Home Politics As Guatemala’s Political Crisis Takes Form, Banks Are Set for Trouble

As Guatemala’s Political Crisis Takes Form, Banks Are Set for Trouble

by fffp12

Written By: Pedro Santiago – Forex Focus

When Guatemalan President Jimmy Morales was campaigning for the presidency in 2015—his first electoral campaign for public office—he ran on a single platform: “I’m not a thief; I’m not corrupt”. The simple and blunt platform was enough to propel the former comedian and television-network owner to the presidency as the country was embroiled in an enormous corruption scandal toppling much of the country’s political class. Morales’ straight-forward approach played well with a populist surge that was fed up with the country’s endemic corruption and chronic poverty.

Morales insisted that he would work diligently with the United Nations’ International Commission against Impunity in Guatemala (CICIG), a corruption probe struck in 2006 that investigated and prosecuted serious crimes in Central America’s largest economy. Headed by Colombian national Iván Velásquez Gómez during the election, the probe had been on a corruption tear—with numerous top-level politicians jailed on corruption charges.

How disheartening for Morales’ supporters when the corruption probe turned its gaze toward him and his successful presidential campaign’s suspect funding. The allegations suggest that Morales received $825,000 in illegal contributions for his 2015 presidential campaign. Velásquez and Guatemala’s attorney general, Thelma Aldana, moved to strip Morales’ presidential immunity from prosecution to further pursue the investigations. Morales’ immediate reaction to the corruption probe was to expel Velásquez from Guatemala that same week, to which the Guatemalan public responded with public street protests against the president. The country refused to renew Velásquez’s work visa until pressure was applied by American lawmakers. In an open letter to Secretary of State Rex Tillerson, US lawmakers pushed for sanctions against the country if the investigations were delayed any longer. Velásquez’s visa was granted the next day.

While Morales’ immunity was renewed by the Guatemalan Congress and he confidently remains in office, actions taken by Guatemalan lawmakers suggest this will be a short-lived reprieve. Recently, 70 lawmakers signed a bill to strip Morales of his immunity. While not the 105 votes required to pass the bill in the 158-member Congress, the bill is identical to one passed months prior that only received a fraction of the votes. Lawmakers will likely continue presenting the same bill until it passes and Morales is removed from office. Morales’ vice president, Jafeth Cabrera, would then take office before circulating a list of names to nominate a new vice president until the following election.

Analysts forecast that, if resolved in the short-term, this political crisis could prove beneficial for Guatemala. Upon Morales’ initial charges, Guatemala’s bonds due in 2022 jumped 9 points on the yield. The economy— largely characterized by exports of coffee, textiles and sugar to the United States—is bolstered by a low debt-to-GDP ratio and a tight fiscal deficit. However, the crisis is likely to drag on, and take the economy with it. Prolonged instability due to this political crisis could reduce investor confidence in the Central American economy. Moreover, endemic corruption, as seen in these investigations, further reduces the legitimacy and efficacy of the country’s already-fragile institutions.

If the Guatemalan government does not bring this crisis to a speedy conclusion, the country will likely suffer negative impacts as investors refrain from investing in the politically fraught country. High levels of political risk have been surgically striking Latin American economies—with an impeachment in Brazil and full-scale political revolt in Venezuela. The ouster of another president in the region could see forecasts drop not only for Guatemala, but for the region altogether. While much of the damage has already been inflicted on the Guatemalan economy, bringing this to a quick end will be less about progress and more about damage limitation.

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