However, his policies will face an uphill battle in the face of a fragmented Congress
On August 20, following a turbulent campaign, the center-left candidate Bernardo Arevalo won the runoff elections by an overwhelming margin, obtaining 61% of the votes, while his right-wing rival, Sandra Torres, only gained 39%. Arevalo’s victory demonstrates the high levels of dissatisfaction with the establishment among urban, indigenous, and youth groups. The government plan of his party, Movimiento Semilla (SEMILLA), defined 10 strategic goals called “seeds to recover the future,” with a central focus on the fight against corruption, social development, and citizen security. However, Arevalo’s political agenda, considered the most progressive in Guatemala’s history since the restoration of democracy in 1985, may be hampered by a fragmented Congress and the country’s track record of fiscal conservatism. The inauguration is scheduled for January 14, 2024.
Overview
Arevalo won the runoff after a surprising result in the first round in June, positioning himself as the only alternative to the right-wing political establishment that has governed the country for the last four decades. One of the main objectives of Arevalo’s government will be to guarantee a transparent, efficient, and accountable public administration through the creation of the National Anticorruption System and the reform of the Penal Code, which includes the “civil death” of individuals convicted of acts of corruption. Arevalo has also promised to improve public safety by recruiting 12,000 more officers for the police force and by building a prison for serious offenders to retain the most dangerous criminals. These measures are aimed at strengthening the rule of law to reduce Guatemala’s country risk.
At the same time, Arevalo’s economic agenda seeks to substantially increase the government’s social spending to expand educational coverage for half a million more students in public schools, create 400 health units, and expand public services in homes, such as support for housing construction, electricity, and water coverage. In addition, more than GTQ 27.1 billion (US$ 3.45 billion) will be allocated to infrastructure works to boost the economy. To this end, Arevalo’s plan calls for increasing tax collection through administrative improvements rather than tax hikes, as well as some increase in public debt. According to Fitch Ratings, this implies a projected increase in the central government fiscal deficit to 2.9% of GDP by 2025 from the current 2.1% trajectory.
However, Arevalo’s prospects for substantial change in Guatemala are not very clear. The legislative elections resulted in the formation of a divided Congress, made up of 17 parties. Vamos, led by outgoing President Alejandro Giammattei, is the largest party with 39 of 160 seats, followed by Unidad Nacional de la Esperanza (28 seats), and then by SEMILLA (23 seats). It is unlikely that Arevalo will have the congressional support necessary to push his entire agenda. Furthermore, the fiscal conservatism that has characterized Guatemala’s recent administrations, which made it the country with the lowest public debt in Latin America, threatens its social proposals.
Our View
Guatemala’s recent presidential election will not bring major changes in macroeconomic policy, anchored in a track record of fiscal conservatism and an independent central bank. Despite the magnitude of Arevalo’s victory in the second round, it is unlikely that he will have sufficient political capital to push his agenda in the face of a fragmented Congress in which his party only holds 14% of the seats. He might be able to build consensus to approve the citizen security measures, as they align more with the conservative ideology of the right-wing parties, but the social spending and anti-corruption proposals will be much more challenging.
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