year. A continuation of this growth rate implies that the average Guatemalan would need approximately 53 years to double his real income.

Historically, growth was not particularly pro-poor, i.e. favoring the rural or agricultural economy where the poor live. The elite domination and ethnic division failed to promote social and institutional development. Instead, growth in Guatemala’s was accompanied by the exclusion of large parts of the society from wealth, and, as a consequence, accompanied by underlying social conflict. Poverty rates and inequality indicators are among the highest in the Latin American region. According to the World Bank (2003a) about 56 percent of Guatemala’s population lives in poverty in 2000.

# **Box 1. Guatemala: Growth with Low Productivity and Poor Social Development**

Relatively few studies focus on Guatemala’s growth experience over a long time period. One of the most comprehensive assessments is a voluminous study by Gómez and Ordoñez (1991). They focus on structural adjustment issues for the early 1990s, but their conclusions are still of interest. In particular, they claim that productivity in Guatemala was low because of manifold structural problems, including a deficient financial intermediation system and ‘resistance’ to technological change. That is, Guatemala’s international competitiveness was traditionally based on a low-skilled labor force with consequently poor social development and little incentives for firms to increase productivity. In addition, a culture of rent-seeking among entrepreneurs as well as public institutional and financial weakness prevented significant change.

Guatemala’s recent growth experience can be divided into three broad episodes. Figure 1 visualizes annual GDP growth from 1951-2003, where selected _parallel_ historical events are given from Luján (2000).<sup>4</sup> Table 1 presents the average output growth rates of primary, industry and service sectors for the period 1951-2003. In addition, there are three sub-periods. The growth rates of the primary sectors in Guatemala, which employ the majority of the rural and poor people, lagged behind other sectors for the _entire_ time period. By contrast, in particular for the last decades, the growing sectors where those of electricity, communications and banking. Until approximately 1975, Guatemala appears to have had a reasonable growth performance, followed by a remarkable slowdown for the later periods. However, this requires closer examination.

_La ‘edad de oro’, 1951-1975._ During the first period Guatemala maintained reasonable growth rates. Ever since the 1954 coup, military governments were repeatedly in power, sometimes through fraudulent elections, sometimes by _coup d’états_ . In terms of its growth performance, this era is sometimes referred to as the ‘golden period’ but the denomination is _very_ misleading. This is because the structural imbalances of the economy remained unchanged and ultimately gave rise to the explosion of civil strife. Annual growth was highly volatile? a fact most likely

> 4 The correlations do not necessarily imply causality. Moreover, in many Latin American countries growth rates during the decades of the 1950s and 1960s were quite volatile as well.

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