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Guatemala
Total Government Expenditures |
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Economic Freedom Rating |
As a Percent of GDP |
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 |
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Part 1: The Economic Freedom Ratings for the Components and Various Area and |
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Summary Indexes: 1975, 1980, 1985, 1990 and 1995. |
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(The numbers in parentheses indicate the actual values for the components.) |
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Components of Economic Freedom |
1975 |
1980 |
1985 |
1990 |
1995 |
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I. Money and Inflation |
3.6 |
6.6 |
6.8 |
4.6 |
5.2 |
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(a) Annual Money Growth (last 5 yrs.) |
3 |
(16.0) |
3 |
(16.3) |
6 |
(12.4) |
2 |
(17.8) |
3 |
(15.5) |
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(b) Inflation Variablity (last 5 yrs.) |
3 |
(7.8) |
6 |
(3.6) |
4 |
(5.3) |
1 |
(15.2) |
2 |
(9.1) |
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(c) Ownership of Foreign Currency |
0 |
10 |
10 |
10 |
10 |
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(d) Maint. of Bank Account Abroad |
10 |
10 |
10 |
10 |
10 |
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II. Government Operation |
9.0 |
8.8 |
8.8 |
7.9 |
6.3 |
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(a) Gov't Consump. (% of Total Consump.) |
10 |
(8.0) |
10 |
(9.2) |
10 |
(7.8) |
10 |
(7.5) |
10 |
(6.5) |
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(b) Government Enterprises |
8 |
8 |
8 |
8 |
8 |
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(c) Price Controls |
- |
- |
- |
6 |
6 |
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(d) Entry Into Business |
- |
- |
- |
- |
5.0 |
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(e) Legal System |
- |
- |
- |
- |
0.0 |
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(f) Avoidance of Neg. Interest Rates |
- |
8 |
8 |
8 |
8 |
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III. Takings |
8.2 |
7.7 |
6.3 |
6.9 |
7.3 |
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(a) Transfers and Subsidies (% of GDP) |
10 |
(0.8) |
10 |
(1.2) |
10 |
(1.3) |
9 |
(1.8) |
9 |
(1.5) |
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(b) Marginal Tax Rates (Top Rate) |
9 |
(34) |
8 |
(40) |
5 |
(48) |
7 |
(34) |
8 |
(30) |
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(c) Conscription |
0 |
0 |
0 |
0 |
0 |
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IV. International Sector |
4.5 |
4.4 |
2.5 |
6.3 |
6.8 |
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(a) Taxes on International Trade (Avg.) |
6 |
(5.6) |
6 |
(4.8) |
3 |
(7.5) |
7 |
(3.6) |
6 |
(3.8) |
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(b) Black Market Exchange Rates (Prem.) |
4 |
(10) |
4 |
(10) |
1 |
(89) |
10 |
(0) |
10 |
(0) |
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(c) Size of Trade Sector (% of GDP) |
2 |
(22.6) |
1 |
(23.6) |
0 |
(12.5) |
1 |
(21.7) |
1 |
(22.7) |
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(d) Capital Transactions with Foreigners |
5 |
5 |
5 |
5 |
8 |
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Economic Freedom Rating |
6.4 |
6.8 |
5.8 |
6.6 |
6.5 |
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Ranking of Country |
8 |
3 |
20 |
11 |
21 |
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Part 2: Recent Economic Indicators: |
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Population 1996: |
10.9 |
Real Per Capita GDP |
: |
1996= |
$3,336 |
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(in millions) |
(in 1995 U.S. dollars) |
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Annual Rate of Change (1985-96): |
2.9% |
Avg. Growth Rate: |
1980-90= |
-2.0% |
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1990-96= |
1.1% |
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Economic Indicators:* |
1988 |
1989 |
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
Change in Real GDP: Aggregate |
3.9 |
3.9 |
3.1 |
3.6 |
4.8 |
3.9 |
4.0 |
4.9 |
3.1 |
: Per Capita |
1.0 |
1.0 |
0.2 |
0.7 |
1.9 |
1.0 |
1.1 |
2.0 |
1.1 |
Inflation Rate (CPI) |
10.8 |
11.4 |
41.2 |
33.2 |
10.0 |
11.8 |
10.9 |
8.6 |
10.9 |
Change in Money Supply: (M1) |
14.4 |
20.7 |
33.0 |
18.6 |
9.1 |
20.4 |
40.1 |
4.3 |
22.1 |
: (M2) |
19.8 |
16.1 |
25.8 |
48.9 |
31.1 |
15.1 |
12.9 |
11.5 |
11.7 |
Investment/GDP Ratio |
13.7 |
13.5 |
13.6 |
14.3 |
18.3 |
17.4 |
16.4 |
14.4 |
- |
Size of Trade Sector (% of GDP) |
19.0 |
19.9 |
21.7 |
19.6 |
22.5 |
21.7 |
21.3 |
22.7 |
- |
Total Gov't Exp./GDP Ratio |
12.0 |
11.7 |
10.0 |
9.0 |
10.4 |
9.8 |
8.9 |
9.2 |
- |
Central Government Budget |
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Deficit (-)or Surplus (+) |
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As a Percent of GDP |
-1.7 |
-2.9 |
-2.1 |
0.0 |
0.0 |
-1.7 |
-1.4 |
-0.7 |
-0.1 |
Unemployment Rate |
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* The figures in this table are in percent form. |
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In 1995, Guatemala ranked 21st among the countries in our study. Except for a decline during the mid-1980s as the result of higher trade taxes, more restrictive exchange rate controls, and a decline in the size of the trade sector, Guatemala’s summary rating has been steady throughout the last two decades.
From the viewpoint of economic freedom, there are several positive attributes of this economy. Government expenditures are low—approximately 10% of GDP—and the transfer sector is small. Most of the businesses are privately owned. Both marginal tax rates and taxes on international trade have been reduced during the last decade. A 1992 reform narrowed the band of permissible tariff rates to between 5% and 20%, down from 0 to 100%. The top marginal tax rate is now 30%, down from the 48% rate of the mid-1980s (but up from the 25% rate that was applicable in 1994).
The major weaknesses of this economy are monetary instability, insecure property rights, and an absence of the rule of law. A new constitutional provision prohibiting the central bank from extending credit to the government took effect in 1995. While this is a positive step, greater commitment to monetary and price stability is needed. Adoption of a currency board approach or an inflation rate target that would increase the accountability of the central bank would be helpful in this area. The legal system often grants political officials discretionary authority. This undermines the rule of law and inevitably leads to political corruption and loss of confidence in the system. With constructive action in these areas, Guatemala could become one the world’s freest economies.
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| Last Modified: Wednesday, October 20, 1999. |