Guatemala - Economic development



Guatemala's economic development policy is to create rural employment through the provision of investment incentives. Such enticements include inexpensive financing by government institutions, free assistance and technical support, and preferential treatment to use government facilities and institutions for guidance. The government has initiated a number of programs aimed at liberalizing the economy and improving the investment climate. After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth. Growth in the late 1990s was led by development of petroleum mining and refining.

The country's economy is commanded by the private sector which generates about 85% of GDP. The public sector is small and shrinking, with its business activities limited to transportation, and several development oriented institutions. Problems hindering economic growth include illiteracy and low levels of education; inadequate and underdeveloped capital markets; and lack of infrastructure, particularly in the transportation, communications and electricity sectors. The distribution of income and wealth remains unequal. The wealthiest 10% of the population receives almost one half of all income; the top 20% receives two-thirds of all income.

Tax reform was one government objective in 2003, as was reform of the financial services sector, liberalizing trade, and overhauling public finances. Drought and low coffee prices harmed the economy in 2001–02, and caused malnutrition among the poor in rural areas. In 2003, the International Monetary Fund (IMF) approved a nine-month, $120-million Stand-By Arrangement to support Guatemala's economic program through March 2004. In 2003, the government was targeting the fiscal deficit, aiming to control inflation, and working toward putting into place a new legal framework for the financial sector. The country was also improving transparency in government, and working to strengthen governing structures themselves.

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