GUATEMALA

Guatemala
City Economic Freedom Score
50
25 75
Least Most
free 0 100 free
World Rank: 79 Regional Rank: 17 61.9

G uatemala’s economic freedom score is 61.9, making its

economy the 79th freest in the 2011 Index. Its score has
increased by 0.9 point, reflecting gains in five of the 10 eco-
Country’s Score Over Time
80
nomic freedoms. Guatemala is ranked 17th out of 29 coun-
tries in the South and Central America/Caribbean region, 70
and its overall score is above the world average.
60
Guatemala has achieved steady economic growth over the
50
past five years, and economic freedom has continued to
advance. The economy performs relatively well in trade 40
freedom and fiscal freedom. With tariff barriers dropping,
1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011
Guatemala’s trade freedom has improved. Personal and cor-
porate tax rates are moderate, and the overall tax burden is Country Comparisons
relatively low. Effective management of government expen-
ditures was maintained during the recent global financial 100
crisis.
84.1
Ongoing challenges to overall economic freedom in Gua- 80
temala include a relative lack of business freedom, weak
respect for property rights, and widespread corruption. 61.9 59.7 60.2
60
Business licensing procedures are burdensome, and bureau-
cratic impediments persist. Judicial inefficiency undermines
the rule of law. 40

Background: Leftist President Alvaro Colom was elect-

20
ed in 2007, promising social democracy, accelerated rural
development, improved education, and access to health
care, but the problems of crime, rising youth gang mem- 0
Country World Regional Free
bership, judicial weakness, weak law enforcement, drug average average economies
trafficking and corruption have not improved during his
tenure. Guatemala participates in Petrocaribe, Venezuela’s Quick Facts
long-term oil loans and subsidies program, but also values Population: 14.0 million
its strong ties with Mexico and the U.S. About 80 percent of GDP (PPP): $67.8 billion
Guatemalans live below the poverty line, less than half of 0.6% growth in 2009
all age-appropriate youth are enrolled in secondary schools, 3.9% 5-year compound annual growth
and nearly half of the labor force works in agriculture. The $4,840 per capita
most advanced sector, telecommunications, is fully deregu- Unemployment: 1.8% (2005)
lated. The Central America–Dominican Republic–United Inflation (CPI): 1.9%
States Free Trade Agreement has boosted trade flows and FDI Inflow: $566 million
employment. Leading exports include coffee, sugar, banan-
as, winter vegetables, cut flowers, and textiles.

How Do We Measure Economic Freedom?

See page 447 for an explanation of the methodology 2009 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2010.
201
GUATEMALA (continued)
THE TEN Economic Freedoms
BUSINESS FREEDOM: 52.1 – 0.4
Guatemala has continued to improve its regulatory frame-
work, but progress has been uneven. Bureaucratic hurdles
remain common, including the lengthy processes for
launching a business and obtaining necessary permits.
+ 0.6
TRADE FREEDOM: 84.6
Guatemala’s weighted average tariff rate was 2.7 percent
in 2009. Import licensing, non-transparent sanitary and
phytosanitary regulations, services market access restric-
tions, inconsistent customs valuation and administration,
bureaucratic delays, and inadequate infrastructure add to
the cost of trade. Ten points were deducted from Guatema-
la’s trade freedom score to account for non-tariff barriers.
FISCAL FREEDOM: 79.5 + 0.2
Guatemala’s tax rates are moderately high. The top income
and corporate tax rates are 31 percent. Other taxes include
a value-added tax (VAT) and a tax on real estate. In the
most recent year, overall tax revenue as a percentage of
GDP fell to 11.3 percent.
GOVERNMENT SPENDING: 94.4 + 0.5
In the most recent year, total government expenditures,
including consumption and transfer payments, held
steady at 13.7 percent of GDP. Supportive fiscal stimulus
peaked at 0.3 percent of GDP in 2009, but authorities have
begun to wind down some spending measures. The fiscal
deficit reached 1.6 percent of GDP, and public debt hovers
around 20 percent of GDP. State ownership of enterprises,
though not extensive, persists in telecommunications and
port control.
MONETARY FREEDOM: 76.4 + 6.2
Inflation has been moderating, averaging 4.6 percent
between 2007 and 2009. The government maintains few
price controls but subsidizes numerous economic activities
and products, such as fuel and housing construction. Ten
points were deducted from Guatemala’s monetary freedom
score to account for measures that distort domestic prices.
INVESTMENT FREEDOM: 60 no change
Foreign investors technically receive national treatment,
but a variety of regulatory hurdles can serve as a barrier
to investment. Some professional services may be supplied
only by those with locally recognized academic credentials,
and mining activities face additional restrictions as minerals
and petroleum are the property of the state. Complex and
non-transparent laws and regulations, inconsistent judicial
decisions, burdensome bureaucracy, and corruption contin-
ue to deter investment. Residents and non-residents may
hold foreign exchange accounts. There are no restrictions or
controls on payments, transactions, and transfers. Foreign
investors may not own land immediately adjacent to riv-
ers, oceans, or international borders. The government must
provide compensation if it expropriates private property.
202 2011 Index of Economic Freedom
Country’s WORLD RankINGS
Business Freedom No. 138 Investment Freedom No. 62
Trade Freedom No. 51 Financial Freedom No. 70
Fiscal Freedom No. 80 Property Rights No. 94
Government Spending No. 3 Freedom from Corruption No. 84
Monetary Freedom No. 75 Labor Freedom No. 120
FINANCIAL FREEDOM: 50 no change
Guatemala’s small financial system is dominated by bank-
centered financial conglomerates. The banking sector has
undergone reorganization and is well capitalized, and the
number of non-performing loans is relatively low. The
five largest banks account for almost 80 percent of total
assets. A number of non-bank financial institutions carry
out investment banking and medium-term and long-term
lending. Foreign banks’ presence is small, and their mar-
ket share accounts for about 8 percent of deposits. Bank
supervision and transparency have been strengthened
under a legal and regulatory framework adopted in 2002
and legislation passed in 2005 and 2006, which also makes
government intervention easier. Capital markets are weak
and not fully developed. Two commercial exchanges deal
almost exclusively in commercial paper and govern-
ment bonds. The 2008 Stock Market Law was intended
to improve mechanisms to make information concerning
issuing institutions more readily available. Amendments
to the Banking Law were submitted to Congress in June
2009 but have not been implemented yet.
PROPERTY RIGHTS: 35 no change
Judicial resolution of disputes is time-consuming and often
unreliable. Civil cases can take as long as a decade. Judicial
corruption is not uncommon. Inadequately documented
titles and gaps in the public record can lead to conflicting
claims of land ownership. Land invasions by squatters are
increasingly common in rural areas, and evicting squat-
ters can be difficult. Successful prosecution of intellectual
property rights cases is rare. Guatemala is ranked 88th out
of 125 countries in the 2010 International Property Rights
Index.
FREEDOM FROM CORRUPTION: 34 + 3.0
Corruption is perceived as widespread. Guatemala ranks
84th out of 179 countries in Transparency International’s
Corruption Perceptions Index for 2009. Bribery is illegal,
but corruption remains a serious problem that companies
may encounter at many levels. Guatemala has ratified the
U.N. Convention Against Corruption.
LABOR FREEDOM: 53.4 – 0.9
Labor regulations are rigid. The non-salary cost of employ-
ing a worker is moderate, but dismissing an employee
is relatively costly. A large portion of the workforce is
employed in the informal sector.