Guatemala’s New President Has a Big To Do List

August 15, 2019

The double-digit victory of Alejandro Giammattei – a former boss of Guatemala’s prison service -over rival presidential candidate Sandra Torres came as a surprise to many observers, including this magazine. Yet his celebrations are unlikely to last for long. When he assumes power on January the 14th 2020, he will face a series of economic and political challenges. As we’ve shown over the years, in various LatAm INVESTOR Guatemala Reports, it’s a country with a resilient, diverse economy yet several embedded flaws that need reform. If, unlike recent presidents, Giammattei really wants to improve the country, rather than just profit from his time at the top, he has plenty to do.

What the election taught us about Guatemala

One positive is that the election was mostly clean. There were allegations of fraud on social media but most complaints came from party members, including those from the ruling National Convergence Front (FCN-Nación) and the opposition MLP, who rejected the results on the basis of alleged electoral fraud. The Organisation of American States electoral mission, which oversaw both rounds of the election, dismissed the claims – noting that although a number of incidents had been reported in a few municipalities, the general election was free and fair. After the first round the electoral commission [TSE by its Spanish acronym] initiated a tally review of the country’s 21,099 polling stations, however, in most departments there have been no discrepancies between the preliminary results and the review.

One positive is that the election was mostly clean…

Yet the low turnout in the second round demonstrates the widespread vote disillusionment with the political class. After four years of protracted corruption proceedings against large sections of the country’s business and political elite there was little enthusiasm for the run-off between two establishment figures. Indeed, there were very few differences in the policy agendas of the mainstream parties participating in the general election. In the first round, which also elected the members of Congress, some smaller parties used a more progressive platform. For example, Thelma Cabrera of the left-wing People’s Liberation Movement (MLP), who ran a campaign prioritising rural development, won in three of the country’s 21 departments. Yet the MLP’s overall results do not presage significant changes in the political class however, as the party obtained just one seat in Congress, and did not win in any municipality.

Giammattei’s political headache

Giammattei may have won the presidency but Torres’s party, the UNE, had already cleaned up in Congress. The party obtained 54 of the 160 seats in Congress and managed to secure more than 100 of the 340 mayoral seats across the country. This means it will hold a significant level of influence over the incoming administration’s policy prospects. Furthermore, UNE is likely to forge alliances with traditional parties such as TODOS or the National Change Union (UCN) – a party that has come under fire for its alleged links to organised criminal groups.

Giammattei’s conservative Vamos party is in a far weaker position. It holds just 17 seats and, created in 2017, it has little political experience. As a result, Vamos will likely seek to establish alliances with other conservative parties such as Vision with Values (VIVA), or the ruling FCN-Nación, whose seats were cut to eight from 35 before the election.

Economic focus

Issues such as unemployment, lacklustre public investment and rampant corruption continue to worry Guatemalans and foreign investors alike. During the election Giammattei pledged to build a “wall of prosperity” to curb undocumented Guatemalan migration to the US by improving economic ties with Mexico.

One of the biggest challenges facing the incoming administration is cracking down on the migration of Guatemalans to the US. However, progress will depend on the government’s willingness to address the root causes, namely insecurity and a lack of economic development. To foster economic opportunities the incoming administration will be forced to address pressing investor concerns, such as poor infrastructure and heightened legal uncertainty of contracts in sectors like mining, where licences have been suspended since 2017.

One positive development is the recent approval of Decree 89-2019, which regulates part-time employment. It will help strengthen the labour market, which is characterised by hiring inflexibility and high levels of informality. Sectors such as outsourced services and textiles should benefit from the increased hiring flexibility. The new administration will need to prioritise initiatives like this to attract foreign investment and reduce migration in the medium term.

Anti-corruption crackdown is the big loser

In 2015 Guatemala was gripped by an anti-corruption movement that removed then President, Otto Perez Molina, from office. The UN-backed International Commission against Impunity in Guatemala (CICIG) and the Attorney General’s Office (MP), brought cases against several leading politicians and businesspeople, sparking investor hope that the rule of law would be strengthened. However, Morales’ January 2019 decision not to renew CICIG’s mandate, which is scheduled to end in September, was a powerful blow to anti-corruption efforts as the MP acting alone has limited prosecution capabilities.

Giammattei will take control of a surprisingly resilient economy…

What’s more the new government itself may be hesitant to fight corruption. Giammattei has already announced that his administration will not pursue a renegotiation of CICIG’s mandate with the UN. This position, shared by Torres, confirms the political class’ lack of commitment to combat corruption.

Giammattei will take control of a surprisingly resilient economy. Guatemala’s diverse economic drivers of remittances, agriculture, manufacturing and population growth have helped at an average rate of 4% per year since the start of the century. Its currency, the quetzal is one of the most stable, in Latin America, while its banking sector is prudently managed and regulated. Yet the country is marred by severe inequality, a paucity of formal employment, inadequate healthcare and education and weak government institutions. The best way for Giammattei to start solving some of these problems is to leverage the Guatemala’s economic strengths and make it easier for international firms to invest in the country, creating the extra tax revenues and jobs it so desperately needs. Time will tell if the new president is up to the task.