GUATEMALA: New government, same challenges
Dr. Alejandro Giammattei will step into the presidency of Guatemala on January 14th, 2020, after beating former first lady Sandra Torres in an August 11th second-round runoff.Giammattei, a medical doctor who spent 13 years pursuing the presidency, won’t have it easy.His VAMOS party holds just 16 of the 160 seats in Congress, while Torres’ UNE party holds 53 seats. The 91 remaining seats are distributed among 17 political parties. Unless Giammattei can build up a solid working group, it will be very difficult for him to advance a long-term agenda that will allow him to tackle the country’s structural weaknesses.
On the other hand, Giammattei’s advantage is that the economy does not face a financial disequilibrium requiring urgent and complete attention to resolve.The economy is growing by 3% per year; it has a relatively good stock of international monetary reserves, and inflation is within the Bank of Guatemala´s target range.The problem, which will require all of his attention, is that the economy is growing relatively slowly, with high unemployment and poverty, and a relatively high level of organized crime.Laying the building the blocks to confront such problems is, in our view, Giammattei’s major challenge.
In Costa Rica, storm winds have been blowing over measures that will allow the country to regain long-term fiscal sustainability. The struggle to escape from the fiscal rule, and the showdown between unions and the government, are the order of the day. The turbulence affects both business and consumer confidence, depressing private investment and consumer spending. We mentioned this in our July revised outlook, and our perspective has only worsened in August. Economic activity continues to slow, driven by both external and domestic demand. Investment has weakened. The fiscal gap has shown little improvement, while financial indicators show price and interest rate stability, and currency appreciation.
El Salvador is sending some signals that it could be starting to move. How strong and how fast that movement it remains to be seen. Since the results should be evaluated from the evolution of confidence and expectations, this is unlikely to be evidenced in a few months. The fight against gangs, coupled with stimulating FDI to increase employment over the medium term, are promising actions. President Nayib Bukele’s proactive stance, in working with the United States to find new ways to discourage Salvadorans from emigrating, is a positive development. Economic activity is suffering the consequences of both external slowdown and internal problems that for several years have discouraged private investment.
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