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TITLE:  GUATEMALA ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE

                            GUATEMALA

                     Key Economic Indicators
       (Millions of quetzales (Qs), unless otherwise noted)


                                  1991      1992      1993e
Income, Production,
 and Employment

Real GDP (1985 prices)            13,249    13,727    14,266
Real GDP Growth (pct.)              3.7       4.8       4.0
GDP (at current prices)           47,034    53,949    62,772
GDP by Sector (percent)
  Agriculture                      25.7      25.3       n/a
  Utilities                         2.5       2.7       n/a
  Manufacturing                    14.9      14.6       n/a
  Construction                      1.9       2.3       n/a
  Housing                           5.0       4.9       n/a
  Mining                            0.3       0.3       n/a
  Transportation                    8.1       8.4       n/a
  Commerce                         24.2      24.1       n/a
  Finance                           4.2       4.3       n/a
  Publ. Adm. and Defense            7.1       7.1       n/a
  Other Services                    6.1       6.0       n/a
Real Per Capita GDP ('85 prices)  1,392     1,409     1,422
Labor Force (000's)               2,872     2,958     3,047
Unemployment Rate (pct.) 1/         6.7       6.1       6.0


Money and Prices

Money Supply (M2)                 10,653    12,132    13,709
  M2 (annual pct. change)          48.6      13.9      13.0
Base Interest Rate: 2/
  Commercial banks (deposits)      16.0      16.0      14.5
  Commercial banks (loans)         23.0      25.0      28.0
Retail Inflation                    9.2      13.7      12.0
Exchange Rate (avg. Qs per $)       5.07      5.20      5.95


Balance of Payments and Trade 3/
(Millions of U.S. dollars)

Total Merchandise Exports (FOB)    1,230     1,284     1,365
  Exports to U.S.                    445       453       518
Total Merchandise Imports (CIF)    1,673     2,328     2,383
  Imports from U.S.                  764     1,081     1,127
Aid from U.S.                        111        70        65
External Public Debt               2,254     2,145     2,135
Debt Service Payments                796       722      n/a
Gold and FOREX Reserves              930       877       755
Total Trade Balance                 -433    -1,044    -1,018
  Merchandise Balance with U.S.     -319      -628      -609


Notes:

1/  Unemployment figures provided by the Guatemalan government
    do not reflect serious underemployment, estimated as high
    as 50 percent.
2/  Interest rates are average maximum levels.
3/  Based on Guatemalan Customs Data



1. General Policy Framework

    With a GDP of roughly $11 billion, Guatemala is the largest
economy in Central America as well as the biggest importer of
U.S. products.  The expected 1993 merchandise trade deficit of
$609 million with the U.S. is almost double the figure recorded
two years earlier, although slightly lower than in 1992.

    Guatemala's economy is dominated by a strong private
sector, with the government sector accounting for only about 12
percent of GDP.  Agriculture accounts for a quarter of all
output, two thirds of all exports, and over half of all
employment.  Half of all exports come from just five
traditional agricultural products:  coffee, sugar, bananas,
cardamon, and meat.  After several years of depressed world
prices, export receipts from these traditional products have
rebounded somewhat in the last year.  Coffee export earnings,
for instance, are running 25 percent higher in 1993 than in
1992.  The other main productive activities are commerce and
manufacturing, contributing 24 percent and 15 percent of total
GDP, respectively.  Finance has been the fastest growing
sector, averaging more than seven percent annual growth over
the last four years.  Non-traditional exports such as drawback
textile manufacturing and high-value agricultural products now
account for about 40 percent of export earnings, up from 17
percent six years earlier.  Tourism receipts have more than
doubled in the same period and accounted for $235 million in
exchange earnings in 1992.

    The new administration of Ramiro de Leon Carpio has adhered
to the sound fiscal and monetary policies that have been in
place since 1991.  As a result, the political uncertainty
produced by the failed coup attempt of May 1993 has had only a
limited negative effect on the economy, with real GDP growth
for 1993 expected to be about four percent, down slightly from
4.8 percent in 1992.  Growth is expected to be five percent in
1994.  Although a jump in net domestic credit in 1992 and the
political events of 1993 have had inflationary effects, the
Bank of Guatemala has adhered to a number of fairly tight
monetary measures and kept prices in check.  Beginning in 1991,
Guatemala implemented a policy of zero net credit to the
central government, which halted the prior tendency to monetize
the deficit.  For the last two years the central government
deficit has been financed primarily by various bonds issued by
the Finance Ministry.  From a rate of 60 percent in 1990,
inflation has averaged slightly over 12 percent in 1991, 1992,
and 1993.

    Fiscal policy has also been conservative.  A self-imposed
cap in spending brought a consolidated public sector deficit
down from 5.5 percent of GDP in 1990 to 0.8 percent in 1992. 
The government's plans to eliminate subsidies to parastatals in
1993 were delayed during the change of government, resulting in
a higher-than-expected deficit of 2.1 percent in 1993. 
However, the government is in the process of renegotiating a
Standby Agreement with the IMF under which the deficit would be
reduced and completely financed by external sources.  In
addition to cutting losses, the government is making efforts to
bring in more resources.  A major tax reform was adopted in
1992 which included a broadening of the value added tax and a
rationalization of the income tax.  Continuing and building on
these reforms, the Guatemalan government hopes to raise tax
collections from about eight percent of GDP (one of the lowest
figures in the hemisphere and a serious impediment to
investment in social services or infrastructure) to ten percent.


2.  Exchange Rate Policy

    Since late 1990, the Bank of Guatemala (BOG) has operated
an official auction system for foreign exchange.  Under this
system, foreign exchange may be purchased for any use, subject
to availability.  Under Guatemalan law, all foreign currency
receipts must be sold to the Bank of Guatemala.  The BOG in
turn makes a set amount of U.S. dollars available to both
foreign and domestic bidders in the official auction, which is
held each business day.  Bids can be five centavos higher or
lower than the reference exchange rate.  The reference rate is
adjusted after 15 auctions by the BOG at the weighted average
of the last three weekly auctions.  Each bidder can buy a
maximum of $250,000 per day in the auction.

    Under this system, the quetzal can depreciate only five
centavos every three weeks.  The quetzal appreciated about
seven percent in real terms in 1991 and 1992, but is now
depreciating slowly in real terms.  The overvalued Guatemalan
currency has handicapped Guatemalan exports and contributed to
a trade deficit that could reach $1,018 million in 1993.


3.  Structural Policies

    Wheat, flour, and petroleum products are virtually the only
products on which Guatemala maintains price controls.  In
addition, the government publishes (but does not enforce)
suggested prices for some additional "essential goods."  Direct
government control of production is small and decreasing, with
growing private participation in such key areas as electricity
generation.  Even in those sectors controlled by the government
such as telecommunications, foreign companies are generally
allowed to compete for contracts on an equal basis with
domestic producers.

    As part of fiscal reform, the government has simplified
most taxes on businesses operating in Guatemala.  These reforms
include a lowering of tariffs and narrowing of the tariff
band.  In addition to reducing price distortions, the tariff
reform has removed some of the uncertainty exporters and
importers previously faced at the border.  Similarly, the
expanded value added tax and income tax are simpler than
previous versions, with fewer exceptions and fewer brackets
respectively.  Tax holidays on real estate, import and income
taxes are routinely granted foreign investors in the few free
trade zones and for maquiladora (drawback) operations.

    Guatemala has also taken steps to streamline the regulatory
process.  For instance, all government processing of exports
has been centralized in a "one stop shop."  Virtually all
export restrictions have been eliminated.  The government is in
the process of establishing a "one stop shop" for investors. 
Nonetheless, the bureaucracy often presents a difficult hurdle
for both domestic and foreign companies, subjecting them to
requirements that are both ambiguous and inconsistently
applied.  It is not unusual for regulations to contain few
explicit criteria for the government decision maker, thus
generating significant uncertainty and latitude.  There is no
consistent pattern or judicial review of administrative
regulation.


4.  Debt Management Policies

    Guatemalan external debt continues to be relatively low and
has not posed a constraint on imports from the U.S.  At
approximately $2.2 billion, the debt represents around 20
percent of GDP.  Two-thirds of this debt is incurred, or
guaranteed, by the central government and the remainder is owed
by the Bank of Guatemala.  Approximately one half of the
external debt is with multilateral organizations, primarily the
Inter-American Development Bank and the World Bank.  Roughly
eight percent of the total external debt is owed to the U.S.
Agency for International Development, with a somewhat smaller
percentage attributable to the U.S. PL-480 program, for a total
of approximately $350 million.

    In December of 1992, Guatemala signed a stand-by agreement
with the IMF and a $120 million Economic Modernization Loan
(EML) with the World Bank.  Although Guatemala could have
borrowed approximately $70 million under the stand-by agreement
with the IMF, the government decided to treat the agreement as
precautionary and never requested any disbursements.  Guatemala
did, however, receive the first EML disbursement, of $48
million, in December of 1992.  In early 1993, the World Bank
agreed to provide an additional $20 million loan for
Guatemala's Social Investment Fund.  The second tranche
disbursement under the EML was scheduled for June 1993 but was
not implemented.  By that time, Guatemala had missed all the
targets under the IMF agreement and had failed to meet several
other conditions for disbursement under the EML.  Guatemala has
not yet met the conditions for disbursement of the first
tranche of a $130 million financial sector modernization loan
approved by the Inter-American Development Bank in November
1993.

    In March 1993, Guatemala reached agreement with the Paris
Club on the terms for the rescheduling of some $400 million in
official bilateral arrears.  In October 1993, Guatemala
successfully completed bilateral rescheduling agreements with
France, Germany, Canada, and Italy.  Total arrears to these
countries were $103 million.  Guatemala has yet to reach
agreement on the rescheduling of the $330 million in arrears to
Spain, about three-quarters of Guatemala's total Paris Club
arrears.


5.  Significant Barriers to U.S. Exports

    Guatemala has made significant progress in reducing or
eliminating most barriers to U.S. exports and investment;
nevertheless, some areas still need attention.  In March 1993,
Guatemala adopted the common external tariff of the Central
American Common Market, which varies from five to 20 percent on
the CIF value of essentially all manufactured goods.  The
previous three percent tariff surcharge was eliminated, leaving
only the seven percent value added tax in addition to the basic
tariff rates.

    The government limits the importation of some agricultural
products through import tariffs ranging from five to 45 percent
and nontariff barriers in the form of import licensing
requirements for grains, oilseed products and other bulk
items.  In late 1992, Guatemala imposed a tariff rate quota on
poultry imports, with the first 300 tons per month subject to a
20 percent tariff and everything above 300 tons subject to a 45
percent rate.  These tariff rates are calculated on an
arbitrarily set value rather than the actual contract price
which can be significantly lower.  On August 1, 1992, the
government implemented a price band mechanism (variable levy)
for yellow corn, milled and rough brown rice, and sorghum.  The
effect has been varied, with the corn tariff never rising above
20 percent while the tariff on rice rose to over 30 percent in
some cases.

    There are few legal or regulatory barriers to either
foreign or domestic investment in Guatemala.  Foreign investors
are granted national treatment by law and can own up to 100
percent of most businesses, with the exception of
telecommunication, domestic transport, fishing, small mining
and forestry businesses which must have majority domestic
ownership.  Informal approval procedures do restrict market
entry in service industries such as banking, auditing and
insurance.  Foreign insurance companies cannot operate
directly; they must set up Guatemalan subsidiary corporations. 
Non national auditing companies must associate with local
accounting firms.

    Government procurement is subject to competitive bid for
all items over $170,000.  Although the rules appear clear, U.S.
suppliers have complained of abuses arising from inappropriate
use of an exemption from competitive bidding requirements for
"emergencies" and of the requirement to disqualify any bid more
than 30 percent below the simple average of the government
estimate and an average of all the bids.

    Burdensome customs procedures and administrative delay have
led to complaints by U.S. importers who believe that some
delays are perpetuated by local customs officials seeking
payoffs in return for service.


6.  Export Subsidies Policies

    Guatemala utilizes subsidized financing of $15 per hundred
weight on the export of coffee, a program in effect for most of
1993.  Significant tax exemptions are granted to both foreign
and domestic enterprises producing for export.


7.  Protection of U.S. Intellectual Property

    The level of overall protection provided intellectual
property is inadequate.  New IPR legislation is being prepared
by the Guatemalan administration, but it is uncertain when it
will be submitted to Congress.  Pirating of satellite signals
of US cable companies has been widespread and, as a result, the
country's Generalized System of Preferences (GSP) and Caribbean
Basin Initiative (CBI) trade privileges continue to be under
review by the U.S. government.  In April 1992, USTR placed
Guatemala on the Special 301 "priority watch list."

    Patents:  Guatemala currently provides inadequate
protection due to a patent law which is too narrow in scope,
precluding protection for computer programs, mathematical
methods, living organisms, commercial plans, surgical,
therapeutic or diagnostic methods and chemical compounds or
compositions.  Protection is also circumscribed by short patent
terms (15 years except for patented processes for the
production of food, beverages, medicines and agricultural
chemical products which last only ten years), broad compulsory
licensing provisions and burdensome local exploitation
requirements.

    Trademarks:  Despite Guatemala's expressed intention to
adhere to the Paris Agreement on Commercial Trademarks, current
law provides inadequate protection due to generally ineffective
enforcement provisions against counterfeiters and a lack of
adequate measures to protect internationally famous marks.

    Copyrights:  Despite Guatemala's adherence to the Rome and
Geneva Conventions which require the protection of sound
recordings, Guatemalan law currently provides no such
protection.  Guatemala makes no specific provision for the
protection of trade secrets or semiconductor chip design.  The
principal Guatemalan cable television firm attempted to
regularize its relationship with the Motion Picture Association
of America, but found it could not compete with the pirates. 
Currently, all U.S. films shown on Guatemalan television are
pirated.

    In 1992, the Motion Picture Export Association of America
filed a petition to remove GSP benefits from Guatemala for
failure to provide an effective level of intellectual property
rights protection.  The petition was accepted for review.  The
review was extended through 1993-94 cycle to allow
consideration of relevant actions in progress.  A final
decision is expected by mid-1994.


8.  Worker Rights

    a.   Right of Association

    Bureaucratic procedures necessary to obtain legal
authorization to form a union were eased in late 1992, as part
of a successful tripartite effort to amend the Labor Code. 
Regulations to implement these changes remain under discussion
with trade union leaders, in an effort to make the procedure as
quick and as transparent as possible.  Union leaders continue
to charge, however, that it is more difficult to register a 
trade union than it is to register a business.  They claim that
management often encourages competing unions and/or
"solidarity" associations to form when negotiating contracts,
and that these groups make "no strike" agreements. 
Approximately five percent of the Guatemalan work force is
unionized.

    In 1992 the International Labor Rights Education and
Research Fund (ILRERF) and the AFL-CIO filed petitions to
remove GSP benefits from Guatemala for failure to provide
internationally recognized worker rights.  The review has been
extended through the end of the 1993-94 review cycle.

    b.   Right to Organize and Bargain Collectively

    The Labor Code allows collective bargaining, but emphasizes
the protection of individual worker rights.  Anti-union
practices are forbidden, but enforcement requires court action
and this is generally subject to inordinate delay.  The labor
court system is badly overloaded.  One new labor court was
added in 1993.  The greatest obstacle to union organizing and
collective bargaining is not the law, but the inability of the
legal system to enforce the law.  A series of tripartite
discussions took place in 1993 to address these problems,
signaling a major change in attitude by both management and
labor.

    c.   Prohibition of Forced or Compulsory Labor

    The Guatemalan Constitution prohibits forced labor, and
specifically states that service in civil defense patrols is
voluntary.  Human rights groups claim, with some justification
in conflictive zones, that coercion is used to recruit for
these patrols.  They further charge that forced recruitment is
common in the military.  The future of the civil patrols, and
the question of forced recruitment, will ultimately be decided
in an overall peace agreement.

    d.   Minimum Age for the Employment of Children

    The Constitution provides a minimum age of 14 for the
employment of children, and then in restricted types of jobs.

    Government statistics indicate that 50,000 children under
this age are employed in the formal sector, including
agriculture, with only ten percent having legal permission to
work.  An unknown number are employed in the informal sector as
street vendors, beggars and menial laborers.  Improving the
enforcement of labor regulations has been given greater
emphasis by the de Leon administration, but remains generally
weak and ineffective.

    e.   Acceptable Working Conditions

    The Constitution provides for a 44-hour work week.  While
occupational safety and health regulations exist, they have not
been effectively enforced.  The corps of labor inspectors was
expanded in 1993, to provide greater coverage to all aspects of
the Labor Code.  As noted above, however, the major problem
remains that of an overcrowded and politically-aligned labor
court system.  A minimum wage applies to most workers, but 
surveys carried out by the Labor Ministry indicate that many
workers do not receive the legal minimum to which they are
entitled.

    f.   Rights in Sectors with U.S. Investment

    Guatemala does not register foreign investment and so
accurate records of U.S. investment in specific sectors are not
available.  Union officials say that international corporations
in Guatemala have, in general, been respectful of worker
rights.  The notable exception continues to be some Asian-owned
firms in the textile sector, which produce for the U.S.
market.  U.S. companies operating in Guatemala are more likely
to have unions than their Guatemalan competitors and are also
credited with providing better wages and working conditions.




         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                                18
Total Manufacturing                                      80
    Food & Kindred Products                    42
    Chemicals and Allied Products              13
    Metals, Primary & Fabricated               -3
    Machinery, except Electrical                0
    Electric & Electronic Equipment             0
    Transportation Equipment                    0
    Other Manufacturing                        28
Wholesale Trade                                          -4
Banking                                                   2
Finance and Insurance                                     6
Services                                                  3
Other Industries                                          3

TOTAL ALL INDUSTRIES                                    107


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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