Guatemala is a constitutional democratic republic that is divided into 22 departments and governed by a 3-branch system, consisting of the executive, legislative, and judicial. The legislative branch consists of the National Congress, a 1-house legislature composed of 116 members, while the judicial branch is headed by the Supreme Court of Justice. The president serves as both the chief of state and the head of government and has the authority to appoint departmental governors and cabinet members.
Current president Alfonso Portillo of the Guatemalan Republican Front (FRG) was elected by a landslide victory in his December 1999 campaign against candidate Oscar Berger of the National Advancement Party (PAN). The FRG and the PAN are the 2 major political parties active in Guatemala today; a third party, the New Nation Alliance (ANN), plays a minor role in the nation's political races. The PAN (the party to which Portillo's predecessor Alvaro Arzú belonged) is conservative and business-oriented while the FRG is conservative and populist, at least according to the platform Portillo used to win the presidency. Both parties support rigorous economic programs that put emphasis on fiscal discipline and macroeconomic stability, but Portillo and the FRG also support policies that work to the benefit of economically disadvantaged Guatemalans. Among the policies proposed by Portillo during his first year as president were a hike in the minimum wage, the decentralization of political power, and others with similar populist themes. However, Portillo's proposals were not met with a spirit of cooperation in Congress, and little has been done to better the situation of the poor since he took office in early 2000.
The Guatemalan government traditionally has not exerted a great amount of control on the economy through regulations or other interventionist measures, preferring to keep its involvement minimal, as evident in the fact that the private sector generates more than 85 percent of the GDP. This hands-off approach has been bolstered by recent decisions to privatize the state telecommunications, electric generation, and electric distribution companies, as well as by new policies that lift restrictions and regulations on trade and investment in Guatemala. The government has also been frugal in its support of public and social programs; Guatemala's education and health systems leave much to be desired, often to the detriment of disadvantaged Guatemalans.
The tax system is currently undergoing reform as the Guatemalan government attempts to make taxation a more lucrative tool. In 1996, Guatemala's tax revenue accounted for just 8 percent of its GDP, putting it at the second lowest rate in the Western hemisphere. The peace accords signed in 1996 called for an increase that would bring tax revenues up to 12 percent of the GDP by 2000, providing greater funding for social programs. Unfortunately, the parties who signed on to this fiscal pact (government, social organizations, and business leaders) have not all given it their steadfast support, and tax revenues for 2000 only amounted to slightly more than 10 percent of the GDP. Among the taxes on which Guatemala relies for revenue are customs duties , sales taxes, and excises on liquor and tobacco. Additional taxes under discussion for reform or implementation in Guatemala currently include the value-added tax and new taxes to be applied to a variety of industries.