Guatemala

	Score	Rank
Financial Standards Index	30.83 out of 100	68
Business Indicator Index	8.73 out of 12	48

Business Indicators Summary

With an overall score of 8.73/12, Guatemala is progressing towards standard on the economic, legal, and political indicators that make up our Business Index. Guatemala has a market-based economy where total government expenditure, including consumption and transfer payments, is low. Guatemala's capital accounts are liberalized and the country grants national treatment to foreign investors. However, ownership is restricted in several sectors and investors complain of multiple obstacles, such as restrictions on obtaining professional licenses, and a number of informal barriers such as an unpredictable bureaucracy and judicial system, long administrative processes, and crime. Tax incentives are available to investors to encourage investment. Property rights are enforced when titles are clear, but although the legal system does not formally discriminate against foreigners, having local knowledge of judicial processes helps in cases of dispute. While non-political violence remains a major issue, Guatemala can be adjudged to have at last achieved political stability founded on relatively solid democratic institutions. Corruption is a persistent problem in Guatemala, as reflected in Guatemala's low score in Transparency International's 2008 Corruption Perceptions Index.

Business Indicators

Economic Model
Forex Regulations
- Capital Controls
- Exchange Controls
Foreign Investment Law
Trade Regulation
Tax Regime
Tax Rates
Bankruptcy Indicators
International Dispute Settlement
Political Environment
Political Stability
Corruption
Adherence to global labor standards

Economic ModelMarket-based economy

The 2008 Economic Freedom of the World Annual Report by J. Gwartney et al. awards Guatemala a score of 8.0 for the factor "Government Enterprises and Investment" as a percentage of total investment. The range for this score is from 0 to 10, with a higher value signifying greater economic freedom. Countries receive a score of 8.0 when there were few state-owned enterprises (SOEs) other than those involved in industries where economies of scale reduce the effectiveness of competition (e.g., power generation) and government investment was between 15 percent and 20 percent of the total. The 2009 Heritage Foundation Index of Economic Freedom indicates that total government expenditure, including consumption and transfer payments, is low. Government spending equaled 11.7 percent of GDP, and the ratio of public debt to GDP "remains one of the lowest in the region." Although state ownership of enterprises is not extensive, due to the government's indecisiveness, privatization has been slow.

The U.S. Department of State reports in the 2008 Background Note that Guatemala has a private sector driven economy that generates approximately 90% of GDP. Agriculture makes up 13.3% of GDP and 24% of exports; manufacturing mainly focuses on light assembly; and food processing is geared to the domestic, U.S., and Central American markets. While traditional agricultural products such as sugar, bananas, and coffee continue to represent a large share of the export market, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flowers have boomed over the past several years. According to the 2007 Guatemala Country Commercial Guide by U.S. Department of Commerce, during the late nineties, the Guatemalan government privatized a number of SOEs in power generation and distribution, the telephone industry and grain storage. However, in 2000, when the Portillo administration took control of the government, it reviewed the privatization of the telephone company and decided to reverse the previous decision to privatize.

The International Monetary Fund, in its 2008 Article IV Consultation with Guatemala reports that Guatemala has achieved a strong economic performance and substantial improvements in tax administration in 2007 due to prudent macroeconomic policies. Consequently, "growth has risen substantially above historical averages, to 5.2 percent in 2005 and 5.7 percent in 2007," the report added.

Sources

U.S. Department of State, "Background Note: Guatemala," 2008. Available from U.S. Department of State website. Accessed on February 2, 2009. (U.S. DoS 2008)
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U.S. Department of Commerce, "Doing Business in Guatemala: 2008 Country Commercial Guide for U.S. Companies," 2008. Available from U.S. & Foreign Commercial Service and U.S. Department of State website. Accessed on February 2, 2009. (U.S. DoC 2008)
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Heritage Foundation, "2009 Index of Economic Freedom," 2009. Available from Heritage Foundation website. Accessed on February 2, 2009. (HF 2009)
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Gwartney, J., et al., "Economic Freedom of the World: 2008 Annual Report," 2008. Available from Frazer Institute website. Accessed on February 2, 2009. (Gwartney et al. 2008)
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International Monetary Fund, "IMF Executive Board Concludes 2008 Article IV Consultation with Guatemala," Public Information Notice (PIN) No. 08/65, June 4, 2008. Available from International Monetary Fund website. Accessed on February 2, 2009. (IMF 2008)
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