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U.S. DEPARTMENT OF STATE
GUATEMALA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                            GUATEMALA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                    1992      1993      1994

Income, Production and Employment:

Real GDP (1985 prices)             7,264     8,262     9,089
Real GDP Growth (pct.)               4.8       3.9       4.0
GDP (at current prices)            7,741    11,260    12,527
By Sector:  (pct.)
  Agriculture                       25.3      24.9      24.8
  Energy/Water                       2.7       2.9       2.9
  Manufacturing                     14.6      14.5      14.5
  Construction                       2.3       2.2       2.2
  Rents                              4.9       4.8       4.8
  Financial Services                 4.3       4.5       4.5
  Other Services                     6.0       5.9       5.8
  Government/Health/Education        7.1       7.5       7.5
  Transportation                     8.4       8.4       8.5
  Commerce                          24.1      24.1      24.1
  Mining                             0.3       0.3       0.4
Real Per Capita GDP (1985 base)      745       824       881
Labor Force (000s)                 2,803     2,897     3,213
Unemployment Rate (pct.) 2/          6.1       5.5       4.9

Money and Prices:  (annual percentage growth)

Money Supply (M2)                  2,234     2,451     2,584
  M2 Annual Percentage Change       19.5       8.9       8.0
Base Interest Rate 3/
  Commercial Banks (deposits)       16.0      14.0      15.0
  Commercial Banks (loans)          25.0      27.0      25.0
Consumer Price Index                13.7      11.6      12.0
Exchange Rate (quetzal/dollar)      5.70      5.66      5.80

Balance of Payments and Trade:  4/

Total Exports (FOB)                1,284     1,356     1,383
  Exports to U.S.                    453       501       417
Total Imports (CIF)                2,328     2,381     2,566
  Imports from U.S.                1,081     1,172     1,120
Aid From U.S.                         70        55        54
External Public Debt               2,252     2,071     2,034 5/
Debt Service Payments (paid)         720       556       N/A
Net Gold and FOREX Reserves          473       608       608
Total Trade Balance               -1,044    -1,025    -1,183
  Merchandise Balance with U.S.     -628      -671      -703


N/A--Not available.

1/ 1994 figures are U.S. Embassy estimates.
2/ Unemployment figures provided by the Guatemalan Government
do not reflect serious underemployment, estimated as high as 50
percent.
3/ Interest rates are average maximum levels.
4/ Based on Guatemalan customs data.
5/ As of June 30, 1994.



1.  General Policy Framework

    With a GDP of roughly 12.5 billion dollars, Guatemala is
the largest economy in Central America, as well as the biggest
importer of U.S. products.  The 1993 merchandise trade deficit
of 671 million dollars with the U.S. was more than double the
figure recorded two years earlier.

    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,
cardamom, and meat.  After several years of depressed world
prices, export receipts from these traditional products have
rebounded significantly in the last several years.  Coffee
export earnings, for example, are running 60 percent higher in
1994 than in 1993.  The other main productive activities are
commerce and manufacturing, which contribute 24 percent and 15
percent, respectively, of total GDP.  Nontraditional 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 ago.  Tourism
receipts accounted for $256 million in exchange earnings in
1993, but are running 10 percent below that level in 1994.

    The 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, real GDP growth for 1993 was about
3.9 percent, down somewhat from the 4.8 growth of 1992.  Growth
is expected to be about 4.0 percent in 1994.  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.  Since then, 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 fell to
an average of around 12 percent in subsequent years.  

    By drastically curtailing expenditures in 1991, the
government successfully reduced the consolidated public sector
deficit from 4.7 percent of GDP in 1990 to just 1.6 percent in
1991.  With the 1992 fiscal reform, the overall deficit fell
further to just 0.6 percent.  However, due to declining tax
collections in real terms, the combined public sector deficit
rose to 2.7 percent of GDP in 1993 and could reach as high as
3.3 percent in 1994.

    Late in 1993, Guatemala began a shadow program with the
International Monetary Fund, which the government hopes to
convert to a formal standby agreement in 1995.  In accordance
with that agreement, the government has eliminated subsidies
for municipal wages and, in March of 1994, liberalized gasoline
prices.  The government also concluded a Financial Sector 
Modernization Loan agreement with the Inter-American
Development Bank.  Under this program, Guatemala is moving to
liberalize and better supervise its financial system.  The
Government has yet to present legislation to implement the
Uruguay Round to the Guatemalan Congress, although it has
expressed its intent to do so.


2.  Exchange Rate Policy

    Guatemala maintains an open, relatively undistorted
exchange regime.  There are no legal constraints on the
quantity of remittances or other capital flows.  In early 1994,
the government ended the requirement that local private banks
sell all their foreign exchange to the Bank of Guatemala every
day and eliminated the daily auction system for foreign
exchange.  Although the Bank still intervenes occasionally to
dampen speculation, there are no longer any delays in acquiring
foreign exchange.  The government sets only one reference rate,
which it applies only to its own transactions and which is
based on the market determined commercial exchange rate. 
Remittances can take the form of dollar denominated government
bonds, although the supply of these is limited.  A number of
banks also offer "pay through" dollar denominated accounts. 
Under this plan, the depositor makes deposits and withdrawals
at a local bank, but the account is actually maintained in a
U.S. bank on behalf of the depositor.  The holding of dollar
accounts in local banks is still prohibited.  

    The quetzal depreciated 10 percent in nominal terms during
1993.  Thus, the quetzal more or less maintained its real value
vis-a-vis the dollar last year, after having appreciated about
7 percent in real terms during each of the two prior years.  So
far in 1994, the nominal value of the quetzal, currently about
5.7 to the dollar, has not changed significantly.


3.  Structural Policies

    In mid-1992, the government instituted a sweeping tax
reform.  The income tax was simplified.  Individuals now face a
three tier income tax structure with a top rate of 25 percent;
corporations pay a simple 25 percent flat rate.  Most
exemptions for value added taxes and most stamp taxes were
eliminated.  As a result of these reforms, the bases for both
the income and value added taxes were broadened considerably. 
Tariffs on most imports from outside Central America were
lowered first to a 5-30 percent band in 1992 and then to a 5-20
percent band in 1993.  The main exceptions are on imports of
rice, poultry and petroleum products, where tariffs ranging up
to 45 percent remain in effect.  In addition, the 3 percent
surcharge on imports was eliminated in 1992.  As a result of
this reform, tax revenues increased from 7.4 percent of GDP in
1991 to 8.4 percent in 1992.  Since then, however, tax revenues
fell to 7.9 percent of GDP in 1993 and are expected to decline
further to approximately 7 percent of GDP in 1994.  The
government's goal is to increase the tax burden to 8.5 percent
in 1995, by increasing taxes and by increasing penalties for
tax evasion.

    Wheat, flour and sugar are virtually the only products on
which Guatemala maintains price controls.  Direct government 
control of production is small and decreasing, with growing
private participation in key areas such as electricity
generation.  Even in sectors controlled by the government
(telecommunications, for example), foreign companies are
generally allowed to compete for contracts on an equal basis
with domestic producers.

    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, as
well.  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.  Moreover,
there is no consistent pattern or judicial review of
administrative regulations.


4.  Debt Management Policies

    Guatemala's modest foreign debt has been declining for
several years.  The drop has been most marked in relation to
GDP.  From 35 percent of GDP in 1990, foreign debt fell to 22
percent by the end of 1992 and to 19 percent by the end of
1993.  Public sector foreign debt has declined faster than
total external debt, reflecting an increasing reliance on
private, rather than public, investment.  From 32 percent of
GDP in 1990, the external debt of the public sector declined to
just 18.3 percent at the end of 1993.  During the same time
period, debt service increased steadily, reaching 16.3 percent
of exports in 1992, as Guatemala cleared its foreign arrears,
before falling back to 14.4 percent in 1993.  Following its
first Paris Club agreement in 1993, the Government reached
bilateral agreements to reschedule about a quarter of its
approximately 450 million dollars in arrears on official
bilateral debt.  As of late October, 1994, however, Guatemala
was still negotiating the rescheduling of its official arrears
with Spain.

    In December, 1992, Guatemala signed a 120 million dollar
Economic Modernization Loan (EML) with the World Bank. 
Although Guatemala could have borrowed approximately 70 million
dollars under the standby agreement with the International
Monetary Fund (IMF), the government decided to treat the
agreement as precautionary and never requested any
disbursements.  Guatemala received the first EML disbursement
of 48 million dollars in December, 1992.  The second tranche
disbursement under the EML, scheduled for June 1993, finally
occurred in the beginning of 1994 after the loan was
restructured and the government entered into a new, "shadow
agreement" with the IMF (following the successful,
constitutional resolution of the auto-golpe of May, 1993 and
the resultant economic dislocations).  The third tranche,
rescheduled for June, 1994 has yet to occur, since Guatemala
had failed to meet several conditions for disbursement,
particularly tax reforms and raising electricity rates.  In
early 1993, the World Bank provided another 20 million dollar
loan for Guatemala's Social Investment Fund.   Guatemala is 
close to meeting the conditions for disbursement of the second
tranche of a 130 million dollar financial sector modernization
loan from the Inter-American Development Bank.


5.  Significant Barriers to U.S. Exports

    Exporters to Guatemala enjoy a generally open trade
regime.  For the most part, imports are not subject to
nontariff trade barriers, although arbitrary customs valuation
and excessive bureaucracy can sometimes create delays and
complications.  The vast majority of tariffs has been reduced
to a band of 5-20 percent.

    Restrictions remain on foreign investment in very few
sectors.  The Constitution provides the state telephone
company, Guatel, with a monopoly on most telecommunications
services.  The Constitution also designates all subsurface
minerals, petroleum and other resources as property of the
state.  Concessions are typically granted in the form of
production sharing contracts.  However, the solicitation and
contracting process for energy concessions tends to be
protracted and nontransparent.  Some foreign oil companies also
complain that the Guatemalan royalty scale is not competitive
with that of other countries.  Also, only Guatemalan citizens
or corporations which are at least 75 percent owned by
Guatemalans can operate radio or television stations. 
Foreigners can own no more than 30 percent of "small mining" or
forestry companies.  Ground transportation is limited to
companies with at least 60 percent Guatemalan ownership. 
Licensing requirements for fishing operations are enforced
insuch a way as to ensure at least minority Guatemalan
participation.  Only airlines with at least 51 percent
Guatemalan ownership can provide domestic service.

    Foreign firms are barred from directly selling insurance or
rendering licensed professional services, such as legal or
accounting services, in Guatemala.  Foreign firms are still
able to operate, however, through correspondents or locally
incorporated subsidiaries.  Most "Big Six" U.S. accounting
firms are represented in Guatemala.  Restrictions on housing
construction are so onerous that they virtually exclude foreign
participation.

    Sanitary licenses are required for all imports of animal
origin.  During the past year, the impact of this requirement
on U.S. exporters has been negligible.  However, recent reports
indicate that Guatemala may begin using these license
requirements as nontariff barriers to protect domestic
producers.  Licenses are also required to import apples and
wheat flour.

    In addition, all processed foods are required to have
Spanish language labels attached.  In the past this rule has
not been enforced.  However, on October 25, 1994, the
Government began a to crack down on violators, a move which
could significantly impact the 26 million dollars per year in
U.S. exports of processed foods to Guatemala, a figure which
had been growing rapidly.


6.  Export Subsidies Policies

    Significant tax exemptions are granted to both foreign and
domestic enterprises producing for export.  With the rise in
coffee prices, there has been no effort to repeat the coffee
sector's 1993 bond program which provided a 15 dollar per
hundred weight subsidy to exporters (to be repaid with higher
coffee prices).  The country is not a member of the GATT
Subsidies Code.

7.  Protection of U.S. Intellectual Property

    The level of protection provided intellectual property
remains inadequate.  In general, the Criminal Code contains
ineffective penalties for infringement of intellectual property
rights and a poorly trained judiciary is slow to provide
injunctive relief.  However, there have been significant recent
improvements.  The 1991 GSP petition against Guatemala filed by
the Motion Picture Export Association of America was dropped in
1994 after Guatemala passed an antipiracy law and local cable
operators generally ceased illegal retransmission of signals. 
In addition, the current legislature is considering laws to
afford more effective protection of intellectual property
rights.  The government has also announced its intention to
accede to the Paris Convention for the Protection of Industrial
Property and to the Berne Convention for the Protection of
Literary and Artistic Works.  Guatemala is named on the Special
301 "Watch List." 

    Copyrights:  While the right to copy, publish and
distribute is clearly protected, control over leasing or
renting of protected works is not clear under Guatemalan law. 
Despite membership in the Rome and Geneva Conventions,
Guatemalan law does not generally protect sound recordings.  
Legislation was enacted in 1992 to prohibit pirating for
commercial use of satellite television transmissions.  As a
result, unauthorized retransmission of signals has dropped
significantly.  However, video piracy remains a problem. 
Pirated videos are both locally produced (but not for export)
and brought in via parallel imports.  At the urging of a
legitimate distributor, the Government has begun to crack down
on video clubs that rent pirated copies.  The distributor also
plans to work with these clubs to develop a plan for voluntary
compliance.  In addition, a new copyright law has been drafted
for consideration by the Guatemalan Congress early in 1995. 
This law would impose greater sanctions for noncompliance, as
well as protect sound recordings, computer programs, videos and
films and the transmission of these works.

    Patents:  Guatemala's patent law is old and does not
protect mathematical methods, living organisms, commercial
plans, surgical, therapeutic or diagnostic methods, or chemical
compounds or compositions.  Protection is circumscribed by
short patent terms (15 years, except for the production of
food, beverages, medicines and agrochemical products, which
last only 10 years), compulsory licensing provisions and local
exploitation requirements.  Patent rights do not extend to any
action executed in the pursuit of education, research,
experiments or investigation.  Patent rights do not prevent the
importation of counterfeits, unless the product is being 
produced in Guatemala.  Protection lapses six years from the
date of the patent if the product is not being produced
locally.  To address these issues and bring Guatemalan law in
line with international standards, the government is currently
drafting new patent legislation for submission to Congress in
early 1995.

    Trademarks:  The Central American Convention for the
Protection of Industrial Property (CACPIP) forms the legal
basis for the protection of trademarks in Guatemala. 
Guatemalan law does not provide sufficient protection against
counterfeiters, nor does it afford adequate protection for
internationally famous trademarks.  The right to exclusive use
of a trademark, for instance, is granted to whoever files first
to register the mark.  There is no requirement for use, nor any
cancellation process for nonuse.  As a result, foreign firms
whose trademark has been registered by another party in
Guatemala have often had to pay royalties to that party, or buy
him out.  The Central American countries are currently revising
the Convention to bring it more in line with emerging
international standards and to simplify the registration
process.  It is expected that the Government will approve the
changes to the Convention in November and submit the Convention
to Congress for ratification.

    New Technologies:  Guatemala makes no specific provision
for the protection of trade secrets or semiconductor chip
design, although it has signed the Washington Treaty on
Intellectual Property in Respect of Integrated Circuits. 
Guatemalan copyrights do not currently extend to databases,
audiovisual works, or software.

    The International Intellectual Property Alliance estimates
that in 1993 trade losses due to piracy of motion pictures,
records and music, computer programs and books in Guatemala
were 2.7 million dollars.


8.  Worker Rights

    a.  The Right of Association

    Approximately five percent of the Guatemalan work force is
unionized in approximately 900 unions.  Bureaucratic procedures
necessary to obtain legal authorization to form a union were
significantly eased in late 1992, as part of a successful
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.  Even though the regulations have yet to be adopted,
the time and steps required to register a union have been
significantly reduced since the labor code amendments.  Union
leaders continue to charge, however, that it is more difficult
to register a trade union than it is to register a business. 
They also claim that management often encourages competing
unions and/or "solidarity" associations to form when
negotiating contracts and that these groups make "no strike"
agreements.

    In 1992, petitions filed by the International Labor Rights
Education and Research Fund (ILRERF) and the AFL-CIO to remove
GSP benefits from Guatemala for failure to protect
internationally recognized worker rights were accepted for
review by the US Government.  The review was extended through
the end of the 1993-1994 review cycle.

    b.  The Right to Organize and Bargain Collectively

    The Labor Code allows collective bargaining, but emphasizes
the protection of individual worker rights.  Antiunion
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 and a second new court was established in 1994. 
The greatest obstacles to union organizing and collective
bargaining are not the law, but the inability of the legal
system to enforce the law adequately, the weakness of the labor
movement and a continuing enormous excess of labor.  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 partols is
voluntary.  Human rights groups claim, with some justification
in conflictive zones, that coercion is used to recruit some
people for these patrols.  

    d.  Minimum Age for Employment of Children

    The Constitution provides a minimum age of 14 for the
employment of children and, then, only in certain types of
jobs.  Government statistics indicate that 50,000 children
under this age are employed in the formal sector, including
agriculture, with only 10 percent having legal permission to
work.  An unknown number are employed in the informal sector as
street vendors, beggars and menial laborers.  Enforcement of
labor regulations has been given greater emphasis by the de
Leon administration; the Labor Ministry has started a program
designed to educate parents about the rights of children in the
work force.

    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 an overcrowded and lethargic labor court system.  The
selection of all new judges on the supreme court and appellate
courts in mid-1994, based on new selection procedures designed
to protect against incompetent, corrupt, or politically biased
judges is expected to make a major difference, over time, in
the honesty and efficiency of the court system.   A minimum
wage applies to most workers;  although the the minimum wages
remain low, they were increased for all sectors of the private
economy in late 1994 by an average of 35 percent.  Surveys
carried out by the Labor Ministry indicate, however, that many
workers do not receive the minimum wage.

    f.  Rights in Sectors With U.S. Investment

    Guatemala does not register foreign investment, so accurate
records of U.S. investment are not available.  Union officials
say that, in general, international corporations in Guatemala
have been respectful of worker rights.  The high profile
exception continues to be some, mostly Asian-owned firms in the
maquila sector, which assemble garments primarily for the U.S.
market.  U.S. companies operating in Guatemala are more likely
to have unions than their Guatemalan competitors and are also
generally 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--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                              28
Total Manufacturing                                   102
  Food & Kindred Products                   51
  Chemicals and Allied Products             23
  Metals, Primary & Fabricated              -4
  Machinery, except Electrical               0
  Electric & Electronic Equipment            0
  Transportation Equipment                   0
  Other Manufacturing                       32
Wholesale Trade                                        -6
Banking                                                 1
Finance/Insurance/Real Estate                           7
Services                                                3
Other Industries                                        3
TOTAL ALL INDUSTRIES                                  138      

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

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