Guatemala WT/TPR/S/94
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I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. Guatemala is located in the northern part of Central America, with Mexico to the north and
west, Belize and the Atlantic Ocean to the east, Honduras and El Salvador to the southeast and the
Pacific Ocean to the southwest.  With a population of 11.4 million and a per-capita GDP of some
US$1,680 in 2000, it is Central America's largest economy, accounting for about one third of regionalGDP.  Agriculture plays an important role in Guat emala's economy, with more than 50% of the labour
force engaged in farming, forestry, and fishing.  Its most important export goods are coffee, sugar,
bananas, and cardamom.
2. Since the signing of the UN-sponsored Peace Accords in December 1996, which ended
36 years of internal armed conflict, economic policy has been guided by the need to restore stabilityand to address social problems and raise human capital and productivity.  The Government has
embarked on a programme of economic liberalization and public sector modernization in order to
open Guatemala to the global market place and to increase the efficiency of critical public services.
Annual real GDP growth ranged between 3% and 5% from 1991 to 2000.  Due to Guatemala's strong
population growth of 2.7% annually, per capita GDP has expanded too slowly to have a significantimpact on living standards.  Guatemala thus continues to face serious problems of poverty.
1
(2) MAIN ECONOMIC DEVELOPMENTS
(i) Output and employment
3. Guatemala's economy grew at an annual av erage rate of 4% between 1995 and 2000, as
progress was made toward political stabilization, trade liberalization, and financial sector reform
(Table I.1).  Economic activity was sustained by robust growth in investment expenditure and foreign
demand.  After two years of high growth in 1997 and 1998, led by private investment, growth slowed
to 3.6% in 1999.  Despite rising export income, GDP growth dropped slightly to 3.3% in 2000, mainlyresulting from reductions in public and private investment spending.
4. The agriculture sector contributes 23% to GDP;  agricultural goods (WTO definition) account
for 60% of export income.  The service sector
2, which accounts for more than 57% of Guatemala's
GDP, has expanded rapidly during the last few years.  While commerce remains Guatemala's single
most important economic activity, contributing nearly one quarter to GDP, sectors such as tourismand telecommunications have experienced fast growth in recent years.  According to Central Bank
statistics, the manufacturing sector accounts for just over 13% of GDP and 32% of merchandise
exports.  Most manufacturing is light assembly and food processing, geared to the domestic, Central
American, and U.S. markets.  However, official statistics are likely to underestimate the actual
importance of the manufacturing sector as they do not include production taking place in free-tradezones.
5. The economic impact of Hurricane Mitch (November 1998) on Guatemala's economic
infrastructure, exports and income, although significant, was less severe than in other countries ofthe region.  The cost of infrastructure repairs and damage to major crops was estimated at around
US$500 million.  According to further estimations carried out by the Secretariat of Planning and
                                                     
1 Guatemala still ranks 108th on the UNDP Human Development Index, behind all other Latin
American countries.
2 Services are defined as including the following sectors:  transport and communication, commerce,
finance and real estate, public administration, and other.WT/TPR/S/94 Trade Policy Review
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Programming for the Presidency (SEGEPLAN), Mitch lead to a decline in GDP of 0.6% in 1998 and
0.8% in 1999.
Table I.1
Basic economic indicators, 1995-2000
1995 1996 1997 1998 1999 2000a
I.  Gross Domestic Product
GDP current, at market prices (Q million) 85,157 95,479 107,943 124,023 135,287 147,477
Real GDP (% change) 4.9 3.0 4.4 5.1 3.6 3.3
GNP current, at market prices (Q million) 84,231 94,079 106,423 123,043 133,923 145,937
Share of GDP (%)
Agriculture 24.2 24.1 23.7 23.4 23.0 22.8
Manufacturing 14.1 14.0 13.7 13.5 13.4 13.3
Construction, transportation, communication 10.8 10.8 11.1 11.4 11.7 11.5
Commerce and finance 29.6 29.7 29.6 29.6 29.8 29.7
Government 7.4 7.4 7.4 7.4 7.4 7.6
Other sectorsb13.9 14.1 14.5 14.5 14.6 15.1
Share of GDP (%)
Private consumption 85.6 87.0 87.0 85.0 84.7 84.2
Government consumption 5.5 5.1 5.0 5.7 6.3 6.9
Gross fixed capital formation 14.5 13.3 15.1 17.8 17.9 16.3
   Private 12.0 10.8 12.1 13.7 14.8 13.7
   Public 2.5 2.5 3.1 3.0 3.0 2.6
Change in stocks 0.5 -0.6 -1.4 0.7 -0.5 0.5
Exports of goods and services 19.3 17.8 18.0 18.2 19.0 20.0
Imports of goods and services 25.4 22.6 23.6 26.3 27.4 27.9
II.  Money and prices
M1 (annual growth, %) 11.4 12.8 31.3 13.5 14.2 20.4
M2 (annual growth, %) 14.5 12.4 25.1 12.5 7.9 18.1
Inflation rate (%) 8.6 10.9 7.1 7.5 4.9 5.1
Average interest, deposit ratec8.2 7.7 5.0 6.2 11.3 11.0
Average interest, lending ratec22.2 22.4 16.4 18.1 20.6 20.1
Net international reserves (million US$) 639.1 815.5 1,102.5 1,345.1 1,219.7 1,874.1
III.  Fiscal balance
Central Government expenditure (% of GDP) 9.2 9.1 10.6 12.4 14.2 13.4
Central Government income (% of GDP) 8.5 9.1 9.1 10.3 11.0 11.1
Surplus/deficit -0.7 -0.1 -1.5 -2.2 -2.8 -1.8
IV.  Memo Items
Population ('000) 9,976 10,243 10,517 10,799 11,088 11,385
Exchange rate Q/US$d6.03 5.99 6.17 6.84 7.79 7.72
1. aP r e l i m i n a r y .
2. b Comprises private services, housing/dwelling ownership, mining, electricity, and water.
3. c Weighted average of the banking system.
4. d End of the year.
Source: Bank of Guatemala, National Institute of Statistics.
6. Guatemala's employment statistics provide information only on employment in the formal
sector (Table I.2).  Based on the data available, the share of workers employed in the agriculture
sector fell from just over 26% of total employment in 1995 to less than 19% in 2000, while
employment in manufacturing, commerce, and other services increased.  It is estimated, however, thatGuatemala WT/TPR/S/94
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more than 50% of the population engage in some form of agricultural activity, often at the subsistence
level outside the monetized economy.3
Table I.2
Employment by sector, 1990-2000
1990 1995 1996 1997 1998 1999 2000
  Total employmenta
785,753 855,596 852,243 844,407 887,228 893,126 908,122
% share
  As % of economically active population
  (14 years and above) 31.5 29.4 28.6 27.6 28.2 27.6 ..
Agriculture and fishery 35.5 26.2 24.0 25.2 23.0 20.6 18.6
Mining 0.4 0.3 0.4 0.3 0.3 0.3 0.3
Manufacturing 13.2 16.6 15.2 16.4 16.9 18.6 20.3
Construction 2.3 2.3 2.9 2.6 3.1 2.5 2.3
Electricity, gas, water and sanitaryservices1.6 1.1 1.3 1.2 1.3 1.2 1.1
Commerce 10.7 14.0 15.2 14.7 15.3 15.6 15.6
Transport and communications 2.7 3.2 3.0 3.1 3.1 3.1 3.2
Other services 33.5 36.1 38.0 36.5 36.9 38.1 38.7
.. Not available.
a Refers only to employees who are members of the Guatemalan Institute of Social Security.
Source: Bank of Guatemala.
7. In 2000, Guatemala's merchandise exports amounted to US$2.7 billion, whereas merchandise
imports reached US$4.9 billion.4  Exports of goods and services slightly increased their contribution
to GDP over the five years to 2000 to attain 20%.  Imports of goods and services also experienced a
rising trend, reaching 28% of GDP in 2000, up from 25% in 1995.
(ii) Fiscal policy
8. The share of Government spending in GDP has traditionally been relatively low and has
only once exceeded 14% since 1995.  Guatemala's fiscal position has posted a deficit for several
years, ranging between 0.1% (1996) and 2.8% (1999).  The Government's budget for 2001, approved
in November 2000, initially provided for expenses of Q 22,780 million.  In July 2001, the Congress
adopted Decree 31-2001, which provides for a revised budget with expenses amounting toQ 24,870 million.  Based on a growth projection of 2.4%, the Government's budget targets a deficit of2.9% of GDP.
9. After two years of tight expenditure, the Government loosened fiscal policy in 1997 in an
attempt to promote growth.  Fiscal and monetary policies remained expansionary until 1999, resulting
in increasing pressures on the current account and the quetzal.  Since the beginning of 2000, the
authorities have sought to restore macroeconomic discipline particularly by reducing investment
spending (Table I.3).  In this context the authorities noted that they had sought not to reduce
expenditures in social infrastructure as provided by the Peace Accords.
10. Guatemala's fiscal charges are relatively low, which, as noted by the authorities, explains in
part the difficulty to increase public expenditures.  The low revenue level has mainly been caused by
an inadequate tax management system, a high degree of tax evasion, and weaknesses in the legal
                                                     
3 World Bank estimates [Online].  Available at:  http://www.worldbank.org/html/extdr/offrep/lac/
gt2.htm.
4 Trade data based on UNSD, Comtrade database, unless otherwise mentioned.WT/TPR/S/94 Trade Policy Review
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framework.  Due to Guatemala's relatively low level of overall tax revenue, taxes on imports
(including tariffs and the value-added tax) still account for a large part of fiscal revenue(Chapter III(2)).
Table I.3
Government finances, 1998-2001
(Q million)
1998 1999 2000 2001 Jan-Juna
Revenue 12,815.6 14,923.9 16,469.3 7,932.3
Current revenue 12,745.5 14,914.1 16,458.3 7,924.0
of which
Tax 11,573.7 13,362.6 15,003.0 7,343.5
Non-tax and transfers 1,171.7 1,551.5 1,455.3 580.5
Capital revenue 70.1 9.8 11.0 8.3
Expenditure 15,517.1 18,728.2 19,109.8 9,565.8
Current expenditure 9,832.9 11,684.5 13,571.9 7,062.4
of which
Salaries 3,745.8 4,311.6 5,159.6 2,711.2
Goods and services 1,369.2 1,554.9 2,002.5 1,205.8
Rebatesa737.3 716.7 833.8 0.4
Interest payments 1,360.6 1,789.3 1,830.9 1,084.6
Domestic debt 885.3 1,095.4 969.3 600.8
External debt 475.2 693.9 861.7 484.8
Transfers 2,620.0 3,312.0 3,745.0 1,551.0
Capital expenditure 5,684.2 7,043.7 5,537.9 2,503.4
Fixed investment 3,375.1 4,107.2 2,212.5 894.4
Transfers 2,309.0 2,936.5 3,325.4 1,609.5
Balance -2,701.5 -3,804.3 -2,640.5 -1,633.5
a Data for 2001 incorporate a methodological adjustment, deducting value-added tax rebates and duty drawbacks on imports from
revenue.  Until 2000, rebates and drawbacks were accounted as an expenditure item.
Source: Ministry of Public Finance.
11. In order to modernize and strengthen the tax administration, the Government has adopted a
number of measures.  One of the essential elements was the establishment of the Superintendency of
Tax Administration (SAT), in 1998, as the solely responsible authority for the administration,
collection, inspection, and verification of all internal and foreign trade revenue.
12. Government expenditure features a significant degree of inflexibility stemming from the
statutory earmarking of revenue.  For example, the Constitution provides that out of the normal
revenue projected in the budget at least 10% must be transferred to municipalities, 5% to theUniversity of San Carlos, and 1.5% to the National Sports Committee.  The authorities indicated that
monies earmarked by the Constitution for specific purposes is equivalent to an estimated 23% of
Government revenue.
13. Under the Peace Accords of 1996, the State engaged to increase the level of tax revenue to
12% of GDP in order to fund social programmes.  Ac hieving this target has been an important issue of
debate in the Government's economic agenda for 2001.  A tax reform, adopted by the Congress in
August 2001, may contribute to achieving the 12% target.  The main elements of the reform include
increasing the value-added tax from 10% to 12%, broadening the tax base, and strengthening legaland penal measures against tax evasion.
(iii) Monetary and exchange rate policies
14. The institutional framework for Guatemala's monetary policy is laid out in Articles 132 and
133 of the Constitution and the Law Establishing the Central Bank of 11 December 1945 (Decree 215,
amended by Decrees 1314, 1704, and 12-95).  Article 132 of the Constitution establishes theGuatemala WT/TPR/S/94
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Monetary Board as the highest authority for the formulation of monetary policy;  both the Central
Bank and the Superintendency of Banks operate under its direction.  The Monetary Board is
composed of eight members:  the President of the Central Bank, who also presides the Board and is
nominated by the President of the Republic; the Mini sters of Finance, Economy, and Agriculture;  one
member elected by Congress;  one member elected by the associations of commerce, industry, and
agriculture;  one member elected by the chief executive officials of the country's private banks; andone member elected by the council of the University of San Carlos.
15. Pursuant to the Law Establishing the Central Bank, the principal objective of the Central
Bank is the creation of a favourable monetary environment for the country's economic development.
The Law further establishes that the State should guarantee the Central Bank the necessaryindependence and autonomy to accomplish its objectives.
16. In practice, price stability has been the main objective of monetary policy in recent years;  the
authorities indicated that this would continue to be the case.  The Central Bank has been successful in
bringing down inflation from double-digit rates at the beginning of the 1990s to 5.1% in 2000, with
open market operations being the main policy tool.  Real interest rates have experienced a rising trendin recent years, amounting to nearly 15% in 2000, up from 9.3% in 1997.  For the year 2001, the
authorities target an inflation range of 4% to 6% and, as a secondary objective, an increase in net
international reserves of US$175 million.
17. Guatemala maintains a flexible exchange rate system.  The Central Bank intervenes in the
market to moderate exchange rate fluctuations.  There is, however, no legal statute that obliges the
Central Bank to intervene.  Monetary Board Decision JM-609-2000 establishes that the Central Bank
should participate in the exchange market only to reduce market volatility and to procure foreign
exchange for the Government and public institutions.  The exchange system is free of restrictions oncurrent payments and transfers.
18. Capital inflows and the increase in foreign reserves have contributed to keeping the nominal
exchange rate relatively stable since the end of 1999.  Since then, Guatemala has experienced a strong
inflow of short-term capital.  At of September 2001, the U.S. dollar exchange rate was Q 8.00.  No
long-term trend is evident in the quetzal's real  effective exchange rate, which showed a real
appreciation of the quetzal from 1995 to 1998, a depreciation from 1998 to early 2000, and anappreciation since then.
19. The credibility of Guatemala's monetary policy may be affected by instability in the financial
sector (Chapter IV(5)(iii)).  Financial informati on indicates an increase in non-performing loans and
a deterioration in capital adequacy throughout 1999 and 2000.  In early 2001, the Central Bank
intervened in three insolvent banks with a deposit base equivalent to 6.5% of the total banks' deposits
and, concerned about confidence in the banking system, refunded depositors in full.  As of
August 2001, the spread between deposit and lending rates was to 10.6%.  Since 1989, interest rates
have been set by the market.
20. The Law on the Domestic Use of Foreign Exchange (Decree 94-2000), enacted in
December 2000 and in force since 1 May 2001, allows the use of foreign currency in domestic
transactions.  The Law explicitly allows financial institutions to accept foreign currency deposits and
to grant foreign currency credits.  The quetzal remains the exclusive legal tender and, unless parties
agree otherwise, unit of account, so that residents can always honour a financial obligation in
quetzals.  In addition, taxes and wages continue to be denominated in quetzals unless otherwiseagreed.WT/TPR/S/94 Trade Policy Review
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21. In mid-2001, the Monetary Board submitted to the Presidency a set of draft laws to reform the
institutional framework of Guatemala's monetary policy.5  While the proposed legislation is aimed at
giving more independence to the Central Bank, and introduces price stability as an explicit goal of
monetary policy, it does not appear to provide for major changes in the division of responsibilities
between the Monetary Board, the Central Bank, and the Superintendency of Banks.  Enactment of the
laws was expected for early 2002.
(iv) Balance of payments
22. Guatemala's current account has run a deficit for several years;  it was particularly marked
following the phase of expansionary fiscal and monetary policies from 1997 to 1999 (Table I.4).  The
adoption of tighter monetary policy in August 1999 and fiscal consolidation since early 2000 lead to a
reduction of the deficit in 2000, which amounted to about 4.8% of GDP.  Guatemala's current account
deficit has been financed largely by current transfers, of which the majority are remittances, and by
income from privatization.  Compared with othe r Latin American countries, Guatemala shows a
relatively low external debt, at less than 14% of GDP.  In 2000, Guatemala received foreign aid fromvarious bilateral and multilateral donors, of which US$195 million were credits and US$192 millionwere grants.
Table I.4
Balance of payments, 1995-2000
(US$ '000)
1995 1996 1997 1998 1999 2000
Overall balance -156,896 198,683 256,881 242,635 -125,372 654,408
Current account balance -512,949 -390,716 -549,557 -926,178 -1,015,046 -913,058
Merchandise trade balance -1,043,463 -824,022 -1,152,119 -1,692,975 -1,687,474 -1,799,725
Merchandise exports, f.o.b. 1,989,009 2,056,326 2,390,590 2,562,692 2,493,594 2,708,479
Merchandise imports, f.o.b. 3,032,473 2,880,348 3,542,708 4,255,666 4,181,068 4,508,205
Services -22,286 -154,101 -89,165 -9,531 -42,382 60,444
Revenues 878,318 776,225 872,964 1,019,927 1,067,662 1,255,989
Expenditures 900,604 930,326 962,129 1,029,457 1,110,045 1,195,545
Current transfers 552,801 587,407 691,727 776,327 783,186 895,333
Private 491,216 528,291 606,761 705,303 714,811 826,222
Public 61,585 59,116 84,965 71,025 68,375 69,111
Financial accounts 491,263 661,175 758,821 1,113,672 636,688 1,768,038
Direct investment 75,268 76,808 84,506 672,829 154,642 227,527
Other long-term capitala105,269 383,740 686,686 712,648 950,596 743,670
Short-term capitalb310,726 200,627 -12,371 -271,805 -468,551 797,011
Errors and omissions -135,209 -71,776 47,617 55,141 184,611 -269,855
Changes in reservesc156,896 -198,683 -256,881 -242,635 125,372 -654,435
Memo items:
Net international reserves/
imports (months) 2.5 3.4 3.7 3.8 3.5 5.0
Real effective exchange rate .. 91.4 97.8 99.8 92.7 83.7
Terms of trade index (1990=100) 119.8 106.9 114.0 126.1 121.8 121.7
External debt (% of GDP) 14.4 13.2 12.0 12.2 14.4 13.7
.. Not available.
a Official and long-term capital in the banking sector and others.
b Short-term commercial obligations and others.
c Negative sign indicates increase.
Source: Guatemalan authorities, including Bank of Guatemala, Statistical Bulletin .
                                                     
5 The draft laws are available in the Central Bank's online information at:  http://www.banguat.gob.gt/
(Proyectos de Leyes Financieras).Guatemala WT/TPR/S/94
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23. In current U.S. dollars, imports grew at an average rate of 8.2% between 1995 and 2000,
whereas the average growth rate for exports was lower, at 6.9%, largely reflecting unfavourable
development of the prices for Guatemala's major export products.  While Guatemala's merchandise
trade deficit has shown a widening trend over recent years, the 2000 balance for trade in services
featured a surplus for the first time (Table I.5).  It should be noted that transactions of enterprises
located in free-trade zones are not included in the official trade statistics and that the value-addedincorporated in exports of maquila enterprises is registered as service income.
Table I.5
Trade in services, 1995-2000
(US$ '000)
Description 1995 1996 1997 1998 1999 2000a
Balance -22,286 -154,011 -89,170 -9,531 -42,383 60,444
Revenue 878,318 776,245 872,913 1,019,927 1,067,662 1,255,989
Transport 53,202 62,492 76,477 89,375 82,992 80,904
Investment income 46,372 40,294 72,421 94,881 80,275 161,939
Tourism 212,447 217,299 266,051 314,444 356,185 397,767
Insurance 8,261 7,356 6,026 23,252 31,735 19,196
Government services 38,157 25,574 46,562 59,269 46,199 71,306
Miscellaneous services 519,879 423,230 405,375 438,706 470,276 524,879
Expenditure 900,604 930,256 962,082 1,029,457 1,110,045 1,195,545
Transport 278,735 287,068 328,031 393,656 375,421 371,307
Investment income 205,766 270,139 311,441 246,463 280,608 407,315
Tourism 141,290 135,548 118,900 157,098 183,275 181,813
Insurance 31,612 24,908 26,762 46,904 53,657 56,550
Government services 22,418 21,610 23,989 32,821 31,017 39,732
Miscellaneous services 220,783 190,983 152,960 152,514 186,066 138,829
a Preliminary figures.
Source: Bank of Guatemala.
24. Despite the recent real effective appreciation of the quetzal and additional worsening of the
terms of trade, the current account deficit narrowed in 2000 due to higher receipts from remittances
(included under private current transfers in Table I.4), maquila exports, and tourism.  Returning
capital and privatization inflows boosted international reserves to a record level of US$1,874 million
in 2000, nearly 54% above the respective value for 1999.
(3) TRADE AND INVESTMENT FLOWS
(i) Composition of trade
25. Guatemala's main single export products are coffee, sugar, and bananas, which together make
up for 35% of Guatemala's export income (Chart I .1).  However, the share of these traditional
agricultural products in total exports has been decreasing, both due to their declining prices and to
increased exports of other products.  Guatemala's exports of chemicals cover a wide range of
products;  essential oils and resinoids are the most important product category.  In recent years,
Guatemala has succeeded in expanding its trade in non-traditional agricultural products, such asspecialty vegetables and fruits, consumer goods, and crude petroleum.WT/TPR/S/94 Trade Policy Review
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Total: US$4,882.4 millionChart I.1 
Merchandise trade by product, 1995 and 2000
1995 2000
(a)    Ex ports (f.o.b. )
Fuels
6.0%
Agricultural raw material
3.8%Other mining and 
manufacturing products 
10.0%
Other food products
21.3%
Total: US$1,935.5 million
(b)    Im ports (c.i.f.)
Agriculture
13.4%
Fuels
12.4%
Other mining 
products
1.2%
Chemicals
17.2%Iron & steel
4.3%
Automotive 
products
13.7%Other consumer 
goods
6.0%
Other non-electrical 
machinery
7.4%Others a
8.1%
Other semi-manufactures
11.5%Office 
machines and 
telecom eqpt.
4.8%Agriculture
13.8%
Fuels
12.7%
Other 
mining 
products
1.3%
Chemicals
16.3%
Other semi-manufactures
11.0%   Office 
machines & 
telecom eqpt.
     8.6%Others  a
9.5%
Other consumer 
goods
6.7%
Other non-electrical 
machinery
6.6%Automotive 
products
    9.9%   Iron & steel
    3.5%
Total: US$3,292.5 million
a               Includes other not elsewhere specified category.
Source :   UNSD, Comtrade database.Per cent
Total: US$2,699.4 millionOther mining and 
manufacturing products
5.6%
Chemicals
10.9%
Sugars, beet or 
cane, raw
12.3%
Bananas, 
fresh or dried
7.2%Agricultural raw 
materials
4.1%Other food 
products
17.8%Iron and steel 
2.7%Coffee
27.9%Coffee
21.3%
Sugars, beet 
or cane, raw
7.1%
Bananas
6.6%Chemicals
11.7%Other semi-
manufactures
5.8%Textiles & clothing
3.8%Other semi-
manufactures
5.5%Textiles & 
clothing
3.9%
Iron & steel
2.7%Fuels
2.0%Guatemala WT/TPR/S/94
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26. Guatemala's import patterns remained relatively stable between 1995 and 2000.  Imports are
dominated by intermediate and capital goods.  Ag ricultural imports, of which about 45% come from
the United States, are led by bulk commodities, in particular wheat and yellow corn.  Crude petroleum
and mineral fuels accounted for 14% of imports in 2000.  Chemicals, making up for more than 16% of
imports in 2000, include a wide range of goods, such as medicinal and pharmaceutical products as
well as plastics.
27. A major characteristic of Guatemala's economy has been the increasing share of 'non-
traditional' products that are being produced for export.  These goods, typically produced in export
processing zones or maquila enterprises, comprise textiles and apparel as well as agricultural products
such as cut flowers and winter vegetables.
28. Guatemala's commodity trade statistics do not include exports and imports taking place under
the Maquila and Free Trade Zones Laws (Chapter III(3)(v)).  This is likely to result in a strong
underestimation of exports in subsectors such as textiles, apparel, and non-traditional agricultural
goods, as well as of imports of necessary inputs.  According to information provided by the exporters'
association, Agexpront, for example, the value-added incorporated in Guatemalan exports of textiles
and apparel amounted to US$358 million in 1999, whereas official statistics report exports of onlyUS$99 million.
6  In this context, the authorities noted that, due to the temporary nature of imports
under the Maquila and Free Trade Zones Laws, the respective trade flows are not recorded by the
commodity trade statistics.  Foreign trade associated to free-trade zones is not registered at all, while
for maquila enterprises only the value-added incorpor ated in exports is recorded, entering the service
balance under "other services".
(ii) Direction of trade
29. Guatemala's trading partners have benefited from a growing market and a more open foreign
trade regime;  most have seen their exports to Guatemala increase in recent years.  The United States
is Guatemala's largest trading partner, providing nearly 40% of its imports and receiving more than
36% of its exports (Chart I.2).  While the importance of the United States as an export market for
Guatemalan products increased between 1995 and 2000, the share of imports from the United States
decreased by more than 5%, despite an increase in absolute terms.  The European Union's and Japan'sshares decreased both on the import and the export side.  Just over 30% of Guatemala's exports are
destined to other members of the Central American Common Market;  imports originating in these
countries increased from less than 10% of total imports in 1995 to about 13% in 2000.  Mexico is
particularly important on the import side, supplying nearly 12% of Guatemala's imports.
(iii) Foreign direct investment
30. Foreign investment appears to have been encouraged by the enactment of the Free Trade
Zones and Maquila Laws in 1989 (Chapter III(3)(v)).  Moreover, the enactment of the Foreign
Investment Law in 1998 abolished most exceptions to national treatment (see Chapter II(3) for details
on exceptions), while new legislation on telecommunications and electricity opened up these
subsectors to private competition and foreign capital.
                                                     
6 Agexpront (2000), p. 24.WT/TPR/S/94 Trade Policy Review
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Japan
1.0%
EU(15)
8.3%Chart I.2 
Merchandise trade by partner, 1995 and 2000
1995 2000
(a)    Ex ports (f.o.b. )
Total:   US$1,935.5 million Total:   US$2,699.4 million
Total:   US$3,292.5 million Total:   US$4,882.4 million
               
Source:  UNSD, Comtrade database.Per cent
Americas
72.6%Asia and RoW
10.9%
Europe
16.6%
Europe
12.1%(b)    Im ports (c.i.f.)
Asia and RoW
8.0%
Americas
79.9%U.S.
36.1%EU(15)
10.7%
Mexico
11.7%Asia and RoW
7.5%
Americas
79.4% Europe
12.9%
U.S.
31.3%
Asia  and RoW
8.6%
Americas
81.6%Europe
9.7%
U. S.
39.7%El Salvador
13.9%EU(15)
15.7%
Honduras
8.6%
U.S.
44.9%
Mexico
   9.4%Japan
3.7%
EU(15)
10.4%Japan
2.8%
El 
Salvador
12.6%Japan
2.3%
Honduras
       6.5%Guatemala WT/TPR/S/94
Page 11
31. The authorities indicated that foreign investors are not subject to specific reporting or registry
requirements;  hence, there is no information available on source countries or the sectoral distribution
of foreign direct investment in Guatemala.  According to the Central Bank's balance-of-payment
statistics, FDI inflows between 1995 and 2000 amount ed to about US$1,290 million.  Information
from producer associations suggests that FDI has b een increasingly important in sectors such as
apparel and textiles production, and light manufacturing.7  Furthermore, the Government's
privatization policy between 1997 and 1999 significantly increased the participation of foreign
enterprises in electricity generation and distri bution, telecommunications, and railroad transport.
(4) OUTLOOK
32. The Government's future policies are outlined in the Matrix on Economic Policy for 2000 to
2004.8  According to this policy framework, the Go vernment's fundamental objective is to obtain
stable and sustainable economic growth, which should translate into a higher level of human
development.  To this end, the Matrix underlines the necessity of sound macroeconomic policies,
based on fiscal and monetary discipline, an approp riate investment climate, open and competitive
markets, and of an intensification of the fight against poverty.
33. The authorities had to correct their growth estimations for real GDP from 3.9% to 2.4%
for 2001.  Furthermore, the authorities expected a fiscal deficit of 1.9% for 2001, an inflation rate of
6%, and a current account deficit of 4.3%.  According to the authorities, five factors were decisive for
the revision of growth expectations.  First, th e slowdown of the U.S. economy turned out to be
stronger than expected and had a stronger impact than anticipated on Guatemalan merchandise
exports, remittances, and tourism receipts.  Second, the continuous decline of coffee prices was
expected to exert further downward pressure on export  earnings.  Third, the closing of three insolvent
banks with full coverage of all deposits had reduced confidence in the financial sector and affected theoverall investment climate.  Fourth, fiscal policy  would remain tight due the Government's efforts to
keep the deficit under control.  Fifth, a severe drought in summer 2001, which particularly affected
various departments in Guatemala's south, centre, and east, was expected to impact additionally on
growth rates.
                                                     
7 Agexpront (2000).
8 Gobierno de la República (2000a).