulted in collusive behavior in the formal banking system.
2.22 The implication of this scenario for the development of a competitive tradables sector is twofold. First, new and potentially efficient producers are frequently excluded from the traditional sector. They must seek funds on significantly less favorable terms through informal channels. Second, well-established and protected firms have more easily avoided adjustment to changes in the structure of tariff incentives, since they have been the exclusive recipients of huge subsidies in the form of cheap bank credit. The results of a simple statistical test indicate, in fact, a very low correlation between the average distribution in growth in output and growth in bank debt across industrial subsectors for the 1980s.A This would be the expected outcome only if recipients of bank credit were onlending the funds at their shadow price instead of using the funds to invest. While this suggests that the marginal productivity of investment may not have declined throughout the 19808, it also suggests that recipients of bank debt have capitalized the rents through onlending. As a result, nonrecipient producers have faced both higher interest rates and fewer investment opportunities.
2.23 Although the informal financial sector is emerging as an important segment of the financial system, adequate alternatives to commercial bank credit still do not exist. Money lenders typically charge extremely high interest rates. They require large physical guarantees and generally lend only small amounts and on a short-term basis. Nonregulated financial intermediaries rely less on physical guarantees, but they charge higher interest rates than the formal sector to cover higher costs of resource mobilization. Government policy states that interest income outside the formal banking system is taxed. That contributes to higher resource- mobilization costs in the informal sector. Other alternatives to bank credit - such as corporate bonds and bills, for example - are also not well developed. One reason for this is the current income tax treatment of nominal interest paid on debt (which is deductible) versus dividend payments (which are not). In 1989 it was estimated that this tax bias contributed to an annual cost of equity and debt of 5.4' and -2.2., respectively, providing a huge incentive to finance through debt. Interest paid on nonbank debt is also deductible, but most firms in a position to issue corporate bonds have found it easier and less costly to borrow directly from commercial banks.
S. So'Guatemala Financial Sector Report,' The World Bank, l900, for a dotailed discussion of FInancial-sector Issues In Guatemala. According to this report two independent studies confirm that micro-enterprises In general have very limited access to bank credit and roly Instead on Informsl finance.
6/ The correlatlon coefficient between growth In real loans and growth In real value *dded, and Setwen employment growth and growth In real loans, do not differ significantly from xero. Date are subsectoral averages for the period 1979-88. - 72 - 2%?4 Foreign Investment. Foreign direct investment has gone up since 19°7, reflecting sharp increases in maquila assembly and CBI-related investment. From 1984 through 1988 new investment in CBI-eligible industry and agribusiness amounted US$63.2 million. Nevertheless, in Costa Rica, where labor costs are substantially higher, new investment in similar activities totaled approximately US$90 million for the same period. Given Guatemala's clear advantages in labor costs and proximity to the U.S. market, domestic policy changes should be geared toward tapping potentially larger sources of equity finance in the form of additional foreign direct investment.
2.25 Guatemalan investment policy, one of the most liberal in Central America, has not been a deterrent to foreign investment per se. Nonresident investors in Guatemala receive national treatment, all sectors are open to investment, and incentive regimes are applied equally to resident and nonresadent applicants. More detrimental to the effort to attract foreign capital are the treatment of foreigners under the tax code, and processing delays associated with informal approval procedures in certain sectors. Under th,e tax code, dividend income to resident investors is exempt from income tax whereas dividends to foreign shareholders are subject to a 12.5S withholding tax. Additionally, the processing of benefit packages can take up to three years for new investors. Moreover, it is widely acknowledged that informal approval procedures restrict market entry in the banking, auditing, insurance, and airline industries. An even greater deterrent to foreign direct investment has been the perception of Guatemala as an unstable economic and political host for foreign investors. The provision in Guatemalan investment policy for full repatriation of profits has not reduced the perception of Guatemala as a risky investment environment, since foreign exchange is frequently unavailable and exchange rate policy is often erratic.
E. Other SuDDlY-Side Constraints 2.26 Low investment in highways and ports and monopolistic policies in the provision of services limit Guatemala's capacity to develop an efficient export sector capable of competing in world markets. Over 801 of Guatemalan exports are serviced through the Government-owned seaport of Santo Tomas, yet low investment and declining labor productivity have increased per unit transportation costs to exporters considerably. Estimates commissioned by the local chamber of commerce place transportation costs at twice those in Chile and Argentina and well above those in other countries in Central America. Short-term measures to improve transportation efficiency may include (i) opening the port to private investment and leasing, (ii) eliminating legal- monopoly privileges to the national truckers union in servicing the port, and (iii) examining wage costs and labor policy (port employment has tripled in the last five years whereas new port business has become less labor intensive).V And while cargo lines through the airport have increased since
7/ The Government has recently approved the lease of land near the seaport St Toms* for private managment and warehousing of bulk cargo. This measure will improve transportation efficiency only of traditional coffee oxports, however, since moot nontraditionsl exports aro loaded directly in Guatemala City. To date, the Government has not allowed private machinery or leasing (continued...) 73 -
the Government relinquished its monopoly in 1986, competition to the national. carrier has been limited by restrictions on foreign investment and cargo lilrs in the sector.
F. Recommendations
Trade Policies
2.27 Distortions stemming from trade policies represent the most significant obstacle to reorienting production to efficient export and impolt substitution activities. As illustrated in section B, the current pattern of nominal protection translates into a pattern of effective protection. It encourages production in low value-added activities for the regional market and discourages production for growth markets outside the region. Additional distortions stem from the exchange rate regime, credit rationing, quantitative licensing procedures, and duty exonerations. They ivforce distortions arising from the tariff regime and the actual misallocations of resources across firms and activities even further. Recommended reforms include the following measurest
(i) Eliminate nontariff barriers to trade such as exchange rationing and quantitative restrictions on imports and exports. Import regulations legitimately related to health and safety objectives should be administered as expeditiously as is feasible through one agency. All other imports should be registered automatically. Trade-policy instruments should not be used to respond to balance of payments pressures. Rents that currently accrue to protected producers should be captured by the Government.
(ii) Restructure the tariff schedule to achieve a low and uniform tariff pursued with policies conducive to a higher and more stable real exchange rate. Unifying the tariff structure would eliminate production inefficiency stemming from the dispersion in effective protection rates. It would also substantially increase the transparency of the trade regime. At the same time, lower levels of tariff protection in countries such as Chile and Mexico have led to higher volumes of imports and exports and greater economic growth through increased trade. The goal should be a uniform tariff at 20Z. This is the approach already adopted in other CACM countries, although a first stage of 10? to 20? is being pursued.
2.28 The impact of tariff adjustments on revenues will be particularly important in the next stage of tariff reform. That's because real reductions will be deeper, and because fiscal policy is an important determinant of the real exchange rate. The Government is currently approaching a tariff schedule in the 1OZ-40Z range, although other CACM countries have already undertaken
Y (.. .continued) Inside the Port Authority. Such leasing would lead to the grestest efficiency gatno for tho nontraditionol export sector. - 74 - deeper reforms. By moving to 1OX-20X in the next period of reform, the Government should experience a slight decline in revenues, some 12.61. We suggest approximately a uniform tariff of 202, which will produce a stronger impact on production incentives and fiscal revenues at the same time (see Table 11.4). While this simulation is based on the assumption that import levels remain constant, actual gains in revenues would be bolstered significantly if exonerations through the tariff schedule were reduced. The auttainability of further trade liberalization will be linked to the Go' ernment's capacity to finance future reductions in the tariff ceiling through other forms of taxation, strengthened tax administration, and reductions in expenditures.
Toble 11.4: Impact of Altornative Tariff Structures on Nominol Prot.ction and Revenue (unweighted averages)
Floor a 10X Floor = 10X Uniform Sector Ceillng a 403 Ceiling a 203 Tariff a 20X
Whole Economy 20.0 14.5 20.0 Agriculture 17.a 18.0 20.0 Mining 10.1 10.1 20.0 Manufacturing 20.8 14.6 20.0 Consumer Goods 25.7 18.8 20.0 Intermediate Goods 16.1 18.8 20.0 Capital Goods 17.1 18.8 20.0 Revenue Impact V/ 6.6X -12.6X 41.56
I/ Assumes constant volume of imports. Base case a tariff structure as of May 1990.
Acco2Manving Policies
2.29 Supply-side distortions stemming from legislated monopolies in services and lack of free entry in the transport sector all reduce potential improvements in resource allocation that are associated with outward orientation. The lack of investment finance, in particular, is frequently cit:ed ds the principal constraint to increasing investment and growth in the traded-goods sector. As suggested in section C, one principal cause has been the cor.centration of bank lending and associated rents in well-established enterprises. Given the level of bank exposure to these particular firms and their associated economic sectors, policy should be directed toward developing alternatives to bank credit and toward strengthening the traditional banking sector. Recommended policies include:
(i) Promoting market-orientation in the financial sector by maintaining interest rate liberalization policies, encouraging free entry and development of other financial institutions, and supporting the liquidation or restructuring of failing banks. - 75 -
(ii) Encouraging the development of equity finance by eliminating the income tax bias in favor of debt finance. Either allow dividend deductions from income taxation and the real interest component of debt finance, or disallow all interest rate deductions from income tax payments. (iii) Promoting foreign direct investment as an alternative source of capital by eliminating the differential income tax treatment of dividends earned by foreign and domestic investors, streamlining approval procedures for benefit packages, removing informal barriers to entry In key subsectors, and continuing efforts to stabilize the macroeconomic environment. (iv) Facilitating the development of the unregulated financial sector by removing the tax bias against interest earned on deposits in the nonregulated sector. Currently interest earned on all but nonregulated sources is tax-exempt, and interest from unregulated sources is also subject to withholding tax. 2.30 The changes in trade policy and industrial taxation outlined above should encourage a more significant restructuring of the indigenous manufacturing sector than has occurred to date. To minimize the associated transitional costs, microeconomic and regulatory policies should support the restructuring effort. Suggested reforms in this area includes ti) Increasing efficiency in transportation services by encouraging competition in the provision of seaport, trucking, and air-cargo services. These sectors should be open to private investment. Legislated monopoly rights to the national trucker's union should be abolished, and market entry in the provision of air-cargo services should be expanded. (ii) In the medium term, improving infrastructure at the seaport Santo Tomas should be a priority. It is the only major seaport in Central America not equipped with a cargo crane to load ships. Given the current public sector spending constraints, opening the port to private sector investment in machinery and management should be on the policy agenda. - 76
CHAPTER III: POWER SECTOR
A. Overview
3.01 In the past decade the power sector in Guatemala faced serious problems resulting from a lack of clear policies. As a consequence, it has been plagued with financial difficulties, weak management, low investment in infrastructure, and deterioration in the quality of service. Since the devaluation of the quetzal from its 1-to-l parity to the US dollar in 1984, electricity rates have been set most of the time below the costs of production. The Government has had to subsidize the sector by direct cash transfers amounting to about current Q850 million during 1980-90. About Q545 million of these transfers helped to finance construction of the Chixoy Hydroelectric Power Plant. The rest went toward covering part of the debt service caused by loans for this plant.
B. Institutional Framework and Service Levels
3.02 Public electricity service is provided by the Instituto Nacional de Electrificaci6n (INDE), the Empresa Eldctr'ca de Guatemala S.A. (EEGSA), and ten small municipal utilities. INDE is a government-owned enterprise reporting to the Minister of Energy and Mines. It is responsible for the bulk of power generation and transmission in the country as well as for distribution of power to about 250,000 customers in villages and rural areas. EEGSA, a former foreign-owned utility, is now controlled by INDE, which owns 921 of its stock. EEGSA keeps the tradition of good organization and executive staff stability from the times when the company was private. The resultt relatively good service for the company's 320,000 customers in Guatemala City and environs. EEGSA also operates thermal generation facilities (94MW). Municipal utilities provide the remaining electricity service in the country. Collectively they serve about 41,000 additional customers.
3.03 In 1990 total installed capacity in the public sector was 781MW, of which 62Z was hydropower. The remaining capacity resided in thermal plants. With the completion of the Chixoy Hydro Power Plant (300 MW) in 1986, Guatemala's generation system was transformed from one heavily dependent on oil to one relying almost entirely on hydropower.
3.04 Although the number of residential customers has increased by 6.9? per year in the last ten years, electricity consumption per capita (240 kWh per year) and access to electricity (402 of the population) remain the lowest in Central America. Total electricity consumption did not grow during the first half of the 1980s because of a sharp drop in industrial demand as the economy stagnated. During the past four years, however, consumption has begun to recover along with the recovery of the economy - but also prompted by subsidized electricity prices. - 77 -
3.05 One serious problem facing the power sector is that its electricity service is not reliable. Most of the thermal and some small hydropower generating plants have been poorly maintained. Although some thermal plants are now being rehabilitated, much more work needs to be done. Distribution systems are overloaded and poorly maintained, causing an increase in electricity losses during the last 11 years from llZ in 1980 to 17Z in 1990. Moreover, the largest power plant in the system (the Chixoy Hydro Power Plant) faces technical risks because of the poor geological conditions in the tunnel area. A tunnel collapse would have disastrous consequences for INDE and the Guatemalan economy, as it would require severe rationing of electricity. Remedial measures (which have already been identified with the assistance of consultants financed by the Bank) are urgently needed. Implementation of a program to rehabilitate INDE's thermal plants also deserves priority. (The Bank is assisting in this regard as well.)
C. Key Sector Issues
3.06 Electricity rates do not cover costs. Electricity rates to final consumers have deteriorated in real terms. They have declined from an average of US cents 13.2/kWh (current prices) prevailing in 1982 to US cents 4.9/kWh in 1990 (QO.221kWh). That comes to 54Z of the long-run marginal cost estimated today at US cents 8.0/kWh (QO.41/kWh). The rates for bulk sales charged by INDE have always been very low (US cents 2.7/kWh in 1990) and below economic costs. The distinction between rates to final consumers and bulk rates is important as it largely explains EEGSA's sound financial situation and INDE's constant difficulties. The following graph shows the evolution of rates to final consumers and the bulk rates charged by INDE to EEGSA.
GUATEMALA flowIOIt Priam CONYu1t3
44
14a 7
Z
o Prim to Publlo 4v I1E's 1k Wt
3.07 Unfair distribution of sector income. Distribution costs account for approximately 202 (or US cents 1.6/kWh) of the long-run marginal cost of US cents 8.0/kWh (para. 3.06). The remaining 802 represents the cost of - 78 - generation and transmission. As shown in the above graph, EEGSA has always benefitted from a spread between the bulk rate that it paid to INDE and the rates it charged to its customers. Those rates exceeded, often significantly, the notional level of 20g. That in turn has allowed the company to have positive financial results. It has received a rate of return of about 9? on its assets and has been able to finance its investment needs without resorting to long-term borrowing. The other side of the picture has been that the bulk rates charged by INDE to EEGSA were below costs. This accounts in a significant way for INDE's very poor financial results. As no economic criteria have been agreed on to set bulk rates, the bargaining power of the better organized EEGSA has prevailed.
3.08 INDE's financial situation. In the 1970s and early 19809, electricity rates in Guatemala were high and access to external credit was easy, allowing the sector to have an ambitious investment program. In the recent past, however, INDE's financial situation has deteriorated because the Government failed to authorize adequate increases in electricity rates to offset devaluation and inflation. High debt-service requirements arising from the large hydroelectric projects completed in the early 1980s contributed to INDE's worsening finances. The situation was exacerbated by the currency composition of INDE's external debt (a large share of which is in European currencies and yen, both of which increased in value relative to the dollar) and the unification of the exchange rate in 1988 (which abolished the special rate for INDE's debt service). Despite the hefty cash transfers from the Government (Q850 million in the last ten years) and very substantial investment cuts in the past several years, INDE had accumulated debt-service arrears of Q272 million (US$55 million) as of December 1990. Table 111.1 below provides financial indicators for the power sector for 1985-89.
Table 111.1t Power Sector Financial Indicators, 1985-89 (In Millions of Quet:als) 1986 lo8 1987 1988 1989 ------_------_------__------__------Requ I rwents 16 128 87 74 119 ------__-----__------Investment 96 72 67 6S 189 Working Capital A others 11 64 -20 9 -20 Financing 1t6 126 87 74 119 Gross Internal Cash Generation 67 119 107 189 168 Leos: Debt service & taxes 66 62 98 188 182 Internal Resources 12 67 11 1 1 Consumer contributions 8 10 7 10 11 Government Contrlbutions 19 27 6 41 101 Borrowings 72 32 14 20 6 ------_------,---_------_------_--__----__------Financial Indicators Electricity rate (Q/kwh) 12.7 12.7 12.7 16.4 18.3 Electricity rate (USe.nt/kWh) 4.8 4.8 4.7 5.8 6.7 Estimated Rate of Return n.a. 1.7 0.2 1.2 1.4 Debt service coverage 1.2 1.9 1.1 1.0 1.0 Investment as X of GDP 0.8 0.5 0.8 0.8 0.6 Investment financing with: - Internal sources 4 18 67 4 1e - Capital Contributions 20 88 9 68 88 - Borrowings 78 46 24 84 6 Accounts receivable (days) 99 129 98 68 128 Source: World Bank estimates - 79 -
3.09 This situation cannot continue. INDE is coming to the point where it will be unable to provide reliable electricity service to the country. INDE has to begin the construction of new facilities as described in the National Electrification Plan. It must rehabilitate its deteriorated thermal power plants and improve its operating efficiency, both technical and administrative. In addition it has to foster conservation - if for no other reason than that high demand growth would require accelerating the construction of new generation facilities. But none of these goals caz. be accomplished without clear policies established by INDE's owner, the Government of Guatemala, and without setting electricity prices that reflect economic costs.
3.10 There are relatively few options to address the situation now faced by the power sector. A number of scenarios, based on information provided by INDE, are described below. They illustrate several different courses of action and are presented in more detail in Table III.2. S
3.11 The first scenario, Case 1, assumes that INDE increases electricity rates only to offset future inflation. This results in an accumulated deficit of Q3,061 million (constant 1990 values) in 1991-95. The Government would have to cover this deficit through cash transfers or face further service deterioration, probable power shortages, and unpaid debt service. The consequences of this strategy would be disastrous, as the costs of rehabilitation escalate exponentially with the passage of time. If significant service deterioration caused the private sector to install its own generating capacity to meet its needs, the inefficiency would be very high. The Government should consider the experiences of countries that have faced this problem in the recent past (e.g., Argentina, the Dominican Republic).
3.12 The second scenario, Case 2, assumes that the Government takes over the unpaid debt service accumulated as of December 1990 (Q272 million) plus the debt service due in 1991 (Q177 million). Such an action would entail the need for compensatory measures in the public sector budget in other sectors to offset the transaction's fiscal impact. This case would require real rate increases of 10X in 1991, 402 in 1992, 252 in 1993, and 122 in 1994. It would still result in a sizeable accumulated deficit - Q896 million by the end of 1995 - which would require substantial new borrowing. In our view this approach would not be financially sound. An alternative calling for much larger increases in the short term would lead to a better outcome.
3.13 In the third scenario, Case 3, the Government assumes all past debt to INDE from the World Bank, IDB, BCIE, and major bilateral donors (approximately US$321 million equivalent.) It allows INDE to start with a clean balance sheet, but with the condition that there will be no future financial support from the Government. The rate increases required in this case would be an accumulated 1152 in the five-year period and would result in a surplus of Q296 million, most of which is obtained in 1995. This scenario is subject to the same criticism as the previous one, and the viability of such substantial assistance from the Government is highly questionable, considering the present fiscal constraints.
1/ Given the lack of adequate data, these scenarios are more illustrative then definitivo. Therefore any decisions regarding the sector should not be based on thesQ sconorios without further careful, detailed analysis. - 80 -
Tablo 111.2: INKE'e Fineetlal Situations Pour Scenerios 1/ (In Consant 1990 Q aillion)
1990 1991 1m to19 1994 1995 Total _...... ___. _,___._.______.,,_.__ Ca" 1: No Aetlon- Taken. ------___----_---- 1. Capital Requirementst mnvat. pluoWor,k;n Capital 142.2 5s0.6 703.0 598.83 51.4 2S19.7
2. Financial Souraee: Average Rote (Q cent/kWh) 2/ 21.2 21.2 21.2 21.2 21.2 21.2 Real Rate Increase I 0.0 0.0 0.0 0.0 0.0 0.0
Total Operational Rweenue 84.0 U4S. 3O78.5 405.7 492.7 2004.2 Leas Cash 0 * F E pon... 147.0 207.9 225.0 277.4 S45.3 1200.6 Oro" Internal Cash Crneation 216.2 145.4 18.8 12U8.1 147.4 0OO.0 Loes Debt Service 440.1 3/ 844.6 236.2 322.8 501.9 1754.1 Net internal Resources -232.9 -169.2 -182.7 -194.2 -154.5 -95S.6 Plus Existing Loan* 136.8 146.7 07.8 19.2 0.0 412.0 Not Available Resources -94.1 -22.5 -95.4 -175.0 -14.5 -541.5 8. Financial Result -236.8 -503.8 -790.4 -73.3 -659.9 -3061.2
Ce*s 2: Governent Asue 1I9o and 1991 Debt Service. Plus Rate Increase.
2. Financial Sources: Average Ra" (Q cant/1Mwb) 21.2 23.8 32.6 40.6 45.5 45.S Real Rate Increcas 3 10.0 40.0 23.0 11.5 0.0 114.7
Total Operational Revenue 423.0 592.0 670.0 912.0 1120.0 3720.0 Lose Cash 0 * M Eapense 147.0 207.9 225.0 277.6 848.3 1208.6 Oram Internal Caeh Generation 278.2 384.1 445.0 684.4 774.7 2516.4 Leas Debt Service 0.0 S44.6 336.2 822.8 801.9 130.0 Net Internal Resources 278.2 39.5 105.8 312.1 472.8 1211.4 Plus Exiecting Loans 130. 165.7 07.3 19.2 0.0 412.0 Hat AvailabIb R eaurcee 417.0 200.2 196.1 881.3 472.0 1623.4 3. Financ;al Rleit 274.0 -354.6 -506.9 -267.0 -42.6 -696.8
Case 3: Governmnt Assu_e ASI D1 'o Debt (OFW. MDS.FPI and OCIE).
2. F;nancial Souresa: Average Rate (Q cent/.Wh) 21.2 23.3 32.6 40.8 48.8 45.5 Real Rat* Increaee S 10.0 40.0 25.0 11.5 0.0 114.7
Totel Operational Revenue 420.0 592.0 670.0 912.0 1120.0 S720.0 Less Cash 0O M E%penes 147.8 207.9 225.0 277.6 846.8 s208.6 Gro" Internel Cash Generation 270.2 384.1 445.0 634.4 774.7 2516.4 Les Dab Service 27.8 16.5 15.6 17.6 35.0 112.7 Net Intorna. Resoure 250.4 867.6 429.4 618.6 789.7 2408.7 Plus Evicting Loans 138.8 166.7 87.3 19.2 0.0 412.0 Not Available Remoutcee 389.2 54.3 516.7 685.0 739.7 2818.7 8. Financial Result 247.0 -26.6 -186.8 87.S 224.3 296.0
Came 4: Rates Alloved to Incresee as Required (No Governent Contributlons).
2. Financial Sourcee: Average Rat. (B cent/kWh) 21.2 29.7 41.6 49.9 49.9 49.9 Real Rate Increame S 40.0 40.0 20.0 0.0 0.0 1S8.5
Total Operational Revenue 543.0 768.0 942.0 1011.0 1283.0 4492.0 Less Cas 0. N4Expenmes 147. 207.9 225.0 277.6 845.3 1285.6 Cros Internal Cash Generation s39.2 SM5.1 717.0 733.4 807.7 828.4 Lee Debt Servic 449.1 S44.6 336.2 322.3 801.0 17S4.1 Not Internal Reeoures -83.9 210.5 380.8 411.1 585.6 5U34. Plus Existing Lns- 138.8 166.7 07.8 19.2 0.0 412.0 Nat Aveiloblo Reaoumrce 84.9 877.2 468.1 480.3 505.8 1940.3 S. Financial Result -57.3 -163.6 -234.9 -180.0 70.4 -573.4
1/ U04 nssurna en eachenga rat. of A 5.15/UiS1 for theae cenarioe. 2/ Average rate to final conuvmero. Bulk rate. for selme from IWE to eSA aor asaumed to be 75S of the average rate and DE's revenues ar* calculated accordingly. 3/ Includes arrears.
Source: DDE 81 -
3.14 The last scenario, Case 4, assumes that electricity rates increase rapidly, resulting in an accumulated rate increase of 1351. Even in this case the results would be insufficient to finance fully the debt-service requirements. It would, however, be very difficult to seek to increase tariffs beyond these levels, which would exceed somewhat long-run marginal costs. This shows clearly that tariff actions are necessary but not sufficient to address INDE's financial difficulties and that a comprehensive financial rehabilitation program is required. This scenario would require significant expanded borrowing. From a corporate point of view, this would not be unreasonable but would imply that the Government had access to this level of funding. Table III.2 shows the summary financial details of these scenarios.
3.15 INDE's poor performance. INDE's image has been tarnished by the cost overruns and delays it faced in the construction of the hydroelectric projects and the poor quality of service that it provides. There seems to be little public trust in its management, and a sentiment against tariff increases which are believed due more to poor management and inefficiency than the legitimate consequence of cost increases. A major effort is required to build up INDE's credibility. Therefore, performance issues need to be addressed forcefully. INDE has always been criticized for having excess personnel. Clearly, 7,000 employees are far too many for the operations of the company. Although the cost of personnel as a part of the cost of service is no more than 62. INDE must trim its staff to achieve better performance. The public impact of this measure could help overcome resistance to tariff increases. The issue of performance, however, goes well beyond the number of staff; it relates to quality of service, quality of planning, and general efficiency. In all these areas, INDE exhibits major shortcomings that have not been addressed with commitment in the past.
3.16 Private particiPation in the power sector. If sound and credible policies were to be established by the Government, there could be possibilities for participation of private capital in the power sector. Such private participation would reduce the need for public sector funding of expansion. The sugar producers, for examplc, have shown interest in installing up to 150 MW of co-generation that would operate during the crop season (six months a year). Other possibilities include the installation of new generation under build-operate-transfer operations. However, to attract private investors to the sector the Government must first depoliticize the tariff issue and develop confidence in its macroeconomic and sector policies. It must also put in place (through law) a well-designed regulatory framework.
D. Recommendations
3.17 Electricity rates. In accordance with its declared economic policy, the Government should permit INDE to set electricity rates to reach economic costs. Doing so would eliminate the distortions caused by Government subsidies. It would also promote energy conservation by sending consumers the right price signals, therefore making future investment more manageable in financial terms. Judging by information provided by INDE, electricity rates need to be increased about 871 in real terms to reach the long-run marginal - 82 - cost of US cents 8.0/kWh. The issue of tariffs, however, should be addressed not only in the context of its direct financial implications but in its broader economic implications. In particular, a strategy that calls for a relatively slow pace of real increases will not provide consumers a correct signal and will create uncertainty as to the ultimate level that will be achieved. Over time the political will of the Government to maintain a policy of real tariff increases will be put to a severe test as mounting resistance to such increases develops. These factors argue for the advisability of a large increase implemented immediately.
3.18 Fair distribution of sector income. INDE and EEGSA should share the electricity rates in proportion to their participation in generating, transmitting, and distributing electric energy. From 1992 onward and until other, more sophisticated policies are enacted, the distribution companies - EEGSA included - should retain no more than 20? to 25X of the price of electricity to final consumer. The remaining 80Z to 75Z should be paid to INDE (para. 3.07). In this way, the onus of arguing for rate increases would be shared by the distribution companies, teaming up with (rather than obstructing) the efforts of INDE.
3.19 INDE's financial situation. As the scenarios presented here indicate, INDE's financial situation must be resolved now. A delay in taking drastic tariff action immediately will only worsen INDE's financial problems, enlarging its impact on overall public sector finances. The Government should prepare a financial rehabilitation program for INDE. The program should consider how much support the Government itself can provide - given its own budgetary difficulties, the possibility of new external loans for the power sector, and a careful prioritization of INDE's investment program - within the limits that would not jeopardize system reliability or entail greater investment needs through further delay.
3.20 Improvement of INDE's performance. INDE's performance will improve only if the Government set, through INDE's board of directors, clear and specific standards of performance and goals to be achieved. It is recommended that the Financial and Administrative Rehabilitation Agreement that the Government entered into with INDE in June 1989 be updated and enforced by the authorities of the new Government. If this agreement is to serve its intended objective, the Government should design a credible monitoring arrangement, define penalties for underperformance, and rewards for overperformance.
3.21 Participation of private capital. There is an issue of regulatory framework and regulatory capacity that needs to be examined more thoroughly. The Government should also define through adequate legislation what guarantees would be granted to attract private capital to the power sector. Actions taken recently by other Central American countries (for example, Costa Rica) could serve as a basis. Simultaneously, INDE and EEGSA should start an education campaign to overcome the already strong opposition of the worker's unions to any "privatization" of the power sector. ° 83 -
CHAPTER IV: SOCIAL SECTOR
A. Introduction
4.01 Guatemala has some of the worst social indicators in Latin America. Even during the time of buoyant economic growth - from the 1950s until the end of the 1970s - the benefits of economic development were unequally distributed, and little trickled down to the poorer groups ox the population. As a result, the social indicators have improved only slowly, reflecting the passive policy stance of the Government toward social issues.
4.02 During the 1980s Guatemala initiated a still incomplete adjustment process in which social issues continued to receive insufficient attention. The period has witnessed a serious deterioration not only in many social indicators (such as health and nutrition), but also in the labor market. In 1986 the Cerezo Administration announced its determination to tackle the pressing social problems, which it called the "social debt" of the country. But, given the size of the social issues, little progress has been made to date.
4.03 The lack of social progress during the 1980s can be attributed largely to three factors: (i) insufficient economic growth; (ii) failure of the public and private sectors to provide the incentives, services, and resources to the poor so that they could help themselves and integrate themselves more fully into the formal economy; and (iii) lack of investment in social services such as primary education, primary and preventive health care, and water and sanitation. The lack of private sector support stems from the fact that the poorer strata of the Guatemalan population (i) do not have full access to the means of production (land and capital), (ii) do not benefi$- adequately from investment activities that are capital-intensive rather than labor-intensive, and (iii) receive relatively low wages. In addition, both the public and private sectors have played a passive role in combating poverty and implementing programs in the social sectors.
4.04 This chapter will analyze the deterioration in social indicators during the 1980s. It will also discuss social sector issues facing the country in the 1990s and make recommendations for improving social sector development.
B. Social Sector DeveloRment During the 1980s
4.05 The deteriorating social conditions in Guatemala during the 1980s can be evaluated by looking at five indicators: (i) evolution of real wages, (ii) unemployment and underemployment rates, (iii) development in income distribution, (iv) incidence of poverty, and (v) social spending. The analysis shows that the large majority of the people were worse off at the end of the 1980s than at the beginning of the decade. - 84 -
Real Wage Developments
4.06 Real wages have fallen since the early 19709. The underlying factors in this trend have been macroeconomic management and structural changes. The preeminence of macroeconomic factors was particularly evident during the mid-1980s and again in 1990, when large public sector imbalarnces were financed in an inflationary fashion. The subsequent surge in inflation seriously eroded real wages. Apart from the impact of macroeconomic policies on real wages, structural factors have also contributed to a fall in real wages since the early 1970s. High population-growth rates and the import substitution policies have created a bias against agriculture and reinforced a disequilibrium in the labor market. As a result, slow-growing demand for labor was insufficient to absorb the much faster growing economically active population.
Table IV.1: Real Wage Developments, 1980-89 1/ (1980 = 100)
1980-82 1983-84 1985 1988 1987 1988 1989 1990 2/
All Sectors 114.1 120.6 99.2 81.1 86.6 91.1 96.9 78.5 of which: Agriculture 128.5 134.7 118.0 98.6 100.2 100.9 109.6 91.1 Industry 108.6 114.6 106.9 86.1 86.6 86.1 91.0 70.3 Services 3/ 98.8 91.8 71.6 68.6 69.0 70.6 76.0 63.2 Memorandum ______Minimum Wage 93.3 84.6 70.0 61.0 45.0 67.6 61.6 n.e. ------__------__------1/ Refers only to wages covered by the Guatealan Institute of Social Security. 2/ Preliminary. 3/ Includes public employees. Source: Statistical Appendix, Table 10.5, and Bank of Guatemala.
4.07 During the 1980s real-wage developments were characterized by an almost steady fall until 1986 and a recovery during 1987-1989. The most rapid decline occurred during 1985 and 1986, when inflation was accelerating. The drop in real wages was especially marked in the public sector where a wage freeze, decreed in 1981, was maintained for six years. From 1987 through 1989 real wages increased, on average, by 5.72 annually. That was well above average real GDP growth of 3.8? a year during that time. The recovery of real wages was again reversed in 1990, when inconsistent macroeconomic policies caused prices to increase rapidly. That, in turn eroded the gains in real - 85 -
wages. Preliminary estimates indicate that real wages fell, on average, by 18Z in 1990."
4.08 In terms of sectors, wage developments have exhibited a bias against agriculture. The import-substitution policies of the 1960s and 1970s and the resulting structure of relative prices influenced the allocation of labor. Despite the fact that Guatemala's agricultural sector is one of the main sectors in the economy, the differential between agricultural wages and those of other sectors has been large. During the 1980s, average agricultural wages stood at only 502 of the average wage of the overall economy. They amounted to about 30? of the wages earned in the manufacturing sector and about 28? of the average wages in commerce. The import-substitution policy led to a convergence of industrial wages with wages paid in commerce and services. Agricultural wages, however, continued to lag behind, thereby reinforcing the antiagricultural bias in the wage structure.
Employment and Unemployment
4.09 In 1990 Guatemala's population surpassed 9.1 million, having grown at a rate of 2.9Z a year during the 1980s. This high growth rate has exerted pressure on the labor market, where employmernt increased by only 2.1? a year. As mentioned before, this oversupply of labor has also contributed to downward pressure on the real wage.
4.10 Ths legacy of the 1960s and 1970s, when industrialization under the protective shield of the CACM was promoted, was also reflected in employment trends. Transformation of the economy toward more urban-based activities contributed to a decline of agriculture within the labor force. Meanwhile, service and commerce activities, in particular, expanded. This shift was accompanied by increased migration to the cities, a trend that was reinforced in the 1980s as employment possibilities in rural areas diminished.
4.11 The promotion of urban-oriented activities explains partly the lack of dynamism and new employment opportunities in rural areas. However, the highly dualistic nature of Guatemalan agriculture - with large commercial farms (generally producing export crops) on the one hand and small-scale holdings (usually producing basic grains) on the other - has also contributed to the employment problems in the countryside. While basically distinct, these two sectors of Guatemalan agriculture are connected through the labor market. Reduced profi.ability in the export markets thus means reduced demand for labor and reduced income for the rural poor. This was especially evident during the first half of the 1980s. In that period export prices for Guatemala's major crops fell on international markets, leaving many
1/ Statistics on wages have to be analyzed with caution since they are not complete and refer only to data available from the Cuatemalan Institute of Social Security (IGSS). Nevertheless, tho evolution of these real wages may be Indicative of the trend in the overall economy. Since IGSS employment data cover about 28X of the economically active population and IGSS wages are generally higher than the wages in the rest of the economy, it can be argued that the real-wage developments for Guatemala as a whole were probably worse than the ones indicated in Table IV.1. Some evidence of this, albeit not necessarily representative, may be found in the evolution of minimum wages. Since they were not adjusted between 1980 and 1988, real minimum wages declined more rapidly than did real wages registered by IOSS. - 86 - agricultural workers unemployed. As a consequence, during 1980-85 agricultural employment, as registered by IGSS, declined by 140,000, or 372. That in turn led to further migration from the countryside to the cities.
4.12 During the 1980s the employment situation also deteriorated in urban markets, especially in Guatemala City, because of the downturn in the economy and the high rate of migration from rural areas. The urban population increased at the rate of 3.12 a year during the 1980s. Failure of Guatemala's economy to absorb this increment in the supply of labor resulted in rapid growth in informal employment, a high rate of unemployment, and a higher share of services in formal employment. The share of service employment increased 232 of total employment registered by IGSS in 1980 to 372 in 1989, confirming the "refuge sector" role of services.
Tablo IV.2; Unemployment and Undoremployment, 1980-89 (As Percent of the Economically Active Population) …------_------_-___---_------__------._------1980-82 1988-86 1988 1987 1988 1989 ------…------…------_------__------
I. Open Unemployment 8.2 10.8 14.0 12.1 9.9 7.8 II. Underemployment 80.2 80.6 29.8 81.7 88.6 86.4 …-----.------__------__------Source: Statistical Appendix, Table 1.8.
4.13 The variation in unemployment did not affect every sector in the same way. In general, the relatively unskilled were harder hit. Thus agricultural employment contracted much more than other sectors did. In contrast, employment in services (composed of relatively more skilled people) increased by 40,000 (22Z) during the same period. The net balance was negative in the first half of the 1980s, when open unemployment jumped from an average 3.22 in 1980-82 to 14S in 1986.
4.14 During the second half of the 1980s, IGSS employment grew by 62 annually, thereby reuciing open unemployment from 142 in 1986 to 7.82 in 1989. In the same period, employment in agriculture grew by a modest 2.5T annually from 1985 through 1989. Most employment was generated by services (8.62 a year) and manufacturing (8.12 a year). Within manufacturing, the largest job provider has been the maquila activities. They expanded employment from around 5,000 in 1986 to 40,000 in 1989. Despite the increase in employment and the subsequent decline in open unemployment in the second half of the 1980s, underemployment has actually steadily increased. In 1989 it exceeded 35Z of the economically active population.
Income Distribution
4.15 In Guatemala three out of four people spend their existence below the national average standard of living. The uneven income distribution - 87 - presents a social and an economic issue that has never been adequately addresst4 by the Government. This is well evidenced by the low level of social spending. Table IV.3 shows that, Largely because of the macroeconomic problems of the first half of the 19809 income distribution worsened markedly during 1980-81 and 1986-87. The highest quartile increased its share from 61.OZ of income in 1980-81 to 65.52 in 1986-87. Meanwhile the ahare of the lowest quartile was reduced from 6.5 to 42. Thus, while the inequality coefficient between the highest and lowest quartile stood at roughly 9 to 1 in 1947-48, 1970, and 1980-81, this coefficient increased to more than 16 to 1 in 1986-87. Although these results should be interpreted with caution, they clearly show that the lower quartiles were unable to protect themselves against the adverse effects of inflation during the 19808.
4.16 The inequality in income distribution can be explained partly by the unequal distribution of land (see Part II, Chapter I), the large income and productivity disparities between rural and urban activities, and by highly accentuated disparities within urban areas. The higher productivity and related returns on investment of urban-based economic activities (especially manufacturing and services), relative to the lower yields in agriculture, lie at the root of the income disparities in Guatemala.
Table IV.8: Income Distribution Pattern
------_------_,-- Family Income Pereentage D strlbution ------_------Fami ly Quartiles 1947/48 1970 1980/81 1988/87 Highest 60.6 68.6 81.0 06.5 IX 17.0 16.1 20.0 20.0 III 16.5 10.? 12.6 10.6 Lowest 7.0 8.7 6.6 4.0 Gini Coofficient 0.47 0.62 0.48 0.58
Inequa I i ty CoefficIent 1/ Highest 8.6 9.8 9.4 16.4 It 2.3 2.8 2.9 6.0 III 2.4 1.7 2.1 2.6 Lowest 1.0 1.0 1.0 1.0 National Average 8.5 8.7 8.8 6.8 …------.------.------
1/ Ratio of per capita Income In the nth quartile to the same in the lowest quartile. Source: Statistical Appendix.
4.17 Another important element in understanding the skewed income distribution is the ethnic situation. The indigenous population (which represents about half of the population) is not well integrated into Guatemalan economic and political life, and this is reflected in the 88 - distribution of income. Inasmuch the indigenous population is concentrated in the lowest quartile, its declining share suggests that this population was not able to benefit from economic development before 1980 to the extent that other income groups did. At the same time it suffered disproportionally from the downturn of the economy during the 1980s.
Poverty 4.18 Poverty continues to be a pervasive phenomenon in Guatemala. Malnutrition, shortages in housing, inadequate access to basic health and education services as well as to water and sanitation, and falling real wages - all these factors continued to characterize the conditions of life of the vast majority of the Guatemalan population during the 19808.
Table IV.4: Poverty, 1980-81 through 1986-87
Extreme Povorty
Percent of Extremely Poor FamilIes by Defictt Range In Minimum Food Basket ______As X of BoX More All Cuatemala Families 1/ or less 81-60X Than B0X
1980-81 82 64 81 16 1986-87 64 21 21 58
Extreme and Moderate Poverty
Percent of Poor FamilIes by Deficit Range in Minimum Goods and Services Basket 2/ ______As X of lox More All Guatemala Families 1/ or less 81-50X Than S0%
1980-81 68 84 30 88 1986-87 83 12 1S 78
--_------_------_------__--
1/ Relative to total number of families (poor and nonpoor) In Guatemala. 2/ Includes both extremoly and moderately poor families. Source: Statistical Appendix.
4.19 According to Government estimates, the share of poverty (defined as percentage of families suffering of a deficit in the minimum goods-and- services basket) increased from 63Z to 83Z during the period 1)80-81 through 89 -
1986-87. Meanwhile, extreme poverty (defined as percentage of families suffering a deficit in the minimum food basket) doubled from 322 to 64Z. By excluding such a large portion of the population ftom full participation in the nation's economic activities, Guatemala has effectively limited its future productive capacity.
4.20 Moderate and extreme poverty in Guatemala is largely a rural phenomenon. It arises from inequalities in landholdings and ill-defined economic and social policies. Poverty is concentrated in the heavily populated Western Highlands, where most of Guatemala's indigenous population lives. However, urban poverty also exists in sizeable enclaves. It exhibited an ui-trend in the 1980s.
4.21 One of the best measures if poverty is malnutrition. Tables IV.4 and IV.5 suggest that malnutrition significantly spread in Guatemala in the 19809. In the early 1980s about one-third of the children living in the Highlands suffered from second- and third degree malnutrition. That increased to close to 60Z in 1986-87. The poor nutrition status of large sections of the population is linked to large average family size, low and deteriorating family incomes, and poor health conditions.
4.22 Guatemala exhibits a large differential in the incidence of rural and urban malnutrition, with 61Z of children and women in the rural areas suffering from malnutrition in 1987 as compared with 41X in urban areas. The rural-urban differential in the indicators of malnutrition are probably greatest where income and access to public social services, especially health care and education, are most unequally distributed. Where rural poverty is greatest and services are unavailable, one finds the greatest incidence of malr.trition.
Table IV.5: Mainuteition (As Percent of Each S-%group)
------..-- __------Children Less Pregnant Lact t Children Than 14 Years Women Wome- and Women Total Malnourished 50.7 63.2 63.1 63.1 Urban 37.4 67.1 67.0 40.6 Rural 69.2 66.3 68.1 60.8 Meeorandum Malnutrition 2/ Highlands 1980 88.8 Highlands 1986 69.2
I/ Based on population estimates tor 1987. 2/ Moderate and severe malnutrition (second and third deogreo combined) as percent ot all children living in rural areas. Source: Feeding Latin America's Children, LAC Technical Department, World Bank, 1989.
V Second- and third-degree malnutrition means that those malnourished childron exhibit weights for their age falling two or more standards deviations below the norm. - 90 -
4.23 This close correlatlon between poverty and infant child malnutrition in Guatemala is also revealed by surveys carried out in agricultural plantation areas. The surveys show that medical care alone did not have an impact on children's development but that wage increase and supply of protein reduced the incidence of weight retardation from 32Z to 22Z. The surveys tracked a group of children over a 17-month period. The surveys underscore the fact that the widespread and worsening poverty in Guatemala can be efficiently resolved only through sustained economic development, provision of basic social services, and improved incomes of the poor. In this context, agricultural policies and targeted health, nutrition, and education programs of the Government assume great importance.
Social Spendina
4.24 It is widely asserted that Guatemala underinvests in the social sector0. The low level of social spending, compounded by a pervasive inefficiency of the public sector, has thwarted efforts to reduce poverty in Guatemala. In the 19809 social expenditures averaged 3Z of GDP. That was far below the amounts spent on the social sector by other Latin American countries, Costa Rica for example allocated the equivalent of 15Z of GDP to the social sectors. As a consequence, that country succeeded in combating poverty in a much more effective way than Guatemala has been able to do. This low level of public expenditures for the social sectors, is also associated with the low resource mobilization that is manifested in the country9s very low tax burden. The link between social expenditures and resources mobilization has clearly not received sufficient attention.
Table IV.6s: Central Government Expenditure on Social Sector, 1980 - 19089 (In Percent of GODP)
1980-82 1988-85 1986 1987 1988 1989 ------__------__------
Education 1.6 1.4 1.4 2.2 2.8 2.8 Health and social security 1.7 1.1 1.0 1.1 1.6 1.8 Total a8. 2.6 2.4 8.4 8.8 8.6 Memorandum ______Bolivia .6 68 1 4.8 n.a. n. . n. . Brazil 8.4 7.4 7.5 7.7 n.e. n.e. Costa Rica 16.6 14.2 15.4 16.8 16.8 n.s. Source: Statistical Appendix, Table 6.8; Social Spending In Latin America, The Story of the 1980s, World Bank Diecusslon Paper 108, 1990.
4.25 Social expenditures, already low in the early 1980s, were yet further reduced in 1983-86 because of resource scarcities. During 1987-89 a recovery of social expenditures - particularly of education - took place.
3/ For more details see Guatemala. Public Sector ExDenditure Review, World Bank, May 1989. - 91 -
Despite these increases, the level of social expenditures continued to lag far behind other Latin American countries. The gap i8 shown in Table IV.6.
4.26 The Central Government has been inefficient in tho design of projrams in social sectors. As for the progrims it does have, the Government has not carried them out in an orderly and timely manner. In 1986-89, for example, the Ministries of Haalth and Education were able to utilize only 622 of their budgeted investment resources. The main reasons for the inefficiency are: (i) excessive centralization of decision making, expenditure control, and staffing authority; (ii) an overly legalistic, rigid, and time-consuming systen of procurement; and (iii) a lack of well-trained and motivated staff and excessive concentration of staff in Guatemala City. As a result of these conditions, health services reach only 35? of the population, and the Ministry of Education covers less than 60? of school-age children in poor rural areas.
4.27 Education. Despite progress in the education sector, Guatemala continues to fare poorly in comparison with other Central American countries as well as with lower-middle-income countries. In the last few decades Guatemala made some advances in improving basic education. The enrollment rate for primary education increased from 5O0 in 1965 to 77Z in 1987, and from 8? to 21? for secondary education. Yet coverage of primary and secondary education in Guatemala remains considerably below the average of lower-middle- income countries.
Table IV.7: Education Indleators
Percentage of Age Group Enrolled InEducation ------Primary Secondary Tertiary Countrios 1s0s 1987 1966 1987 1986 1987 ------__-- Cuatema s0 77 8 21 2 9 Costa Rice 106 98 24 41 6 25 El Salvador 62 79 17 29 2 18 Honduras 80 10 10 82 1 9 Lower-Middle-Income Economies 92 104 28 49 6 16
Source: World Bank, World D*velopment Report, 1990
4.28 The country has still a long way to go to meet the educational needs of its people. In 1988, 51Z of the population over 15 years of age was illiterate; in some of the poorest areas illiteracy exceeded 80X. Only about 60? of school age children attend school in poor rural areas and more than half of them have to repeat the first grade. The rate of repetition and desertion is high. Education faces special challenges given the ethnic complexity of the society. That society is one the most diverse in Latin America. About half the population are Indians - descendants of the Mayas. They speak as many as 23 different languages, although most speak one of the four major Indian languages. The majority of the Indian population continues - 92 - to speak little Spanish, making it difficult for them to take advantage of educational programs.
4.29 Another factor influencing the poor enrollment performance in rural areas has been the pattern of allocations of the education budget. It can be argued that even with the limited resources available, the Government could improve education indicators among the poor, if recourses were better allocated. However, in Guatemala, as in many other developing countries, expenditures on education have favored the better-off segments of the population. When education expenditures were substantially increased during 1987-89, higher education benefitted the most owing to a substantial transfer increase from the Government, as is required by the 1985 Constitution. Although tertiary education yields the lowest social rates of return, the Government spent a disproportionate share - about 20X - of its educational budget on that level during 1987-89. By contrast, the increase in education expenditure left the share of primary education within the budget unchanged at 32Z. As a result, primary schools in rural areas continued to receive only 18? of the education budget during that period. 4.30 Health and Nutrition. Between the mid-1960s and the mid-1980s, Guatemala made progress in improving various health figures. Over that period life expectancy increased significantly infant mortality was reduced; and the number of doctors, nurses, and hospital beds increased. However, within the decade of the 1980s itself, health conditions deteriorated. That's shown by the increasing malnutrition among the poor and children, as indicated in Tables IV.4 and IV.5).
Table IV.8: Health Indicators
------_------__------__---- Life Expectancy Maternal Infant at Birth (Years) Mortality Mortality Female Male Poe 11,000 Per 1,000 Live Births Live ------Countries 1065 1088 1065 1968 Births 1966 1988 ou.t.esl- s0 6a 48 60 110 112 es Costs Rica 80 67 e8 78 28 72 18 El Salvador So 67 5s S5 74 120 67 Honduras 61 88 48 62 82 128 88 Lower-Middio- Income Economies 67 67 64 02 ... 107 67 ------__-----__----
Source: World Bank, World Devolopment Report, 1990.
4.31 Mortality trends during the 1980s were mixed in contrast to the 1970s, when infant, child, and maternal mortality indicators improved markedly. Child mortality declined further during the 1980s, but infant mortality increased from 54 per 1,000 live births in 1981 to 66 in 1989. Most infant and child deaths are caused by preventable diseases. Diarrheal disease for example is related to contaminated water and poor hygiene, signaling the high priority of safe water and improved environmental sanitation and health - 93 - education. It should be noted that the health indicators represent averages. Since important differences exist among socioeconomic groups in Guatemala, the averages conceal the fact that health conditions are actually much worse among the poorer strata of population, especially those living in rural areas.
4.32 The Guatemalan Government was unable to improve the health indicators during the last decade because of (i) lack of resources, (ii) a tendency to allocate most resources toward curative care, (iii) a passive stance toward primary health care and nutrition problems, and (iv) poor management in the Ministry of Health.
4.33 Although the Government increased expenditures on health from 1.02 of GDP in 1986 to an average of 1.42 of GDP during 1987-89, these expenditures as a percent of GDP still fell well below the levels of the early 19809. They compared poorly with budget allocations made in other Latin American countries with similar income levels. Even though the share of health expenditures in total expenditures is not low, the level of expenditures on health as a percent of GDP is very low. It is also an indication of the relatively low level of resource mobilization by the Central Government.
4.34 Despite the Government's declarations to promote primary health care, relatively large resources were devoted to urban-based facilities, including hospitals. In general, it can be said that in the second half of the 1980s, the balance between different levels of health care continued to favor curative activities rather than preventive and primary health services. Thus 25S of the current expenditures of the Ministry of Health was allocated for preventive care whereas 751 was destined for curative care. This bias is reflected in tt.e concentration of services in Guatemala City. Only 20X of the population resides in the capital but 802 of all doctors and 462 of all hospital beds are located there. In the mid-1980s the population-to-physician ratio in Guatemala City was 580; the ratio was 8,571 for the rest of Guatemala.
4.35 The Ministry of Health estimates that it provides only 35Z of the population with regular health-care services. Of the remaining 652, about half live in areas of difficult access (those in which it takes more than three hours to reach a health facility). Although the other half have easier access to a health facility they are not regularly served by the Ministry of Health. This low level of coverage has been a direct consequence of the slow expansion of primary- and preventive-care services in rural areas.
4.36 The limited effectiveness of the Ministry of Health in implementing its proclaimed policy goals is also reflected in its relatively passive participation in the nutrition area. Most nutrition programs have been designed and funded by external donors. They are largely restricted to untargeted maternal child feeding programs. Currently only one-third of the $27 million of food aid is devoted to maternal and child feeding programs. On average, Latin American countries spend about 0.25? of their combined GDP on school feeding programs and maternal and child nutrition programs. By contrast, Guatemala in the 1980s allocated only 0.14? of its GDP on these programs - an amount too small to effectively contain the spread of malnutrition. The rest of food aid was distributed through food-for-work and - 94 _ through school feeding, albeit still with low coverage. The synergy between health and nutrition problems makes it imperative that the Government address both problems in a more coherent and coordinated manner than has been hitherto observed.
C. SocLal Sector Issues in the 1990s 4.37 The above analysis indicates that the new Government urgently needs to design a social strategy that embraces all segments of the population. The guiding principle of such a strategy should be the achievement of more equitable development through broad-based growth, productive employment, and investing in human capital. 4.38 Broader based sustainable growth is an important requirement for equitable development. But Guatemala will likely face increasing difficulties in returning to a path of sustained growth unless the vast majority of the people are more actively involved in the productive processes and in the sharing of the economic benefits. Market- and efficiency-oriented growth policies and their effective implementation by the Government would go a long way toward generating more equitable growth. They would also help alleviate the poverty problem. Such policies could contribute to greater equity by incorporating the masses of people in productive process and by strengthening employment opportunities. Poverty-Alleviation Strate&y
4.39 The main social objective for the 19909 should be an improvement in the poverty situation of the country. Poverty alleviation is important not only because of social considerations but also because the country currently limits its productive potential for the future. Given the extent of moderate and extreme poverty in Guatemala, the Government will need to adopt a two- track approach toward this problem. The Government should combat poverty by attempting to bring more people into the production process and by reducing extreme poverty through targeted aid programs, with special emphasis on the rural sector. Poverty can also be reduced if the level of social spending and public sector efficiency are significantly increased. This will require a restructuring of those ministries that are the major executing agencies of poverty-alleviation projects. 4.40 Precluding major modifications in the agrarian structure due to political constraints, a poverty-alleviation strategy in rural areas should aim at (i) improving the income-generation capacity of the rural poor, (ii) halting the deterioration of their resource base, and (iii) providing increased targeted education, health, and nutrition programs. These aims would help reduce poverty directly by improving the income position of the smallholder sector. They would also indirectly benefit landless laborers by improving their employment possibilities. 4.41 Recommendations. Creating more jobs in the 1990s will require higher levels of investment, both public and private. These higher investment needs should be financed by higher national savings. This will require the - 95 -
adoption of sound macroeconomic policies along the lines recommended in Part I. Such policies should lead to higher public savings through higher tax revenues and higher private sector savings through (among other measures) monetary policies that result in positive real interest rates. Other recommendations:
(i) The new Government should give more attention to promoting the employment potential in the rural sector. It should support a strategy that aims at increasing agticultural production, especially of the smallholders, to increase the income in rural areas. An effective agricultural policy with emphasis on the smallholders will thus serve as an effective poverty-alleviation policy. The major elements of the strategy should be (a) increased public investment in the Highlands, where rural poverty is most pervasive. These investments are critical for providing a basic productive infrastructure and for setting the stage for increased private sector involvement; (b) promotion of production of crops where the Highlands have a comparative advantage - i.e., basic grains and nontraditional export crops such as vegetables and flowers.
(ii) The Government should continue the trade-liberalization process. The manufacturing sector has already produ'ced increasing employment opportunities in the maquila sector.
4.42 While employment and overall production increases can be achieved through indirect means by providing adequate incentives, continuing the liberalization process, and basically letting the private sector take the lead, an effective poverty-alleviation program also needs active and guiding Government support for targeted aid programs. To ensure a more efficient and timely implementation of a poverty alleviation strategy, the Government should take following actions:
(i) Select priority projects. The Ministries of Health, Education, and Agriculture should concentrate on a few projects that contribute directly to poverty alleviation, such as projects for preventive health care, primary education, and the smallholder sector in agriculture. The ministries should consider contracting out those activities that they cannot adequately cover to the private sector and to NGOs which are often well equipped to execute poverty projects.
(ii) Introduce the Social Investment Fund (SIF). While at the political level there is an emerging consensus on the need for a poverty-alleviation strategy, institutional weaknesses of the public sector presents the primary obstacle to achieving poverty reduction objectives. Moreover, the cultural diversity, topography, and settlement pattern of Guatemala's rural poverty areas are such that it is almost impossible to implement many of the most important programs effectively through the Central Government. To cope with these problems, the World Bank collaborated with the Government in the design of a Social - 96 -
Investment Fund. This Fund would use municipalities, NGOs, and local committees to help community groups in the rural poverty areas improve their health, nutrition, and education and increase their income and employment.
Need for Expanded and Restructured Social Sector Programs
4.43 Human resources need to be given stronger attention in Guatemala's development program. The low investments in education, health and other social services suggest that for too long these investments have been considered unproductive. Improvements in health care, water and sanitation, family planning services, and particularly primary education could contribute to an improved quality of life. They are also indispensable for longer term development.
4.44 Social spending should be increased after the Government's situation is improved. Additionally the degree of correlation between increased expenditures and improved efficiency, sustainability, and equity in the sector needs to be clarified. This depends largely on (i) the allocation with regard to region and by beneficiary, (ii) the effectiveness of expenditures, (iii) the capacity to disburse, and (iv) institutional improvements. The general observation holds that past allocation has not benefitted the poverty segment, thus exacerbating the extreme poverty, nutritional problems, and migration.
4.45 Education. The Government faces the difficult task of reducing illiteracy and improving the access and quality of the educational system during a time of fiscal adjustment and increasingly scarce resources from external financial institutions and donors. The authorities will therefore need to improve the effectiveness of their available resources. In this conitext, the Government should not only give importance to the quantitative expansion of education but also design a strategy to reverse the declines in quality of the learning process at all educational levels. Moreover, the Government is confronted with the issue of achieving an appropriate balance between the various levels in the education sector with national needs.
4.46 Recommendations. Given the still relatively low level of primary school enrollment and continuing quality problems, the Government should aim at increasing coverage and quality of education, especially in the rural areas. To achieve this goal, the Ministry of Education will need to define a set of priorities in which following measures should receive primary attention:
(i) Concentrate on primary education. The strategy of the Ministry of Education should assign the highest priority to improving primary and preprimary education in the rural areas. Primary education produces a high social rate of return and contributes to poverty alleviation.
(ii) Expand preprimary education. Preprimary education holds the promise of greatly increasing the social rate of return of primary education by helping to reduce the high rates of repetition and - 97 -
desertion of the first grades of primary education. Furthermore, preschool children (4 to 6 years old) show the worst indicators of malnutrition and do not have access to the food assistance distributed through the school system. The Government should reinforce its efforts to expand preschool education. This could possibly be implemented by increasing the Government's allocation of resources for preprimary education or by utilizing the Social Investment Fund.
(iii) Reallocate education budget. To finance the increased emphasis on primakry education, the Government should consider measures to reduce the relatively high share of resources allocated to higher education. A greater portion of the cost of higher education could be borne by the beneficiaries through increases in tuition. To ensure access of students from lower income groups, use of fellowships and student loans could be expanded.
(iv) Increase resources allocated to education over the medium term. Increased investments in human capital will be a critical compone-t in reducing poverty over time. This increase should be considered as soon as the Ministry of Education shows first signs of improved efficiency and project-implementation capacity. In addition, an increase in overall education expenditures will depend on the Central Government's improving its resource- mobilization capacity.
4.47 Health and Nutrition. The health sector will have to address the critical issue of the appropriate "health balance". Greater emphasis on the poor in both the rural and urban areas and on preventive care is required. This shift may involve limiting allocations for disproportionally expensive specialized services used primarily by the better-off segments of the population.
4.48 Recommendations. To implement a more effective health policy geared towards the poor, the Government should consider following actions: (i) Increase the present share of expenditures allocated for primary and preventive health care by reducing the share allocated for curative care. Moreover, an increasing share of resources should be allocated to the rural areas, to correct the current bias for Guatemala City.
(ii) Identify the target group for nutritional assistance and define a national nutrition strategy. The target group should be those currently suffering from malnutrition - particularly pregnant and breast-feeding women, children under the age of 3, preschool children from 3 to 6, and school-aged children.
(iii) Aim at achieving 100X coverage of pregnant and lactating women below the poverty line and bring Guatemala to at least the average level of coverage of malnourished children prevailing in the region as a whole. Estimates suggest that Guatemala would need - 98 - incremental resources of about US$62 million annually (the equivalent of 0.72 of GDP), to reach this goal. The new Government should subscribe to reaching this goal within the next couple of years. (Uv) Increase effectiveness of school feeding programs. Most such programs focus on three objectivess (a) increasing school enrollment, (b) improving the nutritional status of children in school, and (c) improving the children's cognitive or academic performance. Where the need for child labor exits, school feeding programs are likely to act as incentives for school attendance only when the ration size is large enough that feeding can be viewed by parents as a significant income-transfer program. In such circumstances it might even be desirable for children to take part of the ration home. This is a main reason why the ration should be increased in some school feeding programs.
(v) Increase community and women participation. The longer term sustainability of primary health care will depend on the efficiency and effectiveness of the health system. It can be increased if full use is made of the private sector, local communities, and NGOs. In addition, the people's participation, especially of women, is critical in guaranteeing the effectiveness of primary health services. Women act as protectors of health in the household, contributing to the health of children, in particular. However, women also constitute a vulnerable group, as evidenced in the maternal mortality rate of 110 per 100,000 population. Primary health care thus has the potential both to enable women to participate fully in health activities and to improve their own health significantly. (vi) Restructure the Ministry of Health. In line with the re- orientation toward primary and preventive health care, the Ministry should decentralize its operations. Toward this goal, the Social Investment Fund should be used to expand health services in rural areas. Furthermore, the Ministry should reorganize its administration, aiming at improved resource management. This will require a major restructuring of the project-planning and -execution units. - 99 _
ANNEXES
ANNEX A
Table A.1: Deductions on Income Taxi Issues/Policy Recommendations Matrix
Table A.2: Exemptions on Income Tax and Vat: Issues/Policy Recommendations Matrix
Table A.3: Tax Incentives and Personal Allowances Issues/Policy Recommendations Matrix
Table A.4: Tax Administration Issues/Policy Recommendations Matrix
Table A.5: Customs Administration Issues/Policy Recommendations Matrix
ANNEX B
Table B.1 Policy Assumptions Per Scenario - 100 --
TABLE A.1: DEDUCTIONS ON INCOME TAX: ISSUES/POLICY RECOMMENDATIONS MATRIX 1/
Type of Deduction Current Practice Recommendation
1. Wages and Includes extra salaries, commissions, fees Impose additional limits, e.g. Salaries per-diems, bonuses9 gifts, and aevy other kind extra payments to permanent of compensation to: I) employees In general, emp;oyees should not be greater ii) business partners and consultants, up than their regular salaries. to 9W of the firm's gross annual revenues. iii) spouses and relatives of business part- ners and advisers, up to the maxlmum salary in the payroll of non-related employees. 2. Employer's Refers to payments to: the Social Security, A limit should be established for Contributions the Workers National Recreation Institute, contributions to non-profit orga- The National Trainning Institute; also, It nizations -- e.-., 10X of the includes contributions to legally authorized previous year tdxable income could non-profit organizations (e.g. charity ins- be set as a limit, as It is done in titutions, universities, associations, etc.) other countries (Ecuador, U.S.A.).
3. Investments Includes expenditures in housing, schools, Difine limits for these medical assistance, medicines, recreational potentially broad type of and cultural services, if they have been deductions. carried out to the benefit of the employees and their families. 4. Land Refers to the value of land donated by It Is not specified how to Donations firms to their workers. determine the value of land. It should be established that the value cannot be greater than the one declared for property tax purposes. 6. Life These premiums are limited to those that Establish limits or additional Insurance cover employees only--i.e. they are not sup- conditions. Premiums posed to cover the spouse, relatives or non- employees. 6. Improvements Refers to construction activity on rented Deduct these expenses over a five property. There is no specification of year period In equal amounts--i.e. deduction schedule. 20% annually--as is done in other countrles.
7. Losses Covers losses due to damages or destruc- Deduct in five or more years. Also, tion of goods end services by accidents or the amount deducted should not be vandalism in the part not covered by greater than 26X of the company's insurances. profits each year.
8. Maintenance Refers to maintenance and repairs to Limits should be established--e.g. and Repairs keep goods and services In good working they should not be greater than conditions. the value of new equipment.
(Continued). - 101 -
TABLE A.1: DEDUCTIONS ON INCOME TAX: ISSUES/POLICY RECOMMENDATIONS MATRIX 1/
Type of Deduction Current Practice Recommendation
9. Non-performing Covers non-perfoiming loans related to The system should be moro rigorous. Loans business activities. In case that some of E.g. it should be demonstrated that these loans are recovered, they should be non-performing loans have existed reported as taxable Income. Firms have olso In tho balance sheet and accounting tho alternative option of claiming the value books for at loest the last five of the reserve fund to cover non-performing years. Following international loans; which cannot be more than 2% of the practice, non-performing loans total value overdue at the end of the fiscal between related firma, business year. partners, and rolatives should not be accepted,
10. Acvisory Covers professional fees, commissions, and The limit should be based on gross Services reimbursements ot expenditures associated revenue, and not on non-related with financial and technical assistance costs such as wages and salaries. supplied domestically or from abroad. The Hiring of foreign consultants total amount of these deductions cannot should be justif ed, and a ceiling exceed 1% of the firm's gross revenue, or 15X should be Imposed at 20% of the of the total wages and salaries, whichever amount spent as Is done In other Is greater. countries. 11. Travel Includes both domestic and International A rigorous justification should be Expenses travel expenses of company owners, business required for International travel- partners, board members, executives, and Ing, hiring of foreign consultants, employees. It also covers contracting and specialization studies abroad expenses of foreign consultants, and of company's employees. If this expenditures of specialization studies deduction is excessively used, carried out abroad by a company's employees, reduce the 3% rate. The total amount of these deductions cannot exceed 3% of the firm's gross revenue.
12. Advertisement Includes expenses In advertisement and A limit should be set whether they publicity. Expenditures made domestically are contracted locally or abroad. require approval of the tax administration. Also their approval should not be discrotionary.
1/ Refers to self-employed and corporations. Source: Article 89; Decree # 69-87, September 16,1987. - 102 --
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TABLE A 2: EXEMPTIONS ON INCOME TAX AND VAT: ISSUES/POLICY RECOMMENDATIONS MATRIX
Incme Tax Current Proctice Recommendation
1. Individuals Wages, salaries and professional fees paid Include In the tax base the wages, by the public sector to local contractors are ealarlegnd profesalonal fees paid tax oxempt If the financial resources come by the publc sector irreopective from external loans, counterport funds, and of the source of funds. donations. 2. Interest- Revenues from Interest of deposits In; 1) the Revenues from interest on deposits Earners Notional Housing A oncy (up to a certificate should be taxoble above a r'nimum worth Q.100,000), ?I) commercial banks and level. The limit should be set ta- finoncial Institutions, 111) stock exchange king Into account total interest, bonds end treasury bonds, and Iv) credit end the level of Income of the tax- certificates. Also, cspital gains from the payer. Also tx-withholding on in- sale of these Instruments are tnx exempt. terest should be consldered to fa- cilitate tax enforcement. 8. Dividend- Revenues from dividends, or share In profits Tax dividends on the indivldual Earners earned by individuals or firms, if the rather than the firm--effective tax corresponding Income tax has been first paid rates would be higher, it would by the firm that distributes the dividends, contribute to reduco the regressi- vity of the tax system, and would make auditing leS difficult. Tax- withholding would facilitate this task; therefore, should be Imple- mented. 4. Specific The following sectors are affected: tourism Eliminate. 1/ Sectors and hotel services, poultry products, banana production, and new industrles under the de- controllzatlon program. Most of them are 100% tax exempt for about 10 years. Value Added Tax
1. Form It Includes the seeds of the following pro- Ellminate all exemptions except Manufacture ducts: vegetables, potatoes, beans, wheat, those goods that form the basic (Inputs) corn, rice, sorghum, cotton, and sesame. food basket. 2. Oil and It covers crude oll different kind of gaso- Most of these products should be Derivativoo lines, kerosene., oils (bunker, as fuel, taxable and, therefore, should be Industry diesel), nd natural gases Us a fuels Incorporated Into the VAT's tax (i.e. propane, butano, and other gaseous base. hydrocarbons). 8. Educational It refers to: paper Items such as notebooks, Eliminate. and Published tablets, loosed-leaft. etc. different kind Material of pencil (writing nno Jrawing), pencil Industry sherpeners, erasers, playdough, halk, black- boards magazines and newspapers, books and publisahd material of any type, and printed- didactic-material (e.g. maps, charts, etc.). 4. Congressmen They are exonerated from the value added tax Eliminate. 1/ and their by Decree # 24-89 of the Gustemalan Congress. deputies
1/ These exonerations are to be eliminated under the fiscal package presented to congress in May 1990. Sourcoe: Incom Tax Article 6; Decree # 69-87, September 15, 1987. Value Added Tax: Article 32; Decree # 97-84, Sept.18, 1984; as amended In 1987 by Articles 12 and 28 of Decrees 80 and 95, respectively. - 103 -
TASLE A.8 t TAX INCENTIVES AND PERSONAL ALLOWANCES ISSUES/POLICY RECOMMENDATIONS MATRIX
Tax Incentives Curlent Prectice Recommendation
Exonerations Tho following to the ll.t of tho 80 benefl- Tho number of exoneratlons from trom mport claries: 1) Red Cross, 2) Child Foundation lmport tariff Is excessive. Tho Tariffs 8) Deaf-mute and Blln#J Foundation, 4) other flcal cost of these exemptlon organizatione or Individuals In social assis- programs was estimated by the go- tance proJect, 6) poultry industry, 6) rub- vornment In about Q.761 million. ber Industry, 7) Cartoes and USA Catholic These exmptions have stimulated Relief Services, 6) ioporers of seeds for tax evasion and tax avoidanci and farm and forestry activities, 0) foretgn sor- should be abolished. 1/ vice staff and international civil servants, 10) Importers of mchinory and tools for the form Industry, 11) government contractors for road constructlon and other civil works, 12) government contractors for the provislon of school ltem 19) CARE Ina., 14) specific farm industrios, 16) Mother Orphanorum Foun- dation, 16) cultural and religious associ- tions, 17) Heart Foundation, 18) dalry In- dustry (production and co_mercialization), 19) congresmn and their deputies (to Import ono vehicle) 20) Cancer Foundatilon, 21) Ins- titute of Colonial Art., 22) Importers of in- secticides, tungicldes, horbicides, and fer- tli zer, 28) passengers" transport industry 24) lCoitsea Arquidlocesna, 26) Assoclation of Evangellcal Churches, 26) cattle importers, 27) Government air-transport contractor, 28) touris and hotel Industry, 29) Scouts Asso- ciation B0) AVIATECA S.A.0 81) Republic's President and Vice-president, 82) banana In- dustry, 88) alcohol fuel Industry, 84) spa- citic energy projoets, 85) Olnstantanoea Lo- tory, and 86) other (geotermil). Allowances
Individual Their covorage is currently oxtended to re- The number of allowances should be Income Tax lativos in the second and third degree of redueod. They should be limited to Personal blood-relationship, and others, as follows: the spouse, the children and a max- Allowumnces lmum of three additional dependent. a) Taxpayer Q.6,000 If family related--e.g. Costa Rice. b Family Q1,500 Also, their coverage should be li- Ce Spouse Q.25600 mited to minors, children or depen- d Each child Q.1,800 dents In school and university age, *) Each grand child Q.1,800 or unable to work. The spousoesul- f) Each great grand child Q.1.800 lowance should be conditional to g) Each parent Q.1,800 whether the spouse does not have h) Each grand parent Q.1,800 Incomo In oxcess of a specific fix- I) Each gret grand parent Q.1,800 ed amount. Further, It should be ) Each brother Q.1,800 considered to redesign the computa- Each sister Q.1,800 tlon of allowances as tax-credit., I Each ex-spouse's child Q.1,800 rather than as Income-exemptions-- * E2ah dependent orphan Q.1,800 I.e. to be deducted from tax liabi- n) Professional Serviceo (up to) Q.8,o0o litios rather than gross incom. o) Education expenses Q.8,000 This would make the system of allo- wances more equitable and would The above deductions apply It the dependents increase the effectivs-tax-rate In are legally under the rosponsibility of the the higher Income brackets. taxpayer-
------… ------__ ------__ ------_
1/ Thes exonerations are to be eliminated under the fiscal package presented to congress In May 1990.
Source: Article 42; Dcree # 6-87, 15 September 1987. - 104 -
TABLE A 4: TAX ADMINISTRATION ISSUES/POLICY RECOMMENDATICIS MATRIX
Income Tax and VAT Issues Current Practice Recommendations
Taxpayer Identification
1. Taxpayer Master Past development incomplete. Must be updatod and added File to master file. 2. Current Account Income tax and VAT current Integration roquired for Integration accounts exist separately. collection purposes. 3. Collaboration Independent work on-going Formaliz, division of external aId on different data bases. labor between two projects project to *nhanc- pursuit of objectives 1 and 2. 4. Reincorporation of Lack of program designed Design programs and stop-filers Into to Identify and follow up buttroes efforts to find tax net on stop-filers, stop-filers. S. Incorporation of No systematic program Design programs and put non-filers Into exists to identiTy them in charge of tax net non-filers. special unit. 6. Operating autonomy RTU/CC project not well Place monagement of of RTU/CC project Integrated Into MOF and OGRI. RTU/CC systems In hands of DPD. Date Processing
1. Tax return Backlog of returns creates Use microcomputer processing backlog bottlenecks in other DORI solution, to clear up. functions. 2. Audit process Arithmetlc errors In Design software to overload returns automatically Identify errors without suditod. need of automatic audit. 3. Tax Control Too many steps In and Reorganize and simplify Department inefficient data entry of data entry processes. return date.
Auditing
1. Separation of VAT Duplicatlon of efforts and Inteograte audit and Income tax other Inefficiencies as functions of VAT and auditing product of separation. Audit Departments. 2. Refund policy All tax refunds Establish minimum level automatically *udited. below which refunds are automatically made. 3. Low number of Each field auditor asesgned Assign field auditor. field audits (a) one case at a time. several cases simultaneously. 4. Low number of Field audit yields far Shift resources toward field audits (b) higher than office audits. more field audits; improve training. 6. Policy of auditing Auditing of old returns Audit most recent years. almost proscrtpted means that most recent ones returns are not to be audited soon. …------__-----___-_--__------(Continued) - los -
TABLE A.l4 TAX ADMINISTRATION ISSUES/POLICY RECOMMENDATIONS MATRIX
Income Tax and VAT Issues Current Practice Reco-andationa (Continuod) S. Audit selectlon Audit selection proceea Develop computer appilcation methodology arbilrary outside of large that Incorporatee certain taxpayer program. audit criteria and evaluates the 'aodit-worthiness of a return. 7. Large taxpayer Functioning woll. Modify seltction base to auditing total Income. 8. Tracking of cases Lack of trocking and Develop computer application under appeal follow-up, that Identifi.o the statue of each appeal and determione the priority cases which should be followed. 9. Audit Audits often fall due to Develop outelde data Documentation poor evidence. sources to cross-check Strengthening and substantiate.
Amnesti, Arroars A Sanctions
1. Tax Amnesty Policy Almot annual tax amneetles No more tax amnestieo. undermine collection process. 2. Indexation of Lowe of real value due to Explore pousibility of arresst Inflation amending tax code to permit indexation. S. Arrears R cent program developed by Institutionalize this identification external aid project. program which identifies outstanding arrears, including taxes and penalties. 4. Article 20 of Stimulates and lengthens Initiate process of Constitution appeals process by not modification due to Its requirlng dpolto. fiscal consequnces. 1/ S. Sanctions Weak sanctions for ovasion. Strengthen fines and penalties for evasion. Miscellaneous Incom Tax and VAT Issues
1. Banking system tax Banks receive a 1 percent A fixed commission should collection commission on the value of be paid per collectlon the tax collection, receivo transaction, Independently use of floot for up to 0 days, of its value. Require the and do no appropriete data submission of more processing for MOF. deta lld statistics of tax collected to the MOF. 2. External Technical MOF coordination of those Designate MOF Assietance activities is poor, coordinator who actually coordinates. 8. Data bans Few currently existing data Use external aid projects bases and statistics noeded to advance in this area. for tax policy.
------_------_----_------_--__--.-.-.---,------._------_-- 1/ Before the 19M adoption of the Constitution, a prior deposit of 20 percent of the tax adjustment *sn required end the roaining 80 percent was paid upon arrival in court. Notes MOF Is Ministry of Finance. DORI Is General Directorate of Internal Revenue. OPO to Dota Processing Department. RTU/CC refers to the technical assltence project which should create a texpayer mostertile end current accounts for the Incom tax and VAT. - 106 -
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TABLE A 6: CUSTOMS ADMINISTRATION ISSUES/POLICY RECOMMENDATIONS MATRIX
Customs Administration Issues Current Practice K.coum.ndstlons
Valuation and Clossificatlon
1. Data Bass Absence of updated price Ur nt prolrity must be data renders valuation given to construction of functlon essentially useless, computerized dote base. 2. Declaration of fact Leglslotlon requiring Implssnt submission. submission not onforced. 3. SIDUNEA data bass Usable for valuation of Design program to use goods. thle data to make price comparisons. 4. Classification Absence of standardized Use computerization to decisions procedures and distribution dlitrlbute decisions to of results. all posts. S. Inquiry policy Phys;cal audit vislte Develop systematic Infrequently mad. program of visits to Importers' promises. Controls
1. Transit controls Very deficient In almost Develop plan to strengthen, all senses. Including mobile Inspection. 2. Personnel rotation Present permanence" In Rotete personnel on warehouses of DQA personnel monthly basis. Increases possibility of collusion. 3. Contraband control Present location Is In Transfer thto function Guardl do Hacienda; very to MOF and open weak. communlcotlon with DOA. 4. Inspoction control Lacks uniformlty and Centralize and make centralization, uniform procedures; carry out periodic Inspections. Computerization and Training -______
1. Computerization Few computerlzed system Give priority to development that do exist fall short of of micro-computer network total needs, for controlo and procedures. 2. Traning Need training progroms Adopt temporary training covering all aspects. program presented by Fiscal Administration project; establish permanent program.
------__------__------_- Note: MOF Is Ministry of Finance. DOA Is General Directorate of Customs. SIDUNEA refers to UNCTAD project which should mechanizo the DOA entry proe ss of Imports statistics. - 107 -
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TABLE B.1: POLICY ASSUTIONS PER SCENARIO.
------__------__------POLICY/CASE BASE LOW
Macroeconomic Program Full Implementation of Initlil adoption of stabilizatlon *nd stabilliztlon and adjustment program. adjustment program. Policy slippage on fiscrl *nd monetary components of program. Fiscal Policy Full Implementation of Initial Implementation ------fiscal reform, leading of fiscal reform. to primary *urpluse Reseurgence of primary of the non-financial deficlts of the non- public sector, financial public s*ctor due to serious policy slippage. Public Savings Positive and recovoring Positive initialy but over tho period, becoming increasingly negative for the rest of the period. Public Investment Steady Increase over Initlol Increase but the period, realning stagnant at a lower level for the rest of the period. Fiscal Deficit Significant decrease Decroeses In the first initialy, rmaining year but increoses at a constant level significantly for the for tho rest of the rest of the period. period. Monetary Policy Initialy contractionary, Initialy contractionary, ------in order to reduce the In order to reduce the inflation rate. In line Inflation rate. Unable with output growth for to curb Inflation during tho rest of the poriod, the rest of tho period due to a lax fiscal policy. Losses of Bank Elimination of exchange Elimination of exchange of Oustemala rate guaranteeo and rate guarantees and Interest rate subsidies. Interest rate subsidies. Rel Interest Posltive over the Initisly positive but Rate period. Stimulates becoming negativo for private savings, the rest of the period as Inflation accelerates. Constrains private savings growth. …------.--_------_------__------_ -__ ---- _ -_ -_ - ( Continues ) - 108 -
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TABLE 8.1: POLICY ASSUMPTIONS PER SCENARIO.
------_------__------__------POLICY/CASE BASE LOW
External Sector Move toward external Continued external ------balance. Imbalances.
Exchange Rate Maintenance of a Maintenance of a flextbl- system. flexible system. Trade Regime Comprehensive trade Partial implementation reform (Includ!ng of tre refor reduction of tartffs, Q.R.s and customs reform). Net Financing Adequate. Manageable Insufficent and declining balsnce of payment. due to poor economic financing gaps. performance. Large balance of paymnts financing gaps. Debt Management Arrears clearing Arrears clearing following agreemants following agrements with IMF,TBRD,IDB and with IMF1IDR,IOB and reschedulIng of rescheduling of bilateral debt. bilateral debt. StabilIzation of Stabilization of debt/GODP ratio followed debt/GDP ratio followed by steady decline, by steady Increase. - 109 -
STATISTICAL -P X
SECTION It POPULATION AND EMPLOYMENT 1.1 Population Distribution by Sex and Area, 1960-2000 1.2 Population Distribution by Age-group and Sex, 1960-1990 1.3 Regional Distribution of Population, 1980-2000 1.4 Trends In Demographic Characteristics of the Population, 1950-2000 1.5 Labor Force by Economic Sector, 1950-80 1.6 Age-specific Activity Rates: 1950-2000 1.7 Number of Workers According to Economic Activity, 1960-1990 1.8 Etimated Employment and Unemployment, 1980-1989
SECTION 2: NATIONAL ACCOUNTS
2.1 Gross Domestic Product by Sector, 1970-90 2.2 Gross Domestic Product by Expenditure, 1970-90 (constant prices) 2.3 Gross Domestic Product by Expenditure, 1970-90 (current prices) 2.4 Gross Domestic Investment, 1970-89
SECTION 3: BALANCE OF PAMETS 3.1 Balance of Payments, 1980-89 3.2 Total Exports, 1980-89 3.3 total Imports, 1980-89 3.4 Imports of Crude Oil and Petroleum Derivatives, 1975-88 3.5 Exports, 1980-88
SECTION 4: EXTERNAL DEBT
4.1 External Debt Indicators, 1980-89 4.2 trojections Based on Debt Outstanding Including Undisbursed as of December 31, 1989 4.3 Structure and Terms of External Public Debt as of December 31, 1989 4.4 gxternal Public Debt Outstanding Undisbursed as of December 31, 1989
SECTION 5: PUBLIC FINANCE
5.1 Consolidated Operations of the Nonfinancial Public Sector, 1980-90 5.2 Central Government Operations, 1980-1990 5.3 Central Government Expenditure by Function, 198'--i988 5.4 Tax Revenueos, 1970-1989
SECTION 6: MONETARY STATISTICS
6.1 Summery Accounts of the Banking System, 1975-89 6.2 Summary Accounts of the Banking System, 1975-89 6.3 Monetary Survey, 1980-1989 - 110 -
SECTION 7: AGRICULTURE
7.1 Agricultural Production Value at Constant Prices, 1970489 7.2 Agricultural Production, 1980-1990 7.3 Availability of BDoai Grains, 1980-1987
SECTION 8 PRODUCTION
8.1 Gross Output in Manufacturing, 1980-1988 8.2 Value Added in Manufacturing, 1980-1988 8.3 Production of Petroleum and Related Producte, 1978-1988 8.4 Production, Capacity and Distribution of Electric Energy, 1980-89
SECTION 9 SOCIaL SECTOR
9.1 Comparative Social Indicators 9.2 Income Distribution Patterns, 1947-1987 9.3 Family Income DiStribution by Docile, 1980/81 and 1986/87 9.4 Distribution of Poor Families by Income Deficit and Region 1980181 and 1986/87 9.5 Housing Conditions, 1991 and 1988
SECTION 10: PRICES
10.1 Consumer Price Indies,B 1983-1990 10.2 Minimum Support Prices for Basic Grains, 1979/80 - 1989/90 10.3 Average Price of Electricity, 1981-1990 10.4 Retail Prices foi Petroleum Products, 1980-1990 10.5 Average Real Wages and Salaries, 1960-1989 10.6 Average Exchange Rates, 1984-1991 - 111 -'
Table 1.1: Population Distribution by Sex end Area, 1980-2000 (In Thousands)
YEAR TOTAL MALE X FEMALE X URBAN % RURAL %
19S0 3908.0 2007.8 60.7 1956.8 49.8 1210.8 80.7 2746.8 09.8 1961 4078.8 2066.4 60.7 2012.4 49.3 1278.7 81.8 2802.1 88.7 1962 4196.8 2126.8 50.7 2070.6 49.8 1843.0 82.0 2868.8 68.0 1983 4817.9 2187.7 60.7 2180.1 49.8 1411.9 82.7 2906.9 87.8 1964 4441.0 2260.6 60.7 2191.1 49.8 1488.6 88.4 2960.1 66.6
1966 4668.4 2814.8 60.7 2253.6 49.8 1568.0 88.8 8088.4 60.4 1968 4897.7 2880.2 50.7 2817.6 49.8 1592.6 88.9 8106.2 0.1 1967 4829.6 2446.9 60.7 2882.6 49.8 1646.9 84.1 8182.6 66.9 1968 4904.6 2616.2 60.7 2449.8 49.8 1707.8 84.4 8268.7 65.6 1969 6108.1 2656.8 60.7 2617.8 49.8 1770.8 84.7 8882.8 66.8
1970 6248.2 2657.7 60.7 2688.5 49.8 1880.9 84.9 8416.8 86.1 1971 6898.8 2782.1 60.7 2661.2 49.8 1898.4 86.2 8494.9 64.8 1972 6644.0 2808.4 60.7 2786.6 49.8 1968.1 86.5 8676.9 64.6 1978 5698.8 2886.7 60.7 2812.1 49.8 2084.5 85.7 8664.8 64.8 1974 6068.1 2987.8 60.7 2890.8 49.8 2120.0 86.2 8787.6 68.8
1976 6028.1 8050.4 60.6 2972.7 49.4 2216.5 86.8 8800.6 63.2 1978 6191.4 8186.6 60.6 8066.0 49.4 2309.4 87.8 8882.0 62.7 1977 0864.6 8222.8 50.6 8141.7 49.4 2406.8 87.8 8958.7 82.2 1978 8542.6 8812.4 50.8 8280.1 49.4 2612.8 88.4 4080.2 61.6 1979 6726.4 8406.0 60.6 8821.4 49.4 2616.6 88.9 4109.8 81.1
1980 6916.8 8600.8 60.6 8416.0 49.4 2674.8 87.2 4842.6 62.8 1981 7118.4 8599.8 50.6 8618.8 49.4 2652.8 87.8 4400.8 82.7 1982 7816.6 8701.2 60.6 8614.8 49.4 2788.6 87.4 46581.9 62.8 1988 7628.9 8806.9 60.0 8718.1 49.4 2816.9 87.4 4707.0 62.6 1984 7789.6 8914.2 60.6 8026.4 49.4 2902.8 87.6 4080.9 82.6
1986 7968.4 4026.6 60.6 8986.7 49.4 2991.2 87.6 4972.1 62.4 1986 8196.1 4148.1 50.6 4052.0 49.4 8086.6 87.7 5109.6 62.8 1987 8484.8 4268.8 60.6 4171.1 49.6 8188.7 87.7 6260.6 62.8 1988 8681.1 4887.8 60.6 4298.8 49.6 8286.6 87.8 5896.6 82.2 1989 8986.4 4516.1 60.6 4420.8 49.5 8891.2 38.0 6644.2 62.0
1990 9197.8 4646.7 60.6 4660.6 49.5 3600.9 88.1 6696.4 61.9 1991 9467.1 4782.8 50.6 4684.8 49.5 8614.4 38.2 6862.7 81.8 1992 9744.7 4921.9 50.6 4822.9 49.6 8781.8 88.8 6018.0 61.7 1998 10029.8 6006.2 60.6 4904.6 49.6 3858.1 88.4 8176.8 81.6 1994 10822.1 5212.1 60.5 6110.0 49.5 8978.4 88.6 6843.7 61.5
1996 10821.2 5862.5 60.5 5268.7 49.6 4107.9 88.7 6sl8.8 81.8 2000 12221.7 6167.1 60.6 8064.6 49.6 4816.7 89.4 740B.0 60.6 Sour------e------E---LA------a---d------n------__------__------Source: SEGEPLAN andi Banlk Staff Eatimstas. - 112 -
Table 1.2: Population Distribution by Age-group and Sex, .1980-1990 (In Thousands)
------__------__------Year (0-4 (6-14 (16-19 (20-29 (80-89 (40-49 (60-69 (60. Total ------__------__------1960 MalIe 881 646 197 822 286 147 95 85 2,008 Females 870 628 191 818 228 142 98 s8 1,968 Total 761 1,074 887 e85 468 290 191 178 8,964
1970 Males 486 789 288 404 294 212 124 112 2,658 Females 469 716 279 892 266 207 124 117 2,688 Total 964 1,464 58? 796 680 418 249 229 6,246
1980 Males 647 9s7 876 569 a54 268 la 168 8,601 Females 624 9386 84 546 848 269 182 159 8,416 Total 1,271 1,908 740 1,104 702 622 a65 812 0,917
1986 Males 780 1,180 428 689 421 281 218 185 4,027 Females 708 1,092 416 626 418 278 212 192 8,987 Total 1,484 2,222 948 1,265 889 6a0 426 877 7,964
1990 Male* 820 1,809 0oo 742 496 819 282 228 4,647 Females 788 1,262 485 728 496 820 288 289 4,661 Total 1,608 2,671 986 1,470 998 689 465 467 9,197
Source: General Directorate of Statistics, CELADE and Bank Staff estimates.
Table 1.3: Regional Distribution of Population, 1980-2000 (In Thousands)
------__------__------Year 1990 1986 1990 1996 2000
TOTAL 6,917 7,968 9,197 10,621 12,222
Metropolitan 1/ 1,469 1,696 1,968 2,246 2,688 North 2/ 667 648 765 876 1,019
North-East 8/ e65 784 828 987 1,060
South-East 4/ 660 716 795 891 998
Central 5/ 776 896 1,085 1,196 1,882 South-Wet 6/ 1,769 2,026 2,882 2,694 8,111 North-t 7/ 918 1,087 1,261 1,468 1,722 P-ten 8/ 185 182 240 810 891 1/ Department of Guatemala. 2/ Includes Departments of BaJa Verapaz and Alto Verapaz. 8/ Includes Departments of Zacapa, Chiquimuls, El Progreso, and Izabal. 4/ Includes Departments of Santa Rosa, Jalapa, and Jutiapa. 6/ Includeo Departments of Escuintla, Sacatepequez, and Chimaitenango. 6/ Include. Dopartments of R*talhuleu, Suchitepequez, Quetzaltenango, Son Marcos, Totonicapan, and Solola. 7/ Includes Departments of Hushuetanango, and Quiche. 8/ Department of Paten. Source: SEGEPLAN - 113 -
Table 1.4: Trends In Demographic Characterletics of the Population, 1960-2000
------__------__----_----_------_-----_-
Avwrege Compound Growth Rate of Population (thousands) Population during Sex-Ratlo Density ------*------Previous Ton Year* (Mailo Per of Population YEAR Total Males Females (X per annum) 1000 Fma les) Per Sq.Km.
1960 2969 1600 1469 --- 1021 27.8 1960 8964 2008 1966 2.9 1027 8a.4 1970 6246 28658 2659 2.8 1027 48.2 1980 6917 8601 8416 2.0 1026 68.6 1990 9197 4647 4651 2.9 1021 04.6 2000 12222 6167 G605 2.9 1019 112.2
Natural Llfe Expectancy Crude Crucd Populatlon Total at Birth (years) Birth DOeiah Growth AVERAGE FOR Fertility ------Rate Rate Rate PERIOD Rate Malo Female ------(per thousand population) 1960/60 7.0 42.8 48.6 60.4 21.5 28.9 1960/70 6.7 42.6 49.6 46.7 17.1 29.6 1970/76 6.6 62.6 66.6 44.6 18.4 81.1 1976/80 6.4 64.6 68.4 44.8 12.0 82.8 1980/86 6.1 6S.8 61.8 42.7 10.5 82.2 1986/90 5.8 69.7 64.4 40.8 8.9 81.9 1990/96 6.4 62.4 67.8 88.7 7.6 81.1 1996/2000 4.9 64.7 69.8 36.8 6.7 29.6
…------__------__------Source: CELADE and World Bank staff estimates. - 114 -
Tablo 1.6: Labor Force by Economic Sector, 1960-80.
------__------__------Sector 1960 1904 1978 1981 1986/87
(In Thousands)
Ag Iculture 702.2 888.8 1017.0 908.6 1872.6 M"ning 1.6 1.8 2.2 2.8 2.8 Industry 118.8 180.6 286.8 177.6 834.7 Constructlon 20.4 66.7 71.7 88.2 98.9 Public Utilities 1.8 3.0 4.7 7.7 10.6 Commerce and Finance 65.9 94.9 127.0 147.1 862.9 Transport 16.5 88.6 44.4 48.8 68.6 Services 101.0 162.1 209.8 286.1 412.2 Other 4.8 26.9 86.6 75.1 66.8 Total 1029.4 1887.5 1749.1 1688.8 2710.0
(InPercont of Total)
Africulture 68.2 60.4 68.1 64.0 60.6 Urlning 0.1 0.1 0.1 0.1 0.1 Industry 11.6 18.0 18.6 10.6 12.4 Construction 2.8 4.0 4.1 5.1 8.5 Public Utilities 0.1 0.8 0.8 0.6 0.4 Commnrce and Finance 6.4 6.8 7.8 8.7 18.4 Transport 1.6 2.4 2.5 2.6 2.0 Services 9.8 11.0 12.0 14.0 16.2 Other 0.4 1.9 2.0 4.5 2.6 Total 100.0 100.0 100.0 100.0 100.0
Note: The 1981 data are based on the 1981 Population Census. The 1986/87 dota are based on the National Soclodemographic Survey of 1986/87. Source: SEQEPLAN, General Directorate of Statistle, CELADE and Sank staff estimates. Table 1.6: Age-spcific Aeti.ity Rates: 1950 - 20OS
(In Percent)
1950 1964 13973 190D 19S 1990 2000
Both . Both Both Ibeth Both BDth sDth Ago Croup SeRO, Males Fwas Seige. Phie. PalI. SOxRO thi.. Fmles Sre. Obl.s Female. Sez.s PHvI. Fiss SesORS es Fmle. SeReS Males Fwles
10-14 20.4 39.9 6.4 19.2 32.9 5.0 15.8 26.2 4.1 10.7 17.7 8.4 10.8 17.9 3.4 10.9 17.9 3.5 10.8 17.8 3.6 1S-19 53.8 90.6 1s.8 48.5 81.0 14.8 44.0 71.9 14.9 88.7 63.5 13.2 38.6 63.5 12.9 38.4 63.4 12.6 38.2 62.6 u2.9 20-24 56.4 96.6 14.9 55.3 94.2 15.1 84.3 89.7 17.4 52.0 86.0 17.2 52.8 86.5 17.8 82.6 87.5 16.8 53.2 89.2 16.1 25-29 86.1 97.7 12.9 55.5 96.5 12.9 55.7 95.1 14.9 54.5 92.4 18.9 66.0 92.9 16.4 55.5 93.8 16.6 SS.9 95.4 15.5 30-84 6S.4 97.9 13.3 65.5 97.0 12.4 56.4 96.7 14.2 S4.9 98.9 15.3 55.2 94.4 15.7 85.9 95.4 16.3 56.5 95.8 15.9 35-39 56.9 98.0 14.1 65.6 97.3 12.5 54.8 94.0 13.6 54.8 93.9 14.0 54.9 94.6 14.9 55.4 95.5 15.3 56.4 95.9 16.0 40-44 56.4 97.8 23.6 55.6 97.0 12.6 55.5 95.0 14.0 88.9 93.6 13.5 84.0 94.1 13.8 54.8 95.1 14.7 55.8 96.7 15.5 45-49 56.6 97.7 14.1 55.8 96.8 12.9 65.1 94.9 13.8 55.1 93.8 12.2 53.5 93.9 12.6 53.8 94.8 12.9 54.8 96.4 14.0 50s54 85.3 96.7 12.8 84.2 95.8 12.4 88.6 93.7 12.7 52.0 91.9 11.7 52.0 92.8 11.6 52.6 95.2 11.9 53.4 94.8 12.8 55-59 85.0 98.3 13.2 b2.8 94.6 11.6 52.4 98.2 11.4 80.8 90.8 10.0 50.5 90.9 10.2 50.6 91.6 10.1 51.1 92.0 10.6 60-64 1/ 51.9 92.9 11.4 49.7 90.4 10.0 48.8 87.S 10.4 39.9 73.9 7.8 40.1 74.0 7.S 39.7 78.6 7.6 38.5 72.0 7.6 6S adyevr 39.6 73.1 8.8 39.5 73.7 7.7 35.8 68.8 6.9 ------I
Ae,age ------42.1 71.8 11.8 42.2 72.0 11.9 42.3 72.2 12.0 43.0 73.6 12.2 1
I/ From 10 onwards this grou refers to 60 and oer.
Seurce: SE4LAN. Statistical Tables an Population and Labor Forc: Cemu, 1950. 1964 ad 1978 (Suateals: 1978); SBEPtM, Projection of the Ecoxoically Active Population, 1980-=0 (atemal: 1988). - 116 -
Toble 1.7: Numbor of Workers According to Economic Activity. 1960 - 1W0 1/ (In Thousnnds)
Agriculture Industry Electricity Your TOTAL Fishing MIning Mbnufact. Conatruction Water Comorce 21 Tranaport Services 8/
1960 264.1 1S5.6 1.6 2S.2 23.3 1.S 18.9 9.8 50.5 1961 269.1 138.5 1.4 27.6 10.4 1.4 18.0 9.2 68.6 1962 284.9 133.0 1.2 26.7 7.8 2.0 20.6 9.3 64.8 1963 274.8 137.8 0.8 28.7 12.9 1.9 16.2 9.8 67.4 1964 322.3 173.3 0.8 80.6 18.7 1.7 19.4 9.9 72.8
19$6 84S.8 171.9 1.2 33.4 16.9 2.6 20.8 10.2 68.9 1968 366.9 193.9 1.2 37.8 12.9 1.4 22.3 11.1 8S.6 1967 8S7.4 188.9 1.0 39.9 12.7 1.8 28.4 9.0 90.7 1960 398.8 228.0 1.4 89.8 11.3 S.6 20.6 11.4 60.1 1969 446.5 269.1 1.6 33.2 14.8 8.8 22.4 10.4 8S.7
1970 448.3 207.1 3.4 69._ 21.6 4.8 86.8 8.6 96.6 1971 442.8 246.7 1.7 46.9 18.0 4.6 30.9 9.9 67.1 1972 448.4 251.3 1.8 40.7 12.2 4.7 28.6 10.6 98.9 1978 468.9 249.1 1.4 49.7 16.9 4.0 32.8 10.8 104.6 1974 5s9.8 271.4 4.0 58.1 22.4 6.7 48.2 12.8 119.4
1975 620.7 260.1 2.7 61.e 20.9 8.8 88.2 10.8 120.4 1976 677.9 2e3.9 1.9 7M.S 22.2 8.7 36.9 10.8 143.8 1977 708.6 868.8 4.0 84.5 24.2 9.2 81.1 14.8 158.2 1978 769.0 809.3 3.6 01.7 87.2 10.6 858. 15.1 168.9 1979 786.2 874.6 2.? 81.8 42.8 10.2 86.8 17.1 169.0
1980 788.8 378.8 3.7 68.1 27.7 1s. 80.9 21.6 173.6 1981 691.0 228.7 8.8 73.7 23.4 11.7 58.9 18.7 175.5 1982 609.1 215.7 8.1 73.9 26.9 14.8 61.8 20.0 193.8 1983 S83.8 I9W.8 3.4 77.8 17.8 14.2 68.4 16.0 191.0 1964 894.9 208.8 2.1 69.8 13.0 18.6 89.4 19.8 212.0
1968 681.7 283.6 2.1 78.2 14.1 18.0 58.4 20.3 212.0 1908 861.4 239.1 2.5 78.3 18.7 11.4 61.8 21.7 229.9 1987 679.0 284.2 2.2 78.4 13.0 11.0 62.1 21.7 286.4 1988 779.6 269.0 3.8 103.4 16.8 18.4 77.8 24.2 282.6 1989 780.4 291.8 2.9 101.3 18.2 14.0 84.8 22.0 282.9 1990 783.6 279.2 8.2 103.- 18.4 12.7 84.4 21.5 268.0
5 Preliminary Noto: The numbers of employment for the period of 1974-1982 correspond with the revision by IOSS. 1/ Refers to the nuuber of workers registered by IOSS. 2/ Includes Banking and Insuronce Industry. O/ Includen Federal Employoo..
Source: Quatemalon Institute of Social Security (OS3), and Bank of Guatemala. - 117 -
Table 1.8: Estifted Exployant and Uneployment, 1980 - 1989
(In Thousonds)
Year EP S Eiployment U TRFE f Open U Unewpl To" I U nempl. EquivIv Unemp. 1/ 2/ 9/ 4/ S/
1980 2,183 100.0 2,138 97.8 1,503 68.8 47 2.2 68n 29.0 S80 81.2 1981 2,260 100.0 2.218 98.S 1,517 67. 8a 1.6 701 81.1 784 82.8 1982 2,307 100.0 2,168 94.0 1,468 68.6 1S 6.0 701 80.4 a89 38.4 1983 2,371 100.0 2.195 90.1 1,488 60.5 286 9.9 701 29.6 937 89.8 1984 2,488 100.0 2.216 90.9 1.448 59.4 222 9.1 767 81.5 989 40.6 19S5 2,508 100.0 2.210 88.2 1.442 87.6 298 t1.8 767 80.6 1.064 42.4 1908 2,578 100.0 2.215 88.0 1,448 56.2 861 14.0 767 29.0 1.129 48.8 1987 2.648 100.0 2.828 87.9 1.489 88.2 320 12.1 889 81.7 1.159 48.8 1908 2.722 100.0 2.452 90.1 1,589 58.5 270 9.9 918 88.6 ),184 438. 1989 2.799 100.0 2.581 92.2 1.591 58.9 218 7.8 990 85.4 1,207 43.1
1/ Economically Active Population. 2/ The Theoretical Requirement. for Full Employment (TRFE) are those positions considered to be sufficient to *snsrete the CDP of each year; this means thut the ences number of people involved in the productive process are underutilied (underemployment). 8/ Those Individuol- who do not produce any economic activity. 4/ The number cf full-employment positions that should be created in order to absorb aubemployment In Its entirety; it con be theoreticelly understood thet the unemployment equivalent Is undereimployment Interpreted as open unemploymnt. e/ Rate of underutilizatlon of the work-force.
Source: SeEPLAN Table 2.1 Gros Domatic Product by Sector. 1970-90 (WiLlia of 1958 Qaetsales)
pro. A-., Gr0,tb() "! 1970 1975 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 70-75 75-80 80-5 85-90
GDP at Market Prices 1792.7 2352.7 3106.9 3127.6 3016.6 2939.6 2953.5 2936.0 2940.2 3044.4 3162.9 3288.1 3403.1 5.6 5.7 -1.1 3.0
Pr-ury Production 491.4 662.0 786.8 790.3 768.7 754.3 764.1 765.7 761.4 790.9 826.2 856.1 687.0 6.1 3.5 -0.5 3.0 ______
Agricu1tur 489.7 659.9 772.0 781.4 758.0 744.9 756.5 759.2 752.9 782.4 817.6 847.0 877.6 6.1 3.2 -0.3 2.9 kXlnf 1.7 2.1 14.8 9.4 10.7 9.4 7.6 6.5 8.5 8.3 8.7 9.1 9.4 4.3 47.8 -15.2 7.6
Secaudazy Productlau 332.9 433.0 668.4 670.7 630.0 593.3 576.7 570.8 582.5 604.2 629.9 653.8 466.8 5.4 9.1 -3.1 3.2 ______
Manufacturing 283.0 356.3 517.3 501.2 475.1 466.0 468.4 464.8 468.1 477.G 487.9 497.9 507.4 4.7 7.7 -2.1 1.6 Construction 28.4 43.9 97.9 116.5 103.0 75.8 54.3 49.7 51.3 58.7 67.9 75.9 74.4 9.1 17.4 -12.7 8.4 Utilitie 21.5 32.8 53.2 53.0 51.9 51.5 54.0 56.3 63.1 68.1 74.1 79.9 85.0 8.8 10.2 1.1 8.6
Services 968.4 1257.7 1651.7 1666.1 1617.9 1592.0 1612.7 1599.5 1596.3 1649.3 1706.7 1778.2 1849.3 5.4 5.6 -0.6 2.9 I-. I.-' Transport & cr ication 98.2 150.8 215.8 211.2 201.2 199.7 206.3 209.8 208.8 220.8 230.4 247.7 260.8 9.0 7.4 -0.6 4.5 Coerce 518.0 648.7 839.1 84.1 797.2 764.4 773.1 746.9 729.2 752.8 776.2 807.2 838.7 4.6 5.3 -2.3 2.3 Banking, lrance &Real Estate 42.3 61.3 106.7 108.8 109.7 107.3 105.7 108.1 111.1 114.9 121.4 12'.1 156.3 7.7 11.7 0.3 4.8 Busing 124.8 138.7 138.1 141.7 145.4 149.2 131.9 154.9 158.2 161.1 164.2 16;.7 171.5 2.1 -0.1 2.3 2.1 Public AdulaUtration &Defene 86.9 118.2 163.0 170.1 176.7 185.1 188.8 192.2 198.8 210.2 218.5 225.6 231.4 6.3 6.6 3.4 3.8 Personal Segvice. 98.2 140.0 189.0 190.0 187.8 186.3 186.8 187.6 190.2 189.5 195.9 202.8 210.5 7.4 6.2 -0.1 2.3
of Ccpumd growth rates. Sources Bank of ilatesla Table 2.2t Grcg Damatl Product by Env lediture. 190-90 (MiLiS of Quetral*)
__~~~~~~~~~~~~~~~~~~~~._ ...... _,,,,,,-,,,--___,,,,,,,,_,,,_____,,,__,,,,,_,,- Pre. A-I1 Orath al 1970 1975 1980 1981 1982 1983 1984 1985 1086 19g7 it" 1099 1"0 70-75 75-W0 80-85 85.90
Ce_mmtieo 164.7 3125.1 68643.3 7702.0 7824.4 8188.6 8581.8 10073.4 1590.6 16388.8 18928.8 21615.3 31253.4 13.7 17.0 8.0 25.4 Private 1493.3 2874.8 6216.8 702.0 7148.9 7300.7 7855.9 9295.9 12846.7 A4989.2 17289.0 19831.9 2209.5 14.0 16.7 8.4 25.7 Ptiblc 151.4 250.3 626.5 680.0 675.5 6B7.9 725.9 777.4 1123.9 1599.6 1659.8 1843.4 2005.8 10.6 20.1 4.4 21.3 Gross Dammetic laestmen 24.2 587.5 1251.0 1466.1 1232.8 1002.6 1095.9 1265.3 1636.5 2463.7 2814.5 3187.9 4188.6 19.2 16.3 0.5 26.6 Vised 238.6 571.5 1294.5 1443.1 1308.9 950.3 912.4 1224.9 1593.2 2186.3 2747.2 3189.5 4288.6 19.1 17.8 -1.1 28.5 Private 193.4 453.2 826.5 766.1 772.9 594.5 634.0 986.4 1290.1 1716.1 2156.9 2457.1 3301.6 18.6 12.8 3.6 27.3 Pusblic 45.2 116.3 468.0 675.0 536.0 355.8 278.4 238.5 303.1 472.2 590.3 732.4 9S7.1 21.2 $1.7 -12.6 32.9 Increas in Stocks 5.6 16.0 -43.5 23.0 -76.1 52.3 183.5 60.3 43.3 275.4 67.3 -1.6 -100.0
Gror Domestic Ezenditure 188.9 3712.6 6094.3 9168.1 9057.2 9191.2 9677.7 11358.8 15607.1 16852.5 21745.3 24863.3 35442.0 14.5 16.9 7.0 25.6
Resource Balne 15.1 -66.0 -215.7 -560.5 -340.6 -141.2 -207.4 -178.9 231.0 -1141.5 -1196.3 -1237.7 -1405.2
gpora of Goods & WIS 35S.6 792.0 1747.6 1471.0 1268.7 1173.8 1256.2 2068.0 2542.1 2807.0 3308.5 4125.1 6636.2 17.5 17.2 3.4 26.3 Iport of Goods & WIS 338.5 858.0 1963.3 2031.5 1629.3 1317.0 1463.6 2246.9 2311.1 3948.5 4506.8 5362.8 8041.4 20.4 18.0 2.7 29.0
GP at Mariet Price. 1904.0 3646.6 7878.6 6607.6 8716.6 9050.0 9470.3 11180.0 15638.1 17711.1 20543.1 23625.6 34036.8 13.9 16.7 7.3 24.9 1-
Not Fector Icom Frm Abroad -38.2 -69.0 .70.5 -103.0 .121.0 -113.0 -206.8 -330.8 -436.2 -472.4 471.1 -543.4 -847.5 P at Market ries 1865.8 3577.6 7808.1 8504.6 8593.6 8937.0 9263.5 10849.2 15401.9 17238.6 20073.9 2382.2 33189.3 13.9 16.9 6.8 25.1
Indrect Taxes get of Subsidies bI 132.2 251.8 597.0 561.0 539.0 461.0 437.0 577.0 934.0 1189.0 1359.0 1411.1 1737.2 13.8 18.8 -0.7 24.7 IP at factor Coat 1733.6 3325.8 7211.1 7943.6 8056.6 8476.0 8S26.5 10272.2 14447.9 16049.6 18714.9 21671.1 31452.1 L3.9 16.7 7.3 25.1
Depreciatio cl 96.3 152.9 295.0 333.0 397.0 416.0 445.0 472.0 509.0 556.0 622.0 626.9 1191.3 9.7 14.0 9.9 20.3 Mti.ea Inc.. 1637.3 3172.9 6916.1 7610.6 7659.6 8060.0 8381.5 9800.2 13936.9 15493.6 16092.9 2084.2 30260.8 14.1 16.9 7.2 25.3
aI C.pzd groct1 rates. bI Indirect Toee for 1988 owar4e are gross of subeidies. el Deprciation value, for 89-90 are estimates. Soure s Ibak of Guatmala and Besk staff eatimtes. .s.3z qwz p I. t-0 3t- O-C Olt 0'09C 5C09C L9Sf 1t l IOfM 6811g 7,lit Z*f 9160 *f9tv 19 Shf9f Vl SC#) 97d- Oasz*sd
6-Z 6- 9- 9- CIes6uS 90 11I EKW tlS60 *V996L 9-5SU SI SUSL -CTlZ S'9t69 t-CZ09 z-nzs (8.000) fomadoa
Olt ft t SI ei- 0TICC VTME Z-968 9494 *99 VL 9'910l 904z I0 96n lOI a 690 e990 *KLT *C-I 04m-2 *0
P13 L* 199- Sl titL 9V- PLL- 3§0- t?t- "*-, 91 1-S99 *t P9-1q izA 6U Z04"U us
ot Olt- I's 91- P1-09 VUnzE 6Eg9tlC*OE V-no# 0-o1a 9S-6Z6 9-10C SINGS1 9ltc EPOtC LeUz L-ZLt 0'IZa 38x an do
I's e-ot- 9' Vi -EOU Sl"- LeL ec1St 9-*tZ R zPLOe 65L9 C*9Vi I'm. Z-T9 t1-ZS ccEa en Wi P .1z01m3 C-S 0L- S- S c-eL - 69 C-LCP ,0ec 6PS06C 045P z-0o L*910 Z-OTS cIe t-lS9 6eSU0 01o-m 8 1 0 Y6 *.113
0-90Z O-OSt 9601 Z-96 69LT lISOZ OCst C99Tm ILI Z91K1 6E60t tIst m ew-szsqTE t1- Z-t- 9- S o t1311 VII C-CC?V$f01OCiL P9963 zL-za 9z0091Si- 0?elIr2uz eI* oLOT 0091ol2m .cza3)pnv *-Xs
0-01- Z-O- Ot CIL% 0-9 GIT tLS OLT C-Z C-S Z-l- C-OI S' Sq@s8 UT 1e3 0-01 1*:- Slot ?,# 0-* r,9 9-n 9-t 9-t9 9-6S T O 9t O-got S-661 eE T C-O9 $,S FO 1- -9,- Vti 1-9 I'm? *-et 91IT? 9LSt L99? VO9t PESST VZEt 9-t61 0**0? PItt VOlt LOL-VAW EL1 0-01- S-9 Z-S *-TtT $'Ott $6'g I9'M 9-CS POt? P91 9 8 PLiI 9'T0O 9UtL 9*0LT S9- 1VU L' E*L_ S9I *I- T11tS ?-*1WZ-OtI C-PIl 991? 09-C `36? PILlZ P16 E-60 IPtll S*ff 5913 Iuint..*nl Mem" sows
Olt V0 S *-C gitzT Slut 01o-e 4-66 o19*c 9-m O-9C 6S6"E e-?Z S1Z ? LTe c-ni S9tt cn S-Z S-O S's 6n9 V09Z P,9? PuOL9l slut? S1- 9-S9ZZ ilLUZ eLL9 LELU PS-OtC 6-nhcz ELLL C5W411 o C VPOt V9 *SI glitn c-zzn PIlL? Lecn TI?9 9E91O9flOCZ? SIItIt *P601 COnc 9PtiIT I9E?It PIl? m
06-Il SOS O-S-L Cl-0 O"th 61E 906? LUSt 9061 too l mOIE Zo8l1E tIE? OlE! SLOT OLAt I{f *Y""TWM.0
(CST-e 0161 3. .ul lS) 06016t 'SfIn d3q :jmVo 13tae- .oa *sp-g *.qv Table 2.*4 oss Dometic Investment. 19704-9 ( 1ilionof Q49t3ales)
.-***----...... _... __..._,,_...... _,,_,___,
1970 1975 1980 1981 1982 1984 ___.______._~~~~~~ 198S 1985 198 1987 198 1$98 ...... __ __ . _. __...... _ _....
At 1958 Prices Cata Foutima rud 209.6 270.6 372.6 401.6 357.6 258.2 234.9 Private Xwestat 220.2 225.6 264.1 299.8 316.6 170.7 210.3 223.9 202.1 198.6 152.3 153.8 160.5 166.7 Iported Capital 187.6 211.3 219.8 Goads 84.1 109.1 86.6 83.4 80.4 33.6 45.3 48.5 Penmaent Crops 53.1 70.1 85.7 s7.4 3.5 8.2 9.5 9.4 8.7 8.0 8.3 8.6 Land lmoot 8.2 $.6 8.6 9.0 3.9 5.9 6.8 6.7 6.2 5.7 5.9 6.1 Private CAtmunctio 5.9 6.2 6.2 6.4 25.8 27.3 40.6 25.0 26.7 29.5 23.4 28.4 Dmestic Capital 31.2 3#.8 41.1 46.0 Good 51.4 59.8 80.6 77.6 76.7 73.5 71.0 69.0 GOVIO It Investment 68.4 6S.9 69.6 71.0 38.9 60.3 148.7 199.5 159.0 106.0 79.1 59.6 Nacluary and 4quStms 61.8 78.6 88.6 96.7 2.1 5.4 17.9 24.0 10.3 7.2 8.1 3.7 5.5 Soad sd Public Vorks36.8 12.9 12.7 12.$ 54.0 130.8 175.5 18.7 98.8 71.0 55.9 56.3 65.6 75.8 84.0 Cbhe in Stocks 5.3 10.3 -17.2 8.3 .26.3 17.0 57.1 15.9 8.0 47.3 10.4 .0.2 Grass Domestic LVM*tmo= 214.9 280.9 355.4 409.9 531.3 275.2 292.1 26.1 236.6 313.5 310.2 316.3 At Current Prices Ited Captal fanastia 238.6 571.5 1295.3 1443.1 1309.6 950.3 912.4 1224.9 1593.2 21".3 2747.2 3200.1 Private Investment 193.4 453.2 826.5 768.1 772.9 594.5 634.0 986.4 1290.1 1716.1 2156.9 2303.3 Imported Capital Goods 98.5 269.2 "3.2 366.5 354.2 158.0 204.5 453.1 553.4 866.7 1154.9 1330.9 rn Crops 5.9 2.3 13.1 27.7 27.0 26.6 28.4 34.9 45.7 53.9 59.7 69.2 L Improvement 4.2 9.4 18.1 19.8 19.3 19.0 20.3 24.9 32.7 38.5 42.7 49.5 Private Ccnstmucti 28.1 54.7 151.5 99.8 107.7 120.5 104.9 144.7 189.8 226.8 305.9 581.4 Dmetlc Capital Goods 56.7 106.8 236.4 254.3 264.7 270.4 275.8 328.8 448.5 530.1 593.8 674.2 Gsrinsnt owe'st_ust 45.2 118.3 468.8 67.0 536.7 355.8 278.4 258.5 305.1 4n.2 Umblume7 sad Zqulpent 590.3 694.9 2.5 13.2 74.9 105.6 45.4 31.7 36.6 27.1 54.1 las sad Public works 147.0 162.0 181.5 42.7 105.1 393.9 569.4 491.3 324.0 241.8 211.4 249.0 325.5 428.$ 513.3 Chane So Stacks 5.6 16.0 .43.5 23.0 -76.1 52.3 185.3 60.5 43.3 2".4 67.3 -1.6 Grss Domestic Investment 244.2 587.5 1251.6 1464.1 1233.5 1002.5 1095.9 1285.5 1636.5 ______...... __._...... _ .. .______._____..._.._ __.._...... 2463.7 2814.4 3198.5 ...... ______._____...... ___...... _._.... ___ u.s. Not Available Sogrces Oaa of Goatemala sad World Back etaff estiates ' 'a !-<'* ° ^v"^ ° ' - - - - _54.Wm o 5
a .0 i ' a~~~~~~~"
i-a_ 2 2 - - - 5 a a a S ia^ o z ^ ^ ^ ° o Sine in_ c ea4 v e" Z "
SOS 40C~~~~~ 04 0 -5 (4 - 0 C VmE0 C
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a0I r 00 a ' a4 o * a -- - 4
° Oe10,: a, 2we 61. .Sn,"r 1111I"eO "an aOZZo° r"-mo a 11._004 *ro.o 044C44 VS(o w .; CInC -a a
I sOea s-P.o c-am 4 0U*-00 ' _50000Eaw o0 5i o foS a a 1 0o At W l1. la~~~~~~~~~~ a a ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AWI D * * _ _ _ _4 4545 sI a a a ae Fe o__ o; .o4 a_s a ;* ;i * @ 0 @; Ovr j~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~;
a-a . O o- - -¢^ - oo_e_ C e o o Ta To * S -a~ -5. s-a a le .. l-a a" owl r a t-°a
*u s-sF§ e m Swr oem sa o4ac. 0 _0 ea 4o-a 0 40 0 o 5 C S ama_ ao ccco _ 0 _ 61-a_ .o - 0aC; I * * . . - a
, 'a a ; ' ~sI I
_ a _ _ s _ o _ _ s Z _ _ r o o o z _ e W t! l! S S * a SOS -ao-a(4 50-A 5 e. a aa s o ea _- a e -e a - . .... - (4 aa~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C .SO
a- a - p. a Is Oa- a a
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leaa w4 s4 - c c 0csOsC s a. p.m a VS40 ~~~~~~~~~C-am --aC" '(WM) *me plo. :m.ncs
so is Z6 16 66 99 96 26 69 16 Le6 Z6 00 JD a 06 t o 66 a £0 0 001 *' 29 Ls EC 09 £ ff9£ I ELU£1 001 00ct 96 001 96 ...... 430 16 L0L AtI 001 96 601 o...... 001*' UJ0 lot AL0 at9190t09 96 WL 101 66 OtL 66 tL 11L Esu£ 5 69 s9 001UM ...... * MUW0 M ...... |OOP0961 KPUi *OlJd 31*)'ial) ------P4 S~~6 LU S.'i 0£ so 64 09 06 £6 001WI. * 96 B2 to Si £9 7L Ut 652 214 UQ1 Le 02 5B 001 jam0 [t 1t at all O0Z 09 £6 001 ***e*** JDSn9 91 61 22 21a SZ at 6£ 96 8Z 69 0L 001 **-**- 66 92 Z6 so as 69 99 ILL 06 01 ff1 9210 W0"t £01EK 6 t 7Jt lo * US 46 991 201 401 011OL 9899 w 0011t ...... *-'-*''*...... a*c '''''''---'-'---''''''''''''------'---'-'----'--- 0c08o st PUI EllQ)l...... Z1Zl 91 t' tAO'"0O6 WJI 0Y Z0t'5 Z60'l 1£9 6£S OL'1 L62L OZS'I ...... '.. 1W101 961 189 £6£ 129 £95 OS 019 00L -a £1 Z6 U *S ZS91 9 5Z 8Z 4£ 91 So 69...... jean 99 24 94 99 61 151 991 '----- uoz"3 98 1B 94 Si £i IL 9K 96 6 L 91£ 09 i3£ SS£ ZOS 299 99£ Sf 6f£ 962 to99A ...... - u
______...... a_...... ("08O|1)---...... (S OSII M )-.------.------...... ------(SOw) 83JOd3
0661 66L ou961 461 9961 9961 ...... 9t61 £161 Mt61 1961 0861 .... ,,,,,,,,,,,,,,,,:. , . . ..
'06-086t '*ZJOdxa 191°1 :Z-£ olcpl Table 3.3: Total Imports, 1980-90.
,,,,,,,...... , ... .. , ...... , .. , .. , .. .,. ._ .. , ...... 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
luports (CIF) ------...... (In mittions of US$) ------Man Durables ...... 104 106 90 77 86 8s 123 184 207 231 210 Durables ...... 241 220 201 166 18 152 35 70 75 92 107 Intermediate ...... 554 586 476 462 508 479 494 672 723 76 735 Fuels ...... 340 376 301 255 300 262 94 105 111 119 186 Capital & Contstr. . 359 386 320 175 203 197 213 416 442 393 410 TOTAL ...... 1,598 1,674 1,388 1,135 1,279 1,175 9S9 1,47 1,557 1,601 1,649 ..- - - t -----..-----C------Volume Index 1980=100)------Non Durables 10...... 1 117 112 90 96 107 94 154 143 153 14 Ourables ...... lO 91 84 71 79 66 42 52 57 60 71 Intermediate ...... 100 105 s8 86 97 90 80 98 116 124 106 Fuels ...... 1W0 99 82 79 94 85 9 76 80 75 79 Capital &Costr. . 100 107 90 51 60 57 47 73 71 73 61 TOTAL ...... 100 102 87 73 84 79 69 91 97 101 92 .C...... - -..- leplicit Price Index 1980clOO) .100... Non Durables ...... 100 85 75 84 67 75 124 123 157 169 18 Durables ...... 100. 100 99 98 96 97 73 77 74 78 74 Intermediate ...... 100 100 99 97 95 96 109 123 114 114 12 Fuels ...... 100 111 107 96 94 92 28 55 53 60 75 Capital & Constr. . 100 101 99 98 97 98 113 142 152 137 153 TOTAL ...... 100 103 100 98 96 95 91 100 100 99 112
Source: Wortd Bank CRS). IA -4 6U1NuuPuSpsAu3 o A4zs;uii Wa*jhos 6~LLL VIJOI0 V O OSLL 00ttL O90L 9"LI 6 SLZt Z'L2L OI B 16301 S 5L9 Z119 ttLtg S219 951U VL8 9591S L U L'StL 6509 VSZ 22Z e 12 ni Z 6-a Vii 0iE C9£ OL- 1to qlnJ3 -- -. 0- S3zF" d jaqw 5 21-0 --Z-Z VLII 9-6 902 6Wlt Z£ I 1 OLZ I£2i S10Z thZZ L'981 LCL SbLZ 1o AAHK Oi 9L £.1 SZ 6- 6 11 Zi6t 91i2 S*Z£ Slit 9LZ 6W0 Z-L£ S fZ 2-£6 "tI VIP9 5*9 zap oqJIhLaUsoam Vils Ils[9 flu CO9 8-68 9*9" (320 1909 61lS V19 9-6£ 0°S Z'6S Vu£ £19 A) au110=9 6919 V61 9'Z9 ,L 9Z ( lvO S6) SUIloSUS 919 6OL 9061 ,S8 2SL IL9S VI s 1ZfWlUSdOJdZ t LSs S Of £Z-m SLL9 VfL9 r£oe 8-S 9-16 SIM9 VIlSZ 1630L
9961 A6I 991 S961 M91 £96L Mt6L Mt61 0m6L SU16
...... _._._._......
(W°0 SIJSH ;O upsmnq UK) 89-S161 'S!NAVAIUO Wl31Ul3d dNV 110 3= AO SlWOdMI :v-£ lqu1 - 126 -
nig. I of
Table 3.Ss U.woi 198049 (t mi11m of 180
1980 1981 198 19S 1964 1963 1966 167 19to 1989 ...... _.. __...... _...... totall Ueld 1l519.6 1,226.1 1,119.6 1,150.6 1,122.3 1,020.6 1,061.6 987.3 1,020.4 1,108.0
1RM-CAOI 1,079.0 847.2 72.4 8U7.9 830.-9 612.0 876.3 736.) 785.1 859.1 CAM 1/ 440.S 376.9 337.3 320.9 291.4 207. 1s6.S 231.0 235.4 244.9
Total, traditial 21 $53.1 8$4.1 618.1 670.) 463.4 657.7 749.3 585.3 592.3 640.0 gm-mm U31.0 643.3 611.9 680.4 663.0 657.1 748.6 564.6 590.9 835.4 Cml 2.1 4.8 6.2 1.9 0.5 0.6 0.7 0.9 1.4 4.8 total, sm-traditional 866.7 57e.0 501.7 41-4. 45s.6 32. 312.4 401.6 426.2 467.9 NM-CAM 22S.0 203.9 170.5 169.5 167.9 155.7 127.7 171.7 194.2 223.7 CAM 438.7 574.1 331.2 319.0 291.0 207.2 184.7 230.1 23.0 244.1
Agricultural Products 109.6 122. 110.7 86.4 101.6 80.8 76.0 104.6 109.2 107.3 VM-CiA 56.9 67.0 69.0 53.2 70.6 $9.0 36.3 74.3 86.0 89.9 Cm" 30.8 35.0 41.6 33.2 31.0 21.6 17.7 30.5 23.1 17.4
Intuatrial Products 469.7 438.3 373.5 382.) 344.9 269.8 229.0 269.3 313.6 346.6 3cu.CAh 94.1 111.0 91.7 104.4 90.0 87.8 66.4 94.7 105.9 127.3 Can 375.5 327.2 281.6 277.9 254.6 182.1 162.5 194.6 207.7 221.5
lineral Prodcats 67.4 16.9 17.5 19.8 12.3 12.3 7.4 7.6 5.4 11.6 von-CAM 75.0 5.9 9.8 11.9 7.2 6.9 3.0 2.7 2.3 6.3 CACK 12.4 11.0 7.6 7.6 5.1 3.3 4.4 5.0 3.1 5.3 notes Vwres us baid an custm data and -y differ frcc Balme, of Payment vabas.
11 CAM * Central Amrita Cmm mIaat 21 traditioal produats are coffee, banan, Bugar, cotton, aardmom aist end ol.
Sources Bmnk of Oaatala 'ao O *Ooeee"" ^ -s-^^¢soZo 20S 00003S3 o VXo#"tZ0 0 0IV00
* St .4.4St0oStSt0.4 St0~~4 .0.0. . . . a
St ok ** 3 a q - coS C 0I t - ob C 0 -0 940.300044OtStO0r3
- 0; StS tS .4 C; 0 t00 ASt C; C;t 0 St 4. StESOsSa St - St'St .43
3 S St - -.Ot e- _
_* e 3 O s r~~~~~~~~, oo. c so ohesZe r- o-o a" M O. o "ta ao " o" o "O M
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WI * ... .- . lo O 0 obStt0 0 SttS00tSt00 I VDt 0 o~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~l 0..4q * 3 S _ r- e .4 a 0e.eS 3 * 3 S 1 w 4 % I rJ _ C*V C: 0 0 0%a 1 -~~C aCAnO 0A W a' 3 0S 3 8 t C4C m W 4~~~~~~~~~~~~0a
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St St ot St 0 0 o S a P. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-I
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VI .0 a a . ; *a I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I O. 3"_ aC4 a le .a o4
* .S 0, 'a V| Zo ,,n Z _,A eII, A e3 - A - - - - - 10!: 4; 0; ':4 :; ; 04 d eq.a54 0 - ' ,1.4 .404 4 * PS ' _4 .4. e0 o4 444(. _ 1-v _ e04 040.0 0 0 6 .~~~~ e a A p ;a co A in -4 a cea o ¢_o%D A
* S .4 ° 04 40 .4 4 0440.0 04 0 o44.0 o4 4 * o.4 ii~~~~~~~~~~~~~~~~~~~~~~~~o^ * " e ^ j ^;; j o * l3 o 4 4 - a a A a
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w .4 E i Ii~~~~~~~~~~~~~~~~~I I : I e _ 0! Io .
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4 . .4 .- .4 .4 . 0 4 .43 4 .4 5 - 129 -
Teble4. 1, xtternal DeOt lndicators, 19809 (tI Killitoe of USO
1980 1981 1982 1963 1984 1965 1966 1967 1088 If 8O
1. Tote. Debt (Outstnding &Dlbureed) el 932 1264 1537 1796 S340 2614 2753 281S 2577 2648
A. TLErtrnal Public Debt b/ 549 806 1144 1353 1945 2133 2256 2833 2060 2089 ly Lentder Bilateral 163 307 46 555 600 643 706 731 749 7i3 IDA 136 160 243 267 322 402 466 491 530 361 ClZii 69 79 81 77 77 76 76 46 80 86 World Bank 144 171 186 193 151 223 277 330 280 260 linancial Institutions 14 67 147 290 826 305 261 262 211 217 Arrear bonds a/ -- - 468 482 472 450 229 200 Otbhr di 3 2 2 2 I I 1 2 2 2 ay Borroer Bank of Guatala 41 145 260 632 1022 1109 1070 1105 913 904 lest of the Public SBctor 506 661 884 751 923 1024 1168 1229 1166 1184
S. Short-Term Debt. Zxcluding DU e/ 101 138 119 119 141 260 805 804 295 377 C. DX Debt (Bonk of Guatemala) -- 110 106 140 150 116 70 59s 73 0. M< Private Ron-Guarnteed 282 210 168 154 105 106 119 116 113 I10
It. Ezternal Debt Service 101 121 141 171 220 282 305 313 384 273
A. Public lkdiun 6 Long Term 45 61 103 146 193 256 282 292 327 246 hmortiaation f/ 15 23 44 71 109 149 136 147 215 156 Interest Palmante 0 88 59 75 64 107 146 14 112 90
B. Interect on Otbhr Debt 56 60 8 23 27 26 23 21 21 27 C. Amortization to the DI! ------49 56 20 29 13
IXX. Debt Service Ratios
Oe Public WILT Debt/1rports of GoodiNFS 2.6 4.1 8.0 12.4 15.7 22.0 24.3 25.7 25.7 16.9 Total Debt Service/Elports of GoodaIWS 3.6 6.2 10.9 14.5 17.9 24.3 26.3 27.5 27.3 18.6 Interect Payents/Exports of GoodeaUNS 4.9 6.7 7.5 8.5 9.0 11.4 14.5 14.6 10.4 8.0 Totel Debt/Exports of GoodaUPS 53.3 85.9 119.3 152.7 190.1 225.0 237.1 247.6 202.4 181.9
1V. Debt Service Arrears -- -- 24.6 14.2 22.4 103.8 231.2 262.3 247.5 416.5
Son-bonded Arrears 8 -- -- 24.6 14.2 22.4 22.8 38.7 14.0 0.7 0.1 Otbhr Arrue h/ -h- -- - 81.0 197.5 248.3 246.8 416.4 (o/w CORNA) ------50.9 86.7 122.6 152.4 220.3
_.___._._...... _.___._...... ___.._._.__...... ,_____._,__,...... __......
*/ Repayable in foregn currency and goode. b/ includes publicly guaranteed debt. c/ 5-Year bonds issud by the Bank of Guatetala during 1983 end 1984 iL *ebhnge for depolte in local currency. againt pending foreign obligations by the private eector, are registered as WILT debt starting In 1984. 41 Includes OPEC and other multilateral debt. e/ Includes interest arrears. f/ tncludes arrear bonds. g/ Arrears of the Public Sector for ,hcb the purchase of etabilisation bonds was not required h/ Outstanding arrears of Bank of Guatemala. Public Ssctor end CORNIA.
Scurceoe World Bank'sc lbt Reporting Systes, Bank of Guatemala, D, and World Bank estimtes. TABLE 4.2: SERVICE DAYMENTS, CONMITNENTS, DISBURSEPENTS AND OUTSTANDING AMOUNTS OF EXTERNAL DEBT It (IN NILLIONS OF U.S. DOLLARS)
YEAR DEST OUTSTANDING T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHAISES END AT END PERIOD DISBNRL INCLYING OMMENTS DISWRSEMENTS S E R V I C E P Y N E N T CANELLATIONS 2/ AST"S 3/ O"LY UHI SM- FED I_ --- __ PRINCIPAL INTEREST TOTAL
1984 2352.5 2871.9 321.4 273.9 161.7 110.7 272.4 9.4 1985 2622.7 3321.2 456.0 264.4 201.0 132.9 333.9 12.3 194.3 1986 2752.5 3406.1 122.8 175.4 195.8 168.4 364.2 10.5 168.4 1987 2770.4 3489.0 155.8 99.1 171.9 166.8 338.8 4.1 103.0 1988 2576.6 3428.4 368.7 240.8 245.8 133.2 378.9 49.6 -133.9 1989 2647.5 3380.3 152.6 181.7 172.2 116.7 289.0 41.6 13.1 THE FOLLOWING FIGURES ARE PROJECTED 41 ______.__......
1990 2370.7 2869.4 223.1 216.8 142.2 359.0 57.4 -236.8 1991 2342.7 2657.2 184.1 212.1 135.6 347.8 1992 222B.4 2414.7 --- 128.3 242.6 125.3 367.8 1993 2033.7 2135.4 84.6 279.2 109.2 388.4 --* 0.0 1994 1843.3 1896.9 --- 48.0 238.5 90.8 329.2 0.0 199M 1667.9 1698.1 --- 23.5 19M.9 75.4 274.2 0.0 1996 1507.8 1523.7 --- 14.3 174.3 62.8 237.2 0.0 1997 1346.5 1353.7 --- 8.6 170.0 51.9 221.9 1998 1210.5 1212.8 5.0 140.9 41.4 182.3 1999 1112.0 1112.3 --- 2.0 100.5 32.8 133.3 2000 1018.1 1018.4 93.9 27.5 121.4 2001 940.7 941.0 -7.5 22.4 99.9 2002 874.1 874.4 --- 66.5 18.8 85.3 -0.0 2003 816.9 817.3 --- 57.2 15.8 73.0 0.0 2004 763.1 763.4 ...... 53.8 13.5 67.3 ------
11 Externat debt includes public, private non-guaranteed, awd IMF debt. 2/ Includes writeoffs; projected amuts In this colum are aits excluded from projections due to urnasm terms. 3/ This coLumn shows the awt of arithmetic imbalance in the mount outstanding includirg umdisbursed fra one period to the next. The most comon causes of imbtlances are changes In exchange rates ad transfers of debts fra cne category to another in the table. 4/ Projections are based an debt outstanding including Lffdisbumred as of Dec.31, 1989. Source: Uortd Bank - 131 -
Table 4.3: Structure wnd Terma of External Publfe Debt as of December 31 1989. Inctudes Annual Commftments an Debt Repayable in Foreign Currency and Goods. (In millions of US$)
Amount Interest Naturfty Grace Grant Grant 1/ tX) (Yre) (Yr.) Element (X) gquivalent ...... 1980 247 7.9 14.8 3.4 10.2 25 1981 379 8.2 18.4 5.1 16.7 63 1982 199 6.5 13.7 4.4 22.6 45 1983 368 8.4 13.3 4.4 14.4 53 1984 321 8.9 14.6 4.1 7.9 25 1985 456 8.1 12.4 4.2 10.6 48 1986 123 5.5 22.0 5.7 35.1 43 1987 156 4.0 28.8 8.0 49.0 76 1988 369 5.2 19.1 5.4 32.5 120 1989 153 7.5 14.1 2.0 14.6 22 ...... - ...... -- Total: 2,770 521 84/89 Avrg. Terms 1/: 6.9 17.2 4.9 21.4 ......
1/ Only Includes loans having fnterest, grace period and maturity Informatfon aval labte, which were used to compute average terms. Source: world Bank. TABLE 4.4: EXTERNAL PUBLIC DEST OUTSTANDING INCLUDING UNDISBURSED AS OF DEC. 31, 1989 (IN MILLIONS OF U.S. DOLLARS)
D EB8T O UT ST A NDI NG j INM AR RE AR S DISBURSED UNDISBURSED I TOTAL I PRINCIPAL I INTEREST CREDITOR TYPE: FIUNCIAL INSTITUTIONS CREDITOR COUNTRY AUSTRIA 5.1 0.7 5.7 0.6 - FRANCE 15.4 - 15.4 5.5 0.6 GERMANY, FED. REP. OF - - SPAIN 38.1 - 38.1 38.1 - UNITED KINGDOM 14.9 - 14.9 3.7 2.0 UNITED STATES 92.7 92.79 42.4 - TOTAL FINANCIAL INSTIUTIONS 166.1 0.7 166.8 90.3 2.6 .__------...... _...... CREDITOR TYPE: BONDS _..___._.._...... __ CREDITOR CWUNTRY MJLTIPLE LENDERS 200.4 200.4 8.5 10.0 TOTAL BONDS 200.4 - 200.4 8.5 10.0 ..-- -- - ...... CREDITOR TYPE: NJLTILATERAL LOANS _...___,...... ______CREDITOR COWUTRY BCIE 82.6 26.8 109.4 17.6 8.2 IBRD 260.5 150.2 410.6 - - [DO 561.4 264.1 825.5 - - INTL FRID ARG tIFAD) 0.9 5.6 6.5S OPEC SPECIAL FUND 1.5 4.7 6.2 0.0 ______._.__._...... __.._...... TOTAL IWLTILATERAL LOAS 906.8 451.4 1358.2 17.6 8.2 _ __ _------...... __...... __...... ___...... ______...... CREDITOR TYPE: BISTERAL LOANS CREDITOR COUNTRY ARGENTINA 7.1 3.4 10.5 1.4 0.5 CANADA 10.7 , 10.7 7.5 5.7 CHINA 15.9 15.9 - 1.7 FRUNCE 7.7 2.1 9.8 0.2 GERMANY, FED. REP. OF 22.2 55.9 78.1 5.1 - ITALY 38.1 142.8 180.9 JAPAN 4.9 36.0 41.0 MEXICO 59.6 - 59.6 18.0 6.9 SPAIN 188.7 - 188.7 94.7 125.6 UNITED STATES 246.4 60.7 307.1 0.1 2.0 VENEZUELA 163.5 0.9 164.4 1.8 8.7 TOTAL BILATERAL LOANS 764.7 302.0 1066.7 128.5 151.4 ...... ---- ...... ___....__.___...... __.... ___._._...... CREDITOR TYPE: EXPORT CREDITS CREDITOR COUNTRY FRANCE 14.6 11.4 26.0 0.3 1.3 LUXEMBOURG 14.4 0.1 14.5 SWITZERLAND 13.6 13.6 UNITED STATES 21.6 - 21.6
TOTAL EXPORT CREDITS 50.6 25.1 75.6 0.3 1.3 ...... 7..7...... 26.... 7.245.3 TOTAL EX(TERNAL DEBT 208.6 7791 2867.7 245.3 173.5 Page 1 of 4
Table 5.1: CONSOLIDATED OPERATIONS OF THE NONFINANCIAL °U8LIC SECTOR, 1980-90 11 (in MiLlions of QuetzaLes)
...... Prel. 1980 1981 1982 1983 ...... 1984 1985 1986 1987 ...... 1988 1989 1990 _ 1. Central Government Current Revenue 747.3 740.6 730.3 702.2 689.7 865.0 1406.5 1659.2 2081.9 2238.8 2712.7 Taxes and other revenue 721.7 698.8 679.3 629.1 633.6 766.5 1219.8 15,O.5 Transfers from: 25.6 1939.7 2036.2 2562.5 41.8 51.0 73.1 56.1 98.5 186.7 108.7 142.2 Rest of general govermient 0.4 0.5 202.6 150.2 0.5 0.5 -.* 4.6 15.5 7.7 21.3 41.5 Nonfinancial pubt.enterprises 2.3 1.5 58.1 4.0 11.6 16.5 19.8 24.1 21.5 23.0 60.4 Private sector 2/ 22.9 39.8 46.5 59.9 61.0 39.6 74.1 147.1 79.5 97.9 100.7 32.2 Current Expenditure 654.1 727.6 675.3 705.0 764.8 837.7 1406.5 1715.2 2086.0 2385.7 2948.5 Wages and salaries 351.4 386.3 373.8 391.0 Goods 413.5 452.2 625.6 736.3 854.0 959.4 1087.3 and services 138.8 157.7 141.6 127.2 Interest 150.1 162.8 278.1 344.5 446.0 511.1 651.0 64.6 56.3 74.3 74.4 Transfers 82.8 76.6 207.5 244.9 301.9 327.0 430.3 to: 119.3 127.3 85.6 112.4 118.4 Rest of general 146.1 295.3 389.5 484.1 588.2 779.9 goverruent 62.9 66.3 53.9 53.5 51.0 Nonfinancial publ.enterprises 65.6 144.6 242.5 230.9 256.4 248.4 1.2 1.2 ------0.2 4.6 --- Private sector 50.7 55.1 0.7 --- 27.7 55.1 63.7 75.6 134.0 138.6 236.8 316.5 Abroad 4.5 4.7 4.0 517.4 3.8 3.7 4.7 12.1 8.4 15.7 15.3 14.1 Current Account Balance 93.2 13.0 55.0 -2.8 -75.1 ...... 27.3 0.0 -56.0 -4.1 -146.9 -235.8 Capital Receipts 0.3 0.8 0.2 0.6 0.2 ...... 0.7 0.2 0.5 0.1 0.0 0.1 Capital Expenditure 435.6 622.3 449.6 315.3 269.5 ...... 230.6 298.3 378.4 583.7 744.9 747.2 Fixed capital formation 217.0 301.6 233.6 162.3 Other 162.8 131.3 147.1 170.7 272.9 320.0 339.7 capital expenditure 6.5 10.0 0.2 0.2 Transfers 7.9 - 8.8 49.2 69.3 77.1 to: 212.1 310.7 215.8 152.8 Rest 98.8 99.3 151.2 198.9 261.6 355.6 330.4 of general goverrnent 23.8 19.4 28.4 28.5 Nonfinancial 33.1 19.2 95.4 180.2 133.2 163.9 157.7 publ. enterprises 171.7 264.3 181.8 124.3 62.1 Financial intermediaries 78.6 44.8 15.4 81.3 159.2 157.9 8.2 7.0 5.6 -- 3.6 Private sector 8.4 --- 10.9 2.2 8.0 26.3 12.6 ------1.5 0.1 0.3 39.1 Abroad ...------6.2 1.1 ...-- 0.8 --- --... t .1 Net Lending 3/ 26.8 30.1 16.6 13.7 7.4 ------Overalt Deficit -) -368.9 -638.6 -411.0 -331.2 -351.6 -202.6 -298.1 -433.8 -587.8 -891.8 -983.0 Grants 0.4 1.0 0.5 1.2 0.1 Foreign financing 0.9 60.1 198.1 217.0 194.9 84.8 (net) 92.9 102.1 79.2 87.6 Internal financing 25.7 63.2 78.3 88.3 152.5 99.7 127.6 (net) 275.6 535.5 331.3 242.4 325.8 138.5 External Arrears 4/ 159.7 147.4 218.3 597.2 582.3 ...... 188.3 ...... 1/ All expenditures are on accrual .... basis (gestos causados). A classification on cash basis is not avaitable. 2/ Includes the Petroleum Compensation Fund. 3/ Refers to net lending for reconstruction trust funds. 4/ Refers to interest arrears of 038.3 million and the Government's contribution of 0150 million to INDE's external debt-service Page 2 of 4
Teble 5.1: CONSOLIDATED OPERATIONS OF TKE NONFINNCIAL PUBLIC SECTOR, 1980-90 1/ (In Nillions of uetzales)
...... _...... _...... Pret. 1980 1981 1982 1983 1984 1985 1966 1987 1988 1989 1990
It. Rest of General Goverwent Current Reveue 239.3 264.6 258.0 253.8 258.2 288.4 404.6 546.9 621.5 767.5 794.2 Tax revine 147.1 158.0 159.5 163.4 167.2 173.8 213.6 251.9 321.8 384.3 409.5 lontax reeuae 22.9 34.3 38.1 31.1 32.9 39.4 37.4 48.7 52.8 99.4 117.9 Transfers fra: 69.3 72.3 60.4 59.3 58.1 75.2 153.6 246.3 246.9 283.8 266.8 Central goverwuet 62.9 66.3 53.9 53.5 51.0 65.6 144.6 242.5 230.9 256.4 248.4 Private sector 2.7 2.7 2.4 3.6 4.4 7.6 5.1 3.6 15.1 18.4 14.9 Nonfinanmial puL.enterprises --- ... 0.1 0.1 1.9 0.3 0.1 0.5 8.8 3.5 Financial intermediaries 3.6 3.3 4.1 2.1 2.6 --- 3.4 ... --- Abroad 0.1 ------... 0.1 0.2 0.1 0.4 0.2 --- Current Expenditure 177.4 197. 1 200.9 198.2 211.6 235.0 303.0 381.2 516.5 646.2 807.8 ...... Wages and salaries 98.7 108.1 114.9 111.4 115.5 127.7 164.0 201.7 280.9 339.8 352.9 Goods and services 43.4 54.1 48.7 42.9 45.2 45.6 55.4 78.4 114.9 133.8 168.7 Interest 2.1 2.0 1.8 1.7 2.2 3.0 3.2 3.1 1.7 2.3 3.1 Traufers to: 33.2 32.9 35.5 42.2 48.7 58.7 80.4 98.0 119.0 170.3 263.2 Central goverwuent 0.4 0.5 0.5 0.5 -.. 4.6 15.5 7.7 21.3 41.5 58.1 Private sector 32.5 32.1 34.4 41.4 48.5 53.7 64.5 90.0 97.0 128.0 204.7 Financial Intermediaries ------0.4 ... . - - - Abroad 0.3 0.3 0.6 0.3 0.2 ... 0.4 0.3 0.7 0.8 0.4 Current AccoLat 8alance 61.9 67.5 57.1 55.6 46.6 53.4 101.6 165.7 105.0 121.3 -13.6 ...... Capital Receipts frO Central SoY. 23.8 19.4 28.4 28.5 33.1 19.2 95.4 180.2 133.2 163.9 157.7
Capital ExperdIture 60.3 73.1 52.5 36.9 38.4 28.3 36.4 104.5 157.6 195.9 196.4 Fixed capitaL formatIon 60.3 73.1 50.8 36.8 38.3 27.0 36.4 104.0 157.3 195.9 196.4 Transfers to private sector ... -* 1.7 0.1 0.1 0.- 0.3 -0- 0.0 Transfer to fin. intermediaries ------... --- 1.31 .3 .------0 *
Overall Surplus or Deficit () 25.4 13.8 33.0 47.2 41.3 44.3 160.6 191.3 80.6 89.3 -52.3 Foreign financijn (net) 0.4 5.6 4.7 4.7 6.4 3.8 1.3 -2.4 1.2 14.2 Internal finanCing (net) -25.8 -19.4 -37.7 -51.9 -47.7 -48.1 -161.9 -188.9 -80.6 -90.5 38.1
Note: The 1990 buxlget is estimeted bV the World Bank staff. 1/ All expenditures are On accrual basis (gastos causados). A classiffcation on cash basis is not aVailable. Pae 3 of 4 Table 5.1: CONSOLIDATED OPERATIONS OF THE NONFINANCIAL PUBLIC SECTOR, 1980-90 It (in Ni 1tfam of Quetzales)
1980 1981 Prel. 1962 1963 184 1985 1986 1967 1988 1989 1990
III. Ionfircncial Pubic Enterprises 2/ ...... Current ReVemie 210.0 224.9 207.8 ...... 216.8 295.6 325.6 399.9 464.4 89.5 622.4 1127.6 Sates of goods awd services 196.7 217.0 205.4 213.5 Transfers from: 293.9 324.5 395.2 464.3 48.7 622.0 1127.6 2.1 1.2 0.2 0.0 0.1 0.8 4.7 O.1 central govervint 1.2 1.2 0.8 0.4 0.0 Rest ------0.2 4.6 --- 0.7 of general ger,ment .------Private Sector --- 0.4 ------0.4 0.9 - 0.2 -.- 0.1 0.2 0.1 0.1 0.1 Other current rev 9.2 6.7 2.2 3.3 1.6 0.3 .-. ---...... Current Expenditure 192.1 208.4 176.3 170.5 25.3 ...... 242.3 291.8 335.8 457.7 532.6 667.5 Ibps d saLaries 42.9 50.3 47.7 48.3 6.0 73.5 114.2 145.8 169.1 190.0 GooS and services 123.5 136.5 97.7 215.3 Interest 86.8 126.1 128.3 104.2 122.7 151.5 169.7 239.2 17.3 18.5 22.1 20.8 25.1 Trasfers to: 15.0 46.3 4.8 96.5 86.9 140.0 8.4 3.1 8.8 14.6 18.1 25.5 27.1 22.5 36.6 Central guveret 2.3 1.5 86.1 93.0 Rest 4.0 11.6 16.5 19.8 24.1 21.5 23.0 60.4 59.9 of geel go -- -* 0.1 0.1 Private Sector 1.9 0.3 0.1 0.5 8.8 3.5 6.0 1.5 4.7 2.6 1.3 2.9 1.9 0.9 14.8 Abrod 0.1 0.1 0.1 16.4 29.2 0.1 0.2 0.9 0.8 ... 0.3 0.5 0.4 Current Account Balce 17.9 16.5 31.5 46.3 60.3 83.3 106.1 128.6 31.6 89.8 440.1 Capital Receipts 175.2 291.9 9.0 132.0 67.3 82.0 51.7 55.7 89.4 159.2 157.9 Traufers from Central Goverumnt 171.7 284.3 181.8 124.3 62.1 78.6 4.8 Other Capital 1.5 15.4 81.3 159.2 157.9 7.6 15.2 7.7 5.2 3.4 6.9 40.3 8.1 ------CapiteL Expenditure 197.5 302.3 256.0 203.4 140.1 155.6 136.7 129.9 159.4 211.9 356.8 Fixed capital formtion 190.7 300.3 251.6 190.9 140.1 153.0 126.2 97.9 Trar6fers to private sector 6.8 2.0 158.4 211.0 356.2 Other 6.4 ... 11.0 .. . -- capital apenditure . - - 12.53 -- 2.6 12.5 32.0 .-- 0.9 0.6
OWerall surplus or deficit t) -6.4 6.1 -29.5 -25.1 ...... 12.5 9.7 21.1 54.4 -38.2 37.1 241.2 Foreign finrncing (net) 1.0 1.1 23.6 31.7 -11.5 -60.9 8.5 Intermal firancing (net) 5.4 11.0 -10.4 74.8 13.4 -7.2 5.9 -6.6 -1.0 51.2 -29.6 -65.4 48.6 -111.9 -254.6
Note: The 1990 budget is estinted by the World Bank staff. 1/ ALl expenditures are an accrual basis (gastos causados). A 21 clessification on cash basis is not miLable. Includes IKDECA, GNT, EPN, FEGUA, AVIATECA, EP0, WATEL, INDE, PiLAC, ZOLIC, and EBPEGUA. Page 4 of 4.
Tabte 5.1: CONSOLIDATED OPERATIONS OF THE NONFINANCIAL PUBLIC SECTOR, 198C 90 1/ (In Nillions of Quetzales)
...... _ Prel. 1980 1981 1962 1983 1984 1985 1986 ¶96? 198B 1989 1990
IV. ConsLidated Public Sector Revenue Current 963.4 973.8 992.3 972.0 963.8 1184.? 1803.5 2130.2 2595.9 2901.4 3810.1 Current account surplus of non- finanmial public enterprises net of transfers and Interest 41.5 36.9 62.2 81.7 105.4 123.0 176.8 195.8 168.1 262.4 67.1 Taxes and other reveman 891.7 891.1 876.9 823.6 833.7 979.7 1470.8 1851.1 2314.3 Current 2519.9 3089.9 transfers 30.2 45.8 53.2 66.7 46.7 82.0 155.9 83.3 113S 119.1 47.1 Financial intemedieries 3.6 3.3 4.1 2.1 2.6 --- 3.4 --- ... --- Private sector 26.5 42.5 49.1 64.6 44.1 81.9 152.3 83.2 113.1 119.1 Abroad 47.1 0.1 ------.-- 0.1 0.2 0.1 0.4 -- ... Current Expenditure 790.4 876.8 848.7 872.9 952.0 1021.1 1593.8 1891.9 ...... 2463.2 2837.8 3619.3 Wages and salaries 450.1 494.4 488.7 502.4 529.0 579.9 789.6 938.0 1134.9 1299.2 1440.2 Goods and services 182.2 211.8 190.3 170.1 195.3 208.4 333.5 422.9 560.9 644.9 839.7 Interest 64.0 76.8 98.2 96.9 110.1 94.6 257.0 292.8 A02.1 416.2 573.4 Transfers to: 94.1 93.8 71.5 103.5 117.6 138.2 213.7 238.2 365.3 477.5 766.2 Private sector 89.2 88.7 66.8 99.3 113.5 132.2 200.4 229.5 348.6 460.9 751.3 Financial Intermediaries ...---- ... --- 0.4 --- Aroad 4.9 5.1 4.7 4.2 4.1 5.6 13.3 8.7 16.7 16.6 14.9 Current Account Balance 173.0 97.0 143.6 99.1 ...... 31.8 163.6 209.7 238.3 132.7 63.6 190.7 Capitel Receipts 1.8 8.4 15.4 8.3 5.4 ...... 4.1 7.1 40.8 8.2 0.0 0.1 Capital Expenditure 497.9 694.0 549.9 402.8 352.8 ...... 316.7 333.2 417.2 686.2 829.6 963.7 Fixed capital formation 468.0 675.0 536.0 390.0 341.2 311.3 309.7 372.6 588.6 726.9 692.3 Other capital expenditure 6.5 10 0.2 12.7 7.9 2.6 12.5 40.8 49.2 70.2 77.7 Transfers to: 23.4 9.0 13.7 0.1 3.7 2.8 11.0 3.8 48.4 32.5 13.7 Financial intermediaries 8.2 7.0 5.6 0.0 3.6 1.3 10.9 2.2 8.0 26.3 12.6 Private sector 15.2 2.0 8.1 0.1 0.1 1.5 0.1 0.8 40.4 6.2 1.1 Abroad ------. -.. -.. 0.8 -- -- ... Met Lending 2/ 26.8 30.1 16.6 13.7 7.4 ------...... - OveralL Surplus or Deficit C-) -349.9 -618.7 407.5 -309.1 -323.0 ...... -149.0 .116.4 -138.1 -545.3 .766.0 -792.9 Grants 0.4 1.0 0.5 1.2 0.1 0.9 60.1 198.1 217.0 194.9 84.8 Foreign financing (net) 94.3 108.8 107.5 124.0 20.6 6.1 88.1 96.9 142.1 175.7 155.2 Internal firnncing (net) 255.2 508.9 299.5 183.9 302.3 ...... 142.0 -31.8 -156.9 186.2 395.4 5S2.9 ...... Mote: The 1990 budget is estimated by the World Bank staff. I/ All expenditures are on accrual bafs (gastos cauBados). A elmificeaton on cash basis is not available. 2/ Net Lending for reconstruction trust funds. Source: NInIstry of Finance, Bank of Guatemala, IMF, and World Sank staff estimates. '4 S E:nx ,#4IS 4 i i 0-1 s SV%3 r -gxalgl-tz *A.t 25-
a-| ~3~ r s-ee ~~~~~~r -'t "* O .¢ ez o *-- ,>a-0 r *-oz"-° a.
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i nagsan-I a a 2 i r. n - x c S - s n~~~~2 ! C t~~~~~~~~~~~~~
| 7 : a n ! n_ : ; i It i *! t _ : ° t ! 4 3iIes n
3.5 30 tt a #4* - - -i i 2 Ea f#4 3'! ! 2:M. .41 X^ t ] ° * ^ S~~~t 31°°3C! :|~:zI n I I t~St"o^_5~4!'3n I^to gaXxll Table 5.3: CentraL Goverrnment Expenditure by Function, 1980 - 1989 1/ (InNitlions of Oakeetzales)
...... ,...... ,...... _. . .. . _...... _...... _. . . 1980 1981 1982 ..._...... 1983 1984 1985 1986 1987 1988 ...... 1989 o....
------(At Current Prices) -...... Total 1116.5 1380.0 1141.5 1034.0 1041.6 1068.4 General pulic services 1704.8 2093.6 2669.9 3130.6 266.5 308.9 279.4 282.2 312.7 365.0 612.5 603.5 796.8 880.3 Oefense 100.9 114.4 147.4 144.4 Education 146.9 176.2 219.0 351.8 387.1 416.2 128.4 142.2 136.4 130.6 140.0 134.4 226.4 397.3 472.9 535.1 Health and social security 162.7 158.7 104.1 104.7 109.6 106.2 159.7 Hosing ad commity 201.4 308.7 319.1 ammities 27.1 29.2 21.3 16.1 13.2 15.3 36.7 30.6 25.5 45.2 Ecoromic services 386.1 570.4 378.6 277.6 236.4 194.7 242.6 AgricuLture, fishing, 264.1 377.1 604.7 and forestri 74.9 58.1 48.1 51.4 52.0 33.9 74.0 91.1 139.4 156.5 Roads 132.8 190.2 133.0 95.8 112.0 ELectricity, gas, 72.9 121.0 131.7 195.4 254.1 wd water 155.5 295.1 181 6 114.7 58.5 77.7 32.6 5.7 3.1 155.4 Other 22.9 27AO 15.9 15.7 Other 13.V 10.2 15.0 35.6 39.2 38.7 44.8 56.2 74.3 78.4 82.8 76.6 207.9 244.9 301.8 327.0 ------a8A------s.. Percent of GP) ------Totat 14.2 16.0 13.1 11.4 11.0 General public 9.6 10.8 11.8 13.0 13.2 1 services 3.4 3.6 3.2 3.1 3.3 3.3 3.9 3.4 3.9 3.7 Defense 1.3 1.3 1.7 Education 1.6 1.6 1.6 1.4 2.0 1.9 1.8 w 1.6 1.7 1.6 1.4 1.5 1.2 1.4 2.2 2.3 2.3 00 Health and social security 2.1 1.8 1.2 1.2 1.2 Hmsing ard cimity 0.9 1.0 1.1 1.5 1.4 ainties 0.3 0.3 0.2 0.2 0.1 0.1 0.2 0.2 0.1 0.2 Economic services 4.9 6.6 4.3 3.1 2.5 1.7 1.5 1.5 Agricutture, ffshing, 1.8 2.6 aicforestry 1.0 0.7 0.6 Roads 0.6 O.S 0.3 0.5 0.5 0.7 0.7 1.7 2.2 1.5 1.1 1.2 0.7 0.8 0.7 1.0 1.1 Electricity, gas, and wter 2.0 3.4 2.1 1.3 Other 0.6 0.7 0.2 0.0 0.0 0.7 0.3 0.3 0.2 0.2 0.1 0.1 0.1 0.2 0.2 0.2 Other 0.6 0.7 0.9 0.9 0.9 ...... 0.7 1.3 1.4 1.5 1.4 ......
I/ Accrual basis (gastos causados); includes tramsfers to other lewets of goverent. Source: Ninistry of Finmce, IMF, ad World Bank staff estimtes. Table 5.4: Tax Roverues, 1970 -1990 ...... ,...... 1970 1975 1980 1981 1982 Pre. 1963 1964 195 1986 1967 1988 1989 1990
*------(In NilLions of OuetzaLes) -......
Total Central Goverrmnt Taxes ...... 148.7 300.7 686.1 658.6 632.7 ...... 551.5 536.1 619.5 1102.2 1396.7 1811.2 1862.8 2360.2 Corporate fncome tax 14.4 42.1 PersoL incme 70.6 84.9 83.5 82.4 81.6 72.2 118.5 180.4 319.5 and property tax 10.3 20.6 33.7 30.1 335.4 481.5 Indirect taxes on domestic Transations 26.2 26.6 38.6 54.0 67.6 92.4 129.2 111.7 65.1 77.6 146.5 316.3 366.1 389.8 331.3 301.7 ItWort taxes 37.7 414.4 539.1 700.1 671.5 955.2 1281.4 Ert 60.2 111.9 105.2 80.5 67.4 80.7 78.5 136.2 taxes 8.7 31.3 273.1 386.2 406.1 527.6 Other taxes on international 149.7 68.2 48.7 39.8 28.4 9.9 213.1 150.7 102.8 transactions ------3.9 4.1 4.0 54.4 4.6 4.0 5.1 50.5 27.7 ------Taxes not Levied by the Centrat Goverrent 26.7 47.4 147.1 158.0 159.5 163.4 167.2 173.8 213.6 251.9 321.8 384.3 409.5 Total Taxes 177.4 348.1 633.2 816.6 792.2 714.9 703.3 853.3 1315.8 1648.6 2133.0 2247.1 2769.7 .CI...... (in Percent of CDP) -......
Total Central Govem oent ... _.__..._.____.__.__..______Taxes 7.8 8.2 8.7 7.7 7.3 6.1 5.7 6.1 7.0 7.9 868 7.9 6.9 CorporOte Income tax Personal 0.8 1.2 0.9 1.0 1.0 0.9 0.9 0.6 0.7 incOme and property tax 0.5 0.6 0.4 1.0 1.6 1.4 1.4 Indirect taxes On domestic 0.3 0.3 0.3 0.4 0.5 0.4 0.5 0.6 0.5 Transactions 4.1 4.0 4.0 4.3 4.5 0.2 iwort tax3 3.7 5.2 3.7 3.4 4.0 4.2 4.0 3.8 2.0 1.7 1.4 1.2 0.9 0.7 0.9 0.7 Export texecJ 0.5 0.9 1.5 1.9 1.7 1.6 Other taxes an 0.9 1.9 0.8 0.6 0.4 0.3 0.1 1.3 0.9 internatfonal transactfons 0.0 0.0 0.0 0.0 0.5 0.2 0.0 0.0 0.0 0.1 0.5 0.2 0.0 0.0 0.0 0.0 Taxes not levied by the Central Goverrmnt 1.5 ..^...... 1.3 1.9 1.8 1.8 1.8 ...... 1.8 1.6 1.3 1.4 1.6 1.6 1.2 Total Taxes 9.3 9.5 10.6 9.5 9.1 7.9 7.4 7.6 8.3 9.3 10.4 9.5 8.1
Source: Ninistry of Finmce, and World Bank staff estimates. ,60,4=12" "*We$e pt FMPe'An.sooWm e Vo*402wg I
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66-0961 169S& gu-v 319 ADGUB=V LIUWi I's* 01q' Table 6.3: Monetary Survey, 1980 - 1990
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
(In millions of Quetzales, End of Year)
Net Foreign Assets 442.9 127.0 72.2 -221.6 -459.8 -334.3 -224.0 -305.2 -41.1 49.7 71.2 Domestic Credit 1608.8 2259.8 2636.2 3010.3 3519.5 3829.3 3560.1 3759.7 4060.3 4551.9 5461.6 of which: Claims on central govt.(net) 338.6 760.0 1060.7 1222.3 1549.4 1702.9 1243.7 980.9 870.3 1044.2 1075.2 Claims on private sector 1222.2 1387.7 1515.8 1709.6 1867.8 2037.1 2242.1 2711.2 3109.2 3427.1 4299.9 Claims on other fin.institutions 28.9 71.5 20.8 44.3 77.3 68.3 55.0 51.1 64.0 66.9 74.7 Money 752.8 m77.8 786.6 833.8 869.4 1346.5 1608.4 1765.6 2019.0 2437.8 3241.5 Quasi-Money 939.6 1128.9 1404.1 1321.3 1529.7 1846.4 2266.7 2402.2 2976.0 3362.8 4054.8 ...... Long-Term Foreign LiabiLities 129.9 254.9 312.9 459.9 543.6 640.0 599.3 599.5 631.6 728.8 625.7 ...... Other Items (Met) 229.3 225.2 204.9 173.8 117.0 -337.9 -1138.3 -1312.8 -2166.7 -2454.6 2866.9
(In Percent of GDP) ......
Met Foreign Assets 5.6 1.5 0.8 -2.4 -4.9 -3.0 -1.4 -1.7 -0.2 0.2 0.2 .. ... _ ...... Domestic Credit 20.4 26.3 30.2 33.3 37.2 34.3 22.5 21.2 19.8 19.3 16.0 of which: CLaims on central govt.(net) 4.3 8.8 12.2 13.5 16.4 15.2 7.9 5.5 4.2 4.4 3.2 Claims on private sector 15.5 16.1 17.4 18.9 19.7 18.2 14.2 15.3 15.1 14.5 12.6 CLaims on other fin.institutlons 0.4 0.8 0.2 0.5 0.8 0.6 0.3 0.3 0.3 0.3 0.2 Money 9.6 9.0 9.0 9.2 9.2 12.0 10.2 10.0 9.8 10.3 9.5 Quasi-Money 11.9 13.1 16.1 14.6 16.2 16.5 14.3 13.6 14.5 14.2 11.9 Long-Term Foreign Liabilities 1.6 3.0 3.6 5.1 5.7 5.7 3.8 3.4 3.1 3.1 1.8 Other Items (Met) 2.9 2.6 2.4 1.9 1.2 -3.0 -7.2 -7.4 -10.5 -10.4 8.4 ...... _
Source: INF, Int-1national Financial Statistics. Table 7.1 ugricultural Production V*.ue At Constant Prices, 1970-1989. (In Thousands of quetsslee of 1958)
1970 1975 1980 1981 1982 1983 1984 1985 1986 1987 198U 19t
1.1 Esport Crops 162.908 234.489 284.730 271,828 238,039 235,923 243,042 248,715 243,353 253,643 252,255 264,074 Coffe 108,499 139,223 143,081 145,975 143,447 144,011 151,450 153,958 155,591 160,730 135,923 162,3)5 Cotton 29,574 56.720 78,225 63,379 38,090 32,966 34,329 34,466 22,235 22,334 23,739 22,454 Bananas 16.848 25,994 37,514 38,n77 38,125 2e,934 28,807 34,475 35,777 36,014 34.412 38,63 Cardama. 3,279 5,773 16,749 16,934 13,639 26,321 24,661 22,229 27,371 32,327 37,638 38,485 Other Export Crops 4,708 6,779 9,154 7,463 4,738 3,690 3,796 3,587 2,380 2,237 2,343 2,117
1.2 Internal Consumption Crops 121,230 148,195 154.904 163,779 170,989 169,391 179,030 176,402 181,314 185,611 192,609 193.421 Corn 36,271 43,836 44,500 46,357 50,611 47,530 54,135 52,214 54,328 56,719 61.077 59,321 Boom 25,836 29,068 11,727 16,153 19,179 17,945 20,312 22.376 23,527 18,669 17.697 17,677 Fmnit 21,414 24,944 33,971 34,900 35,668 36,452 37.254 38,074 36,911 39,767 40.642 41,53E Veetables 19,679 22,935 31,217 32,072 32,938 33,827 34.740 35,678 36,641 37,630 38,646 39,694 Others 18,030 27,412 33,489 34,297 32,593 33,638 32,589 28,061 27,906 32,626 34.547 35,1,
1.3 Industrial Use Crops 36,122 69.237 77,225 87,755 95,987 85,574 90,468 87,082 89,774 99.677 115.964 113.678 &U8ar 22,650 49,184 53,721 63,267 72,622 63,910 64,621 6".409 65,882 73,787 82,338 81,027 weat 4,074 5,760 5,471 6,238 5,228 6,527 6,182 5,480 6,465 5,620 5,768 6,182 OtLers 9,398 14,313 18,033 i8,250 18,137 15,137 19,665 17,194 17,430 20,270 27,658 26,466
r. Tol Crop Prodcttion 320,260 451,941 516,659 523,362 505,015 49to,88 512,541 512,199 514,441 538,932 560.828 571,173 It. Livestock, AvLculture sad Otber 172.609 219,918 261,061 262,209 258,597 260,897 258,786 255,910 244,699 249,089 264,316 283,843 I1U. Forestry Production 41,055 48,01 65,150 67,690 63,517 58,602 58,215 60,496 61,702 62.791 63,101 6s,166 IV. Fiain enda mtsig 5,371 5,935 7,161 6,934 7,047 7,029 7,240 7,595 7,832 8,283 12.134 12,652
ToIIL POD=CW 539,295 726,095 650,231 860,195 834,177 817,416 836,782 836,200 828,674 859,095 900,400 932,833
Source-_ an_ -o -O-----at ------an-----,-)----orld------s------_------Ban------staff------a- -_------
Sorces Bsu of Guteml U6orld Ban staff astimur. - 145 -
Table 7.2: Agricultural Production, 1980-1990 (Area, Production, and Yfeld) 1/
1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90
BASIC GRAINS: ...... RICE Cultivated area 12.6 15.4 17.3 12.3 16.0 14.5 14.3 23.3 26.8 15.1 Production 27.5 33.7 50.1 45.8 45.1 38.4 33.9 58.9 69.4 44.9 Yield 2186.9 2193.7 2889.9 3720.3 2817.9 2643.6 2366.8 2531.8 2585.3 2973.4 BEAMS Cultivated area 64.5 81.9 101.6 115.3 166.4 170.0 173.1 171.8 140.2 97.0 Production 57.9 92.9 101.7 89.4 111.2 117.6 110.6 86.1 93.7 90.6 Yield 897.9 1134.0 1001.5 775.4 668.7 691.5 638.8 501.3 666.2 934.5 MAIZE Cultivated area 657.8 680.5 667.7 568.8 690.3 658.T 676.4 763.2 643.3 599.5 Production 902.4 998.4 1099.8 988.2 1197.9 1088.4 1077.3 1216.7 1323.7 1246.7 Yield 1371.8 1465.8 1647.2 1737.1 1735.3 1652.4 1592.6 1594.2 2057.6 2079.5 SORGHUM Cultivated area 34.7 40.7 30.6 47.7 65.2 66.5 67.2 45.9 53.1 57.7 Production 78.3 86.2 77.1 81.6 88.7 101.2 88.6 58.2 136.3 84.9 Yield 2253.8 2118.2 2518.5 1709.7 1359.8 1520.9 1317.3 1268.7 2569.4 1472.5 UHEAT Cultivated area 31.5 31.5 29.6 33.1 32.2 31.5 32.2 33.6 28.4 31.5 Production 46.0 42.1 42.6 55.2 50.6 69.0 53.8 27.5 43.5 50.6 field 1462.3 1338.0 1441.7 1666.0 1573.6 2193.5 1673.8 1645.1 1532.5 1608.6 EXPORT PRODUCTS:
COTTON Cultivated area 102.1 78.7 59.4 55.9 62.1 67.3 30.6 40.3 40.3 39.6 Production 127.7 78.2 46.5 61.1 63.4 53.6 28.0 48.3 42.0 41.2 Yield 1250.7 993.6 782.6 1094.4 1020.0 796.7 913.0 1196.7 1045.9 1041.7 BANANA CuLtivated area 7.4 7.3 7.4 7.6 7.7 7.7 8.2 7.8 7.8 7.9 Productfoi 407.1 386.4 414.0 268.1 374.2 429.5 337.2 334.3 351.4 364.9 Yield 2/ 54.9 52.6 55.9 35.2 48.7 S5.9 41.2 43.1 44.9 46.2 COFFEE Cultivated area 243.4 263.1 272.1 266.3 231.4 229.1 236.1 216.8 234.2 234.2 Production 177.4 193.8 189.3 183.0 196.6 181.6 196.6 193.2 179.4 193.2 Yield 729.0 736.7 695.9 687.2 849.7 792.7 832.7 891.3 766.1 825.0 SUGAR CANE Cultivated area 69.5 79.5 70.0 70.1 73.0 72.3 81.2 90.2 88.7 96.7 Production 6034.1 6910.1 6079.7 6n89.7 6337.9 6278.3 7054.3 7830.5 7706.4 7994.5 YIeld 2/ 86.8 86.9 86.9 86.9 86.8 86A9 86.8 86.8 86.9 82.7 CARDAMON Cultivated area 23.3 23.3 27.5 30.0 33.2 33.2 38.9 42.1 43.3 36.3 Production 5.1 5.1 6.3 7.8 7.5 7.5 9.0 10.8 10.6 7.7 Yield 218.2 214.0 230.6 261.5 224.4 224.4 230.4 257.1 244.1 210.6 COTTON SEED Cultivated area 102.1 78.7 59.4 55.9 62.1 67.3 30.6 40.4 40.3 39.1 Production 216.2 130.9 76.0 95.8 97.3 80.1 41.6 71.5 62.4 57.2 Yield 2117.0 1663.7 1278.6 1714.7 1565.8 1189.6 1358.8 1770.4 1549.1 1461.6 ...... ,*...... 1/ Area in thousands of hectares, Production in thousands of metric tons, Yield in kg/hectare. 2/ In metric tons/hectare. Source: Bank of Guatemala; Production, Exports, Imports, and Price Statistics of Main Agricultural Products, 1990. - 146 -
Table 7.3: AvailabiLity of Basic Grains, 1980-1987 (In Thousands of Metric Tons)
...... ,...... *...... 1980 1981 1982 1983 1984 1985 1986 1987 ...... 1. Domestic Supply 1/ 1010.0 916.1 1016.6 1148.3 1080.8 1188.4 1125.5 1226.1 Maize 878.9 805.4 856.8 991.7 901.9 1036.2 964.0 1042.9 Wheat 32.8 36.8 42.6 50.4 65.0 40.9 4S 7 49.4 Beans 81.1 52.2 87.3 79.8 84.6 85.2 8OLA 90.2 Rice 17.1 21.8 29.9 26.4 29.2 26.2 29.6 43.7 11. Total Imports 177.0 205.1 180.2 123.0 146.3 244.1 327.4 399.3 Commercial Inports 177.0 195.8 166.8 115.0 129.8 151.6 181.9 174.5 Maize 55.8 81.0 65.6 3.2 5.2 14.9 37.5 21.7 Wheat 114.3 107.7 101.0 111.6 124.0 135.5 138.9 152.0 Beans 2.4 3.5 0.0 0.0 0.0 0.5 2.5 0.3 Rice 4.5 3.6 0.2 0.2 0.6 0.7 3.0 0.5 Food Aid 9.3 13.4 8.0 16.5 92.5 145.5 224.8 Maize O.S 8.6 6.4 12.8 24.2 32.3 64.9 Uhect 5.2 4.7 1.2 3.2 62.7 104.6 148.8 Beans 0.1 0.1 0.4 0.5 2.6 3.3 2.0 Rice 3.5 0.0 0.0 0.0 3.0 5.3 9.1 ......
III. Total AvailabiLity 1187.0 1121.2 1196.9 1271.3 1227.0 1432.6 1452.9 1625.4 Maize 934.7 886.9 931.0 1001.3 919.9 1075.3 1033.8 1129.5 Wheat 147.1 149.7 148.3 163.2 192.2 239.1 289.2 350.2 Beans 83.5 55.8 87.4 80.2 85.1 88.3 91.9 92.5 Rice 21.6 28.9 30.1 26.5 29.8 29.9 37.9 53.3 ~~...... IV. Availibility Per Capita (kg) 171.6 157.6 163.6 169.0 158.5 179.9 177.3 192.7 Maize 135.1 124.7 127.3 133.1 118.9 135.0 126.2 133.9 wheat 21.3 21.0 20.3 21.7 24.8 30.0 35.3 41.5 Beans 12.1 7.8 12.0 10.7 11.0 11.1 11.2 11.0 Rice 3.1 4.1 4.1 3.5 3.8 3.8 4.6 6.3 ......
V. Availibility Per Cap;ta (kg) 171.6 157.6 163.6 169.0 158.5 179.9 177.3 192.7 I) Domestic SuPPly 146.0 128.8 139.0 152.6 139.6 149.2 137.3 145.4 11) Imports 25.6 28.8 24.6 16.3 18.9 30.7 40.0 47.3 Commercial 25.6 27.5 22.8 15.3 16.8 19.0 22.2 20.7 Food Aid 0.0 1.3 1.8 1.1 2.1 11.6 17.8 26.7
...... 1/ Domestic supply corresponds to domestic production corrected for exports and stock changes. Source: Ministry of Agriculture - 147 -
Table 8.1: Gross Output In Manufacturing, 1980 -198
...... ^b...... AVERAGE ITEM 1980 1981 1982 1983 1984 1985 1986 1987 19M8a/ 1980-1988
(In Nilifons of Quetzales) ......
Toal 1967.2 2190.6 2023.9 1964.5 2133.0 2528.6 2573.5 3231.0 3478.0 2454.5 Food 662.2 727.1 706.4 665.8 733.1 848.7 829.7 1142.9 1221.6 837.5 Beverages 129.2 142.8 159.4 139.9 140.0 154.5 193.5 255.4 235.2 172.2 Tobacco 23.6 25.5 27.6 28.9 27.6 34.6 42.8 63.1 65.6 37.7 Textiles 123.7 146 116.8 123.0 140.8 182.6 163.1 71.8 236.0 144.9 Clothing 38.9 31.7 34.5 34.7 39.0 34.4 24.6 40.5 43.5 35.8 Leather 9.1 9.7 6.9 9.5 10.1 12.2 12.4 17.2 22.0 12.1 Shoes 25.2 24.1 17.6 19.4 25.5 27.1 27.0 8.2 28.9 22.6 Wood 20.3 18.9 20.5 16.7 18.2 16.3 17.6 32.6 21.9 20.3 Furniture 7.6 8.3 8.6 7.2 8.1 7.1 5.5 17.8 10.8 9.0 Paper 58.5 67.4 52.8 50.0 53.1 70.3 64.3 52.6 96.6 62.8 PrintIng 36.1 32.1 31.6 38.8 38.3 48.4 43.9 47.1 71.7 43.1 ChemIcaLs 534.1 604.2 554.3 556.3 632.0 739.0 696.5 928.8 817.9 673.7 Non-MetaLic minerales 115.9 154.7 124.9 124.9 117.1 149.9 198.2 251.7 288.0 169.5 Netal Products, Machinery 175.4 188.2 155.8 142.1 143.0 194.7 244.0 288.3 304.7 204.0 Others 7.4 9.9 6.2 7.3 7.1 8.8 10.4 13.0 13.6 9.3
(In Percent of Total)
TotaL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 10,) Food 33.7 33.2 34.9 33.9 34.4 33.6 32.2 35.4 35.1 34.1 Beverages 6.6 6.5 7.9 7.1 6.6 6.1 7.5 7.9 6.8 7.0 Tobacco 1.2 1.2 1.4 1.5 1.3 1.4 1.7 2.0 1.9 1.5 Textiles 6.3 6.7 5.8 6.3 6.6 7.2 6.3 2.2 6.8 5.9 Clothing 2.0 1.4 1.7 1.8 1.8 1.4 1.0 1.3 1.3 1.5 Leather 0.5 0.4 0.3 0.5 0.5 0.5 0.5 0.5 0.6 0.5 Shoes 1.3 1.1 0.9 1.0 1.2 1.1 1.0 0.3 0.8 0.9 wood 1.0 0.9 1.0 0.9 0.9 0.6 0.7 1.0 0.6 0.8 Furniture 0.4 0.4 0.4 0.4 0.4 0.3 0.2 0.6 0.3 0.4 Paper 3.0 3.1 2.6 2.5 2.5 2.8 2.5 1.6 2.8 2.6 Printing 1.8 1.5 1.6 2.0 1.8 1.9 1.7 1.5 2.1 1.8 Cheriicals 27.2 27.6 27.4 28.3 29.6 29.2 27.1 28.7 23.5 27.4 Non-MetaLic minerales 5.9 7.1 6.2 6.4 5.5 5.9 7.7 7.8 8.3 6.9 Metal Products, Machinery 8.9 8.6 7.7 7.2 6.7 7.7 9.5 8.9 8.8 8.3 Others 0.4 0.5 0.3 0.4 0.3 0.3 0.4 0.4 0.4 0.4 a/ Estimated figures based on quarterly industriaL surveys, National Institute of Statistics. Source: INE, Annual IndustriaL Surveys, and Bank of Guatemala. - 148 -
Table 8.2: Value Added in Manufacturing, 1980 - 1988
...... O.. O...... AVERAGE 1980 1981 1982 1983 1984 1985 1986 1987 1988a/ 1980-1988 ITEM .... ,,,,,,,,,,,,,,.,...... t......
(In Millions of Quetzales) ......
Total 787.9 901.5 785.3 869.3 902.2 1205.6 1325.1 1590.4 1748.5 1124.0 Food 203.5 255.7 190.5 264.0 261.1 350.6 398.5 467.4 432.3 313.7 Beverages 91.2 99.0 105.7 88.9 80.1 108.6 105.8 15U.1 212.9 115.8 Tobacco 14.2 15.7 16.1 18.0 12.9 23.0 21.0 39.2 76.5 26.3 Textiles 45.5 52.2 43.1 51.0 64.1 91.0 77.8 30.6 27.7 53.7 Clothing 19.4 15.8 17.2 18.2 22.0 19.2 14.3 24.0 27.4 19.7 Leather 3.1 2.4 2.0 3.3 2.9 2.9 3.0 5.3 2.1 3.0 Shoes 15.1 11.6 9.9 10.0 14.7 16.4 9.6 2.7 3.1 10.3 Wood 9.7 8.0 12.0 10.2 8.4 7.6 10.6 18.0 16.1 11.2 Furniture 3.8 4.7 4.9 4.4 4.5 3.3 3.1 12.1 17.2 6.4 Paper 19.5 22.9 16.2 17.6 17.6 30.5 28.7 25.1 40.8 24.3 Printing 33.9 26.1 27.2 32.8 31.2 44.4 36.9 51.4 39.2 35.9 Chemicals 195.3 222.1 199.8 207.7 245.7 311.5 380.1 501.0 563.6 314.1 Non-Metalic minerales 49.5 75.1 66.7 72.0 60.6 89.2 76.6 113.7 126.1 81.1 Metat Products, Machinery 80.0 84.8 71.1 66.3 72.0 102.8 153.4 141.4 154.3 102.9 Others 4.2 5.4 2.9 4.9 4.4 4.6 5.7 8.4 9.2 5.5 (In Percent of Total)
Totat 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Food 25.8 28.4 24.3 30.4 28.9 29.1 30.1 29.4 24.7 27.9 Beverages 11.6 11.0 13.5 10.2 8.9 9.0 8.0 9.4 12.2 10.3 Tobacco 1.8 1.7 2.1 2.1 1.4 1.9 1.6 2.5 4.4 2.3 Textiles 5.8 5.8 5.5 5.9 7.1 7.5 5.9 1.9 1.6 4.8 Clothing 2.5 1.8 2.2 2.1 2.4 1.6 1.1 1.5 1.6 1.8 Leather 0.4 0.3 0.3 0.4 0.5 0.2 0.2 0.3 0.1 0.3 Shoes 1.9 1.3 1.3 1.2 1.6 1.4 0.7 0.2 0.2 0.9 Wood 1.2 0.9 1.5 1.2 0.9 0.6 0.8 1.1 0.9 1.0 Furniture 0.5 0.5 0.6 0.5 0.5 0.3 0.2 0.8 1.0 0.6 Paper 2.5 2.5 2.1 2.0 2.0 2.5 2.2 1.6 2.3 2.2 Printing 4.3 2.9 3.5 3.8 3.5 3.7 2.8 3.2 2.2 3.2 Chemicals 24.8 24.6 25.4 23.9 27.2 25.8 28.7 31.5 32.2 27.9 Non-Metalic minerales 6.3 8.3 8.5 8.3 6.7 7.4 5.8 7.1 7.2 7.2 Metal Products, Machinery 10.2 9.4 9.1 7.6 8.0 8.5 11.6 8.9 8.8 9.2 Others 0.5 0.6 0.4 0.6 0.5 0.4 0.4 0.5 0.5 0.5
...... a/ Estimated figures based on quarterly industrial surveys, National Institute of Statistics. Source: National Institute of Statistics, Annual IndustriaL Survey, and Bank of Guatemla. Table 8.3: Production of Petroleum and Related Products, 1978 - 1988 (in Thousands of Metric Tons)
...... ~.. w._...... ITEM 1978 1979 198I 1981 1982 1983 1984 1985 1986 1987 ...... 1988 ...... A. Petroletu ...... Production of crude oil 30 78 207 203 308 342 233 146 246 183 184 Sales of crude oil 29 78 180 193 306 342 235 133 244 196 13C Domestic 29 78 73 103 98 46 65 70 18 31 Export - 107 90 208 296 170 63 244 178 149 B. Domestic Refineries Produetion
Propane/butane 4 3 2 2 3 4 8 6 4 9 7 Gasoline (95 Oct.) 67 56 47 49 54 46 54 37 43 45 46 Gasoline (B7 Oct.) 76 75 60 58 59 72 83 73 80 82 84 Kerosene 31 34 36 34 31 32 31 27 24 16 15 Turbo jet 41 46 32 27 23 28 31 29 28 40 36 Diesel 251 250 233 214 198 194 226 227 185 227 234 Heavy fuel 322 303 309 330 218 186 224 267 129 164 164 Refinery gas 4 4 2 3 7 7 8 8 8 9 9 Refinery Losses 3 4 9 9 9 6 6 11 8 9 9
Total Processed 800 774 729 727 603 576 670 685 509 599 604 ...... Source: Ninfstry of Energy and Nfning. - 150 -
Table 8.4: Production, Capacity and Distribution of Electric Energy, 1980-89.
,...... ITEM t980 1981 1982 1983 1984 1985 1986 1987 1988 1989 ......
1. Installed Capacity (NWO) V Total 368.2 446.2 444.3 664.3 744.3 726.9 730.9 733.4 732.3 732.3 Hydro 99.2 189.2 187.7 407.7 487.7 438.1 438.1 438.1 438.1 438.1 ahermal 269.1 257.1 256.6 256.6 256.6 288.8 292.8 295.3 294.2 294.2 Vapor 116.0 116.0 116.0 116.0 116.0 116.0 116.0 116.0 116.0 116.0 Internal Combustion 153.1 141.1 140.6 140.6 140.6 172.8 176.8 179.3 178.2 178.2
11. Gross Generation (GIH) 2/ Total 1818.7 1554.9 1541.0 1533.4 1604.8 1668.7 1840.6 1977.8 2152.4 2293.5 Hydro 293.0 359.9 497.1 822.8 620.0 692.2 1731.6 1712.3 1849.3 2089.3 Thermal 1525.7 1195.0 1043.9 710.6 984.8 976.5 109.0 265.5 303.1 204.2
Ill. SectoraL Consumption of Not Generation (as a percent of total GWH) TotaL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Residential 25.2 29.2 30.2 31.3 31.5 30.8 29.7 26.8 23.6 24.5 CoauercIal 14.8 17.6 17.4 17.5 17.6 17.6 16.6 19.1 18.3 18.5 IndustriaL 47.0 35.8 31.0 29.3 28.4 29.7 27.7 25.3 29.9 28.1 Public 6.6 8.1 8.8 9.3 9.2 8.4 7.6 13.2 9.0 8.0 Other 6.4 9.3 12.6 12.6 13.3 13.5 18.4 15.6 19.2 20.9
...... 1/ Excludes isolated systems from INDE and CEL interconnection. 2/ IncLudes generation in plants operated by private companies. Source: INDE and Ministry of Energy & Mining. Table 9.1: Comrative Socil Indicators
COSTA EL LATIN GUATEMALA LOWER MIDDLE RICA H "OURAS NICARAWA SALVADOR AMERICA INCOME COUNTRIES
OW PER CAPITA (US$ 1M) 8 17 850 .... 950 1940 1270 POULATION GROWTH RATE (1980.) 2.9 2.4 8.1 8.8 S IA POPULATION (A) 2.0 2.0 2.2 49.5 44.6 41.7 58.2 48.6 72.6 56.1 BIRTH RATE (A) 40.8 28.0 39.8 41.4 88.4 28.7 81.5 CB) 44.4 29.5 DEATH RATE (A) 45.7 46.1 41.9 8.9 4.2 7.9 7.8 8.4 7.5 .6 (B) 12.6 4.8 12.1 TOTAL FERTILM RATE (A) 12.2 11.1 5.8 8.3 5.6 5.6 4.9 3.6 4.1 (8) 6.4 8.9 8.9 B.6 CWEVACEPTION USAGE RATE (A) 6.9 ...... 26.0 68.0 85.0 27.0 47.0 ...... ADULT ILLITERACY RATES (A) 51.0 6.4 40.5 PRIMARY SCHOOL .... 27.9 16.7 26.2 DEOLLWENT RATIO (A) 78.0 102.0 102.0 9.0 70.0 (B) 108.1 108.8 61.0 107.0 88.0 82.0 75.0 ...... LUFE EXPECTACY AT BIRTH (A) 62.0 78.7 64.0 88.8 62.2 68.4 68.8 (8) 65.4 89.0 66.2 INFANT MORTALITY 66.7 57...... RATE (A) 66.0 18.0 69.0 62.0 59.0 54.2 CB) 59.1 87.2 87.8 101.0 95.8 86.0 ...... NUTRMON: CALORES(kCAL) (A) 2160 2808 2068 2495 2160 2704 2767 (B) 2180 2576 NUTRITION: 2112 2874 2065 PROTEINS() (A) 60 8 58 88 (8) B8 69 7 57 60 62 69 63 ......
(A) Refers to the mcst recent estimte. (B) Refers to 12-20 years ago.
Source: Wori4 Bank, Social Indicators of Developen1t, 1989; and SEULAN 1990. Tale 9.2: Inam Distributlon Patternm 1947-87
Fialmy Incme Percentago Average Falmiy Inrme in Percenta Choanes in Distribution 1981 Pric COuettales) Averag Finly Income
Fa' 1 1 449 1947/48- 1947/48- 1970- 1980/81 uawrtiies 1947/48 1970 1980J81 1986/87 1947/48 1970 1980t81 1986/87 1970 1980/81 1980/81 1986/87 ...... Hishe8t 60.5 66.5 61.0 65.5 3152 6641 7444 4555 111 136 12 *39 11 17.0 16.1 20. 20.0 842 1532 2319 1391 82 175 51 -40 III 15.5 10.7 12.5 10.5 872 1156 1648 730 32 89 43 -56 Lowest 7.0 6.7 6.5 4.0 368 675 793 278 53 115 18 -65 Average 1304 2499 3051 1739 92 134 22 -43 1
Gini Coefficient 0.47 0.52 0.48 0.53 W ......
Source: Derived from SEGEPLAI, National Sociode.ographic Survey: 1986/87 CGuotemlt, 1990) and "ational Developmnt Ptan:1984-86, Itobal Plan Inc=o Distribution 1' (Guatemla, 163); R.A. Orellana and A.C. de Leon "Ingresos y Gestos de Familius Urbmnas de Guateela (Universidad de San Carlos, 1972); E. Klussian Oates, *La Distribucion del Ingreso en Guateutla (Universidad de San Carlos thesis, 1973); J.H. Adler, E.R. Schlesinger, and E.C. Olson, "Las Finanzas Pubtlicas y el Desarrollo Econamico de Guatemtl. - 153 -
Table 9.8: F lly Incom DOstrlbution by Docile, 1980/81 and 1980107
Share of Total Income Average Monthly Family Income (In Percont) (In US Dollnr) F nily ------__ __ _ ------D-ctle- 1900/81 1986/87 1980/81 1986/87
Lowor 2.4 0.9 61 12 11-20X 8.1 1.9 79 26 21-3oX 8.7 2.7 94 87 81-40% 4.9 8.7 126 s0 41-S0X 5.9 6.8 150 72 61-60X 6.8 86. 16O 89 61-70X 6.6 6.8 219 117 71-80X 10.1 10.4 257 142 81-90S 14.2 18.0 861 218 Upper 40.8 44.0 1087 699 Total 100.0 100.0 Gini Coefficient 0.48 0.68 Annual Avorage Family Incom (quetzale,) 8,061 8,065 Number of Families/ Household 1,884,894 1,521,019
------__------__------Source: SEGEPLAN 1990 and Ooneral Directorate of Statistics, National Household Survey of Ineo and Expenditures, 1979-81 (Quatemal, 1988), and World bank staff estimates. - 154 -
Table 9.4: Distribution of Poor FamiIlie by Income Deficit and Region, 1980/81 and 1986/87
Deficit In Minimum Food Basket (Extreme Poverty)
Porcent of Extremely Poor Families by Deficit Range Number As X of 10X More All Guatemala Families Total I/ or lose 11-20X 21-80X 81-40X 41-60% Than S0X
1980/81 422,287 82 18 17 19 16 15 15 1988/87 978,452 64 6 6 9 0 18 s8
Doflelt In Minimal Goods and Services Basket (Extrmeo and Moderate Poverty)
Percent of Poor Familles by Deficit Range 2/ Number As X of 10M Mor All Guatemala Families Total 1/ or lese 11-20% 21-80% 81-40X 41-S0X than 60X
1960/81 840,888 68 8 12 14 16 14 88 1986/87 1,262,440 88 a 4 5 7 8 78
1/ Relative to total number of families (poor and non-poor) In Ouateala. 2/ Includes both extremely and moderately poor families.
8Durce: The basic data were generated from SEGEPLAUN, Gneral Directorate of Statistics, National Houshold Survey of Income and Expenditure , 1979-81. (Guatemala: 1908), National Development Plan 1984-88, Global Plan Incom Distribution (Quatemal 1988), and SEOEPLAN 1990. - 155 -
Table 9.6: Housing Conditions, 1981 and 1988 (In Percentage of Homes)
------,------__- All Guatemala Dept. of Guatemala 1981 1988 1981 1988 ------__- Running Water Exclusive use 28.4 31.8 60.3 60.6 Shared use 9.8 10.8 20.0 20.1 Public 14.1 16.8 12.7 12.9 Sewage Pipeline 18.6 18.8 60.8 85.0 Septic tank 2.8 3.0 4.9 6.8 Latrine 32.0 46.8 29.4 20.2 None 43.2 88.4 9.8 6.2 Lighting 1/ Electricity 37.2 64.6 82.8 88.9 Gas 45.8 40.0 65. 7.9 Candle and others 17.6 5.6 11.9 8.2
1/ Lighting rofere to the periods 1981 and 1986. Source: SEGEPLAN - 156 -
Table 10.1! Consumer Price Indices, 1983 - 1990 t/
Weights 1983 1984 1985 1Q86 1987 1988 1q89 1990
8aee MLrch-Apri1 1983 a 100 A. Annual Averatge
Total 0.577 105.2 108.8 129.1 176.8 198.6 220.1 245.1 346.2
Food and beverages 106.0 108.1 130.3 181.5 209.8 238.6 267.8 396.7 Housing 0.147 101.4 106.4 111.8 129.8 141.6 155.5 187.1 2Z3.6 Ho"e furnishings and maIntenance 0.078 105.2 111.3 135.3 191.3 198.4 215.9 236,5 307.2 Clothing 0.101 106.9 112.7 131.0 202.8 224.4 241.7 268.6 317.9 Medical care 0.027 106.7 110.8 130.7 166.4 232.7 252.9 279.8 381.9 Education 0.024 100.8 104.5 126.2 147.3 146.8 15S.1 171.0 209.5 Transport A communications 0.116 102.0 105.9 126.4 178.1 192.7 201.7 217.6 318.5 Recreation 0.042 104.2 108.9 121.2 166.3 182.4 195.8 209.9 263.5 Other 0.043 107.8 114.3 1S4.2 203.6 218.7 238.8 2S4.4 886.2
D. December Level
Totrl 1.000 .108.2 113.8 149.6 188.0 206.9 229.6 270.8 432.8
Of which: Food and beverases 107.6 118.8 150.6 194.7 221.9 243.5 302.9 503.6
Annual Percentage Change A. Annual Averages
Total 1.000 --- 3.4 18.7 33.9 12.3 10.8 11.4 41.2
Food and beverage. 0.428 --- 2.0 20.5 39.3 15.6 13.7 12.2 48.9 Housing 0.147 --- 4.9 4.8 16.4 9.1 9.8 20.8 24.9 Hoe furnishings and maintenence 0.07b --- 5.8 21.6 41.4 S.7 6.6 9.5 29.9 Clothino 0.101 --- 5.4 21.6 48.0 10.7 7.7 11.1 18.4 Medical care 0.027 --- 8.8 18.0 27.3 89.8 8.7 10.6 86.5 Edueation 0.024 --- 3.7 20.8 16.7 -0.8 5.7 10.2 22.5 Transport £ communications 0.116 --- 3.8 19.4 40.9 8.2 4.7 7.9 46.4 Recreation 0.042 .-- 4.5 11.3 37.2 9.7 7.1 7.S 25.5 Other 0.048 --- 6.0 84.9 32.0 7.4 9.2 8.5 32.1
8. December Level
Total 1.000 --- 6.2 3t.5 2S.7 10.1 11.0 17.9 80.8
Of Food and bevergeo 0.42-- -hich: 7.6 80.1 29.8 14.0 12.0 21.9 66.3
Memorandum:
Price Changes In the Capital ______A. Annual Averages 1.000 --- 2.6 19.0 32.8 10.8 10.3 13.0 41.0 g. December Level 1.000 --- 5.9 27.9 21.4 9.3 12.3 20.2 59.8
1/ Refers to pricee in the urban areas of the Republic. with the same period of the previous year.
Sources: Notional Institute of Statistics (INE), and Bank of Gustemale. Table 10.2: Minimum Support Prices for Basic Grains, 1979/80 - 1989/90 I/ (In Quetzales per Quintal) Crop years 2/ 79/80 80/81 81/82 82/83 83/84 84/85 86/86 3/ 86/87 87/88 88/89 89/90 Corn 6.87 7.28 10.41 11.15 8.04 8.25 7.14-9.68 14.92 16.16 Beans 17.92 31.73 17.47 20.24 3S.93 86.96 20.00 21.15 20.84-34.08 43.5 43.65 Rice 52.45 86.81 10.15 8.38 8.78 8.78 - 10.08 10.49-11.63 25.47 22.75 25.78 Sorghum 6.73 29.94 5.92 7.78 7.78 - 7.82 6.48-7.13 10.08 - -- -
1/ Minimum average prices to 2/ Crop producers established by INDECA. years refer to the period from MaY through April. 3/ Support prices for the crop year 1985/86 were increased in September 1985. Source: Agricultural Marketing Institute (Il)ECA). Tabte 10.3: Averdge Price of Electricity, 1981 - 1990 (In Centavos per kwh)
Dec. April 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 989 1990
Total 11.4 13.5 13.2 12.9 12.9 12.9 13.1 12.7 15.3 16.6 19.6 22.9 Residential 11.7 13.9 12.3 11.8 12.0 12.0 11.9 12.0 13.0 13.2 15.6 18.3 Commercial 12.0 14.2 14.4 14.4 14.0 14.0 14.0 14.1 17.2 19.1 22.6 26.4 Industrial 11.3 13.4 13.9 13.6 13.6 13.6 13.4 12.9 18.3 18.7 22.1 25.8 Public sector and other 9.4 11.4 11.5 9.7 10.6 10.6 10.6 10.6 12.9 13.5 16.0 18.7 Nenorandun INDE's fuel cost per kwh of thermal generation 7.4 9.3 8.4 7.0 6.3 7.1 11.1 15.4 15.7 16.0 ......
Note: Tile Government increased electricity rates in December 1989 by 20 percent and by another 17 percent in April 1990. OD Source: INDE, and Bank of Guatemala. Table 10. 4: Retatil Prices for Petroleum Products, 1980 -1990
Apri I Sept. 1980 1981 1982 1983 194 Dec. 195 1986 1987 1988 1989 1990 990 1990
(In Quetzales per Gallon, End of Y.ar)
Premium gasoline 1.95 2.09 2.07 2.07 2.07 8. 10 3.10 S.10 3.26 3.90 4.80 Regular gasoline 1.91 2.04 1.90 1.90 1.90 6.9S 9.60 Diesel 2.90 2.90 2.90 3=05 3.70 4.60 8.75 9.40 1.03 1.24 1.20 1.20 1.17 1.17 1.70 1.70 Kerosene 0.83 1.12 2.25 2.70 2.80 2.80 5.9S 1.12 1.09 1.09 1.09 2.05 2.05 3.05 Fuel o;I 0.64 0.90 0.86 3.70 3.86 6.6S 9.10 0.72 0.78 0.75 1.56 1.56 1.45 1.75 1.90 Butan 20.40 20.40 20.30 20.30 20.80 2.40 3.40 20.30 23.00 28.00 27.00 28.00 41.98 56.98 82.25
(In Constant Prices, 1980=100)
Premium gasoline 100.0 95.1 91.8 83.0 78.4 91.8 75.8 89.2 64.6 84.6 70.8 Regular gasoline 100.0 94.8 86.0 77.8 738. 84.2 88.5 Diesel 87.7 72.2 66.1 81.9 62.5 69.3 83.5 88.5 100.0 108.9 100.7 91.1 83.9 65.6 78.6 Kerosene 100.0 71.8 84.7 84.5 78.2 64.2 103.9 119.8 116.7 102.7 97.0 75.9 117.5 107.5 142.4 Fuel oil 100.0 124.7 114.6 88.0 143.8 133.5 186.4 197.2 84.1 67.6 116.0 106.1 87.8 88.2 86.4 Buten 100.-' 88.8 86.0 77.8 78.6 57.5 88.6 95.5 53.6 49.1 51.8 44.3 59.2 65.9 72.6
Note: Petroleum prices have been deflated with the end-syear consumer price In 1990, petroleum index. prices were deflated with the end-April and end-September indices. The end-1990 inflation rate is assumed to be S0 percent. Source: Bank of Guatemala, and World Bank staff estimates. - 160 -
Table IO.Ss Average Real Wagee and Selerieo. 1960 - 1Q89 1/
(indee l980 a 100)
Agriculture Industry Electricity Year TOTAL Fishing Mining Menufect. Construction Water Coinrce 2/ T'-onsport Services 8/
1900 114.6 164.0 67.2 09.9 01.8 249.1 114.7 160.4 114.9 1961 112.8 119.6 01.1 00.7 77.B 269,9 114.9 107.0 12S.2 1962 114.9 115.0 64.7 9S.6 68.8 215.2 100.0 106.0 128.9 1Q63 120.9 121.8 46.0 94.8 90.5 229.7 14S.0 158.6 181.2 1964 119.8 114.3 81.6 99.6 94.6 260.5 148.8 167.4 142.8
19t6 118.2 109.6 0e.5 100.6 08.8 207.4 184.4 188.6 120.7 1986 117.3 108.0 08.9 108.0 91.9 417.8 1S8.8 187.9 180.1 1967 128.6 117.4 84.7 118.9 90.2 854.6 18.1 108.3 147.1 1968 116.7 132.8 81.0 116.9 107.1 183.1 128.0 177.9 183.8 1969 117.2 138.8 87.1 128.6 94.6 161.4 118.1 178.6 147.2
1970 110.6 110.8 28.7 79.7 60.6 180.9 106.2 124.5 16.0 1971 119.7 110.6 70.2 129.9 96.8 148.S 121.2 119.1 154.6 1972 122.9 100.8 72.7 186.5 100.3 17S.2 141.4 183.1 167.8 1978 118.0 10.S 81.8 122.0 81.8 215.8 124.0 140.0 133.1 1974 111.8 108.9 92.8 114.4 68.6 148.8 102.S 140.9 121.9
1975 111.9 101.4 72.S 110.9 76.6 74.2 109.0 191.1 125.8 1976 108.2 97.8 e6.5 105.4 91.8 116.2 104.9 189.2 116.0 1977 99.2 101.4 90.0 94.8 89.9 88.2 104.8 139.7 108.5 1978 97.2 94.3 100.2 87.9 88.8 108.2 100.8 119.1 109.5 1979 100.0 98.5 98.2 100.8 9S.1 107.8 101.1 112.6 104.5
1980 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1981 117.7 134.S 99.8 111.4 122.2 97.8 97.2 94.8 92.4 1982 124.6 138.1 100.0 114.4 121.4 88.6 108.8 108.S 98.0 1983 126.8 144.4 10.1 11I.S 118.2 102.8 99.1 138.8 96.1 1984 114.9 124.9 102.7 117.7 78.2 97.0 97.6 98.6 87.8
1985 99.2 116.0 78.3 10.9 67.5 84.5 90.8 87.0 71.6 1986 81.1 98.6 48.4 8t.1 52.6 88.6 72.2 68.8 86.6 1987 86.5 100.2 50.4 85.5 49.5 74.8 74.0 81.0 69.0 1988 91.1 100.9 48.8 88.1 57.8 88.8 74.4 77n. 70.F 1909 96.9 109.5 49.8 91.0 60.2 78.4 81.0 98.7 76.0 1990 a 78.5 91.1 36.6 70.9 83.8 80.7 60.9 72.4 63.2
a Preliminary. Note: The numbers of employment for the period of 1974-1962 correspond with the revision by IO£SS. 1/ All sectorau annual average wage and salary morins covered by IOSS0 which regietere about 28 percent of tho labor force, have been deflated by the Consumer Price Index (Base - 1980). 2/ Includes Banking and Insurance Industry. 8/ Includee Federal Emp!oyees.
Source: Oustemal[n Institute of Social Security (IISS). Bank of Oumt.mala, and World 8ank staff estimates. - 161 -
Table 10.6: Average Exchmn;e Rates 1984 - 1991. CQuetalles per US Dolfar)
Nonth Official Free 1/ Auction Banking 1/ Regulated 1/ Parallel 1/ Average Market Market Market Market Market Market
1984 Average 1.00 1.45 1.52 1985 Average 1.00 5.27 2.63 2.96 1986 Average 1.00 2.90 2.65 2.86 2.50 2.77 1987 Averag 1.00 2.70 2.50 2.70 1988 Average 1.00 2.64 2.62 2.65 1989 Jamuary 1.00 2.71 2.70 2.73 February 1.00 2.71 2.70 2.73 March 1.00 2.71 2.70 2.73 ApriL 1.00 2.71 2.70 2.73 ABY 1.00 2.71 2.70 2.73 June 1.00 2.71 2.70 2.75 July 1.00 2.71 2.70 2.80 Aulut 1.00 2.80 2.78 2.85 September 1.00 2.80 2.78 2.85 October 1.00 2.80 2.78 2.85 novembar 3.34 3.19 Deceaber 3.42 3.39 Average 1.00 2.85 2.72 2.86 1990 Jamuary 3.60 3.55 February 3.82 3.79 March 3.96 3.94 April 4.23 4.23 May 4.27 4.36 June 4.31 4.31 4.40 July 4.21 4.23 4.43 August 4.54 4.67 4.52 September 5.72 5.71 5.70 October 5.44 5.35 S.44 Noviber 4.85 4.97 5.23 December 5.03 4.98 5.13 Average 4.87 4.51 4.56 1991 January 5.08 5.04 5.11 February 5.11 5.08 5.07 March 5.02 5.04 5.03 ApriL 4.98 4.98 4.97 may 4.98 4.92 4.90 Juni 5.01 4.94 4.99 Average 5.03 5.00 5.01 ...... 1/ Average of buy and sell exchawne rates. Source: Bank of Guatemala. 1BIRD 21890
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