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 How Do We Measure Economic Freedom? See page 447 for an explanation of the methodology

or visit the Index Web site at heritage.org/index. 2009 data unless otherwise noted.Data compiled as of September 2010.

GuatemalaCity

GUATEMALA

 World Rank: 79 Regional Rank: 17

Guatemala’s economic freedom score is 61.9, making itseconomy the 79th freest in the 2011 Index. Its score has

increased by 0.9 point, reflecting gains in five of the 10 eco-nomic freedoms. Guatemala is ranked 17th out of 29 coun-tries in the South and Central America/Caribbean region,and its overall score is above the world average.

Guatemala has achieved steady economic growth over thepast five years, and economic freedom has continued toadvance. The economy performs relatively well in tradefreedom and fiscal freedom. With tariff barriers dropping,Guatemala’s trade freedom has improved. Personal and cor-porate tax rates are moderate, and the overall tax burden isrelatively low. Effective management of government expen-ditures was maintained during the recent global financialcrisis.

Ongoing challenges to overall economic freedom in Gua-

temala include a relative lack of business freedom, weakrespect for property rights, and widespread corruption.Business licensing procedures are burdensome, and bureau-cratic impediments persist. Judicial inefficiency underminesthe rule of law.

Bckgrd:Leftist President Alvaro Colom was elect-ed in 2007, promising social democracy, accelerated ruraldevelopment, improved education, and access to healthcare, but the problems of crime, rising youth gang mem- bership, judicial weakness, weak law enforcement, drug

trafficking and corruption have not improved during histenure. Guatemala participates in Petrocaribe, Venezuela’slong-term oil loans and subsidies program, but also valuesits strong ties with Mexico and the U.S. About 80 percent ofGuatemalans live below the poverty line, less than half ofall age-appropriate youth are enrolled in secondary schools,and nearly half of the labor force works in agriculture. Themost advanced sector, telecommunications, is fully deregu-lated. The Central America–Dominican Republic–UnitedStates Free Trade Agreement has boosted trade flows and

employment. Leading exports include coffee, sugar, banan-as, winter vegetables, cut flowers, and textiles.

Quick FactsPopulation: 14.0 million

gdP(PPP): $67.8 billion

0.6% growth in 2009

3.9% 5-year compound annual growth

$4,840 per capita

nemployment: 1.8% (2005)

Inflation(cPI): 1.9%

FdIInflow: $566 million

Economic Freedom Score

Country’s Score Over Time

Country Comparisons

Least Most free free

50

25 75

0 100

61.9

1995 ’97 ’99 ’01 ’03 ’05 ’07 ’09 2011

40

50

60

70

80

0

20

40

60

80

100

61.9

Country

59.7

Worldaverage

60.2

Regionalaverage

84.1

Freeeconomies

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202   2011 Index of Economic Freedom

 

GUATEMALA ( continued  )

THE TEN EcNMic FrEEdMs

Business Freedom No. 138

Trade Freedom No. 51

Fiscal Freedom No. 80

Government Spending No. 3

Monetary Freedom No. 75

Investment Freedom No. 62

Financial Freedom No. 70

Property Rights No. 94

Freedom from Corruption No. 84

Labor Freedom No. 120

coUNTry’s WorLd rANkiNGsBUsiNEss FrEEdM: 52.1  – 0.4

Guatemala has continued to improve its regulatory frame-

work, but progress has been uneven. Bureaucratic hurdles

remain common, including the lengthy processes for

launching a business and obtaining necessary permits.

TrAdE FrEEdM: 84.6 + 0.6

Guatemala’s weighted average tariff rate was 2.7 percent

in 2009. Import licensing, non-transparent sanitary and

phytosanitary regulations, services market access restric-

tions, inconsistent customs valuation and administration,

 bureaucratic delays, and inadequate infrastructure add to

the cost of trade. Ten points were deducted from Guatema-

la’s trade freedom score to account for non-tariff barriers.

FiscAL FrEEdM:  79.5 + 0.2

Guatemala’s tax rates are moderately high. The top incomeand corporate tax rates are 31 percent. Other taxes include

a value-added tax (VAT) and a tax on real estate. In the

most recent year, overall tax revenue as a percentage of

GDP fell to 11.3 percent.

GVErNMENT sPENdiNG: 94.4 + 0.5

In the most recent year, total government expenditures,

including consumption and transfer payments, held

steady at 13.7 percent of GDP. Supportive fiscal stimulus

peaked at 0.3 percent of GDP in 2009, but authorities have

 begun to wind down some spending measures. The fiscal

deficit reached 1.6 percent of GDP, and public debt hoversaround 20 percent of GDP. State ownership of enterprises,

though not extensive, persists in telecommunications and

port control.

MNETAry FrEEdM:  76.4 + 6.2

Inflation has been moderating, averaging 4.6 percent

 between 2007 and 2009. The government maintains few

price controls but subsidizes numerous economic activities

and products, such as fuel and housing construction. Ten

points were deducted from Guatemala’s monetary freedom

score to account for measures that distort domestic prices.

iNVEsTMENT FrEEdM: 60 no changeForeign investors technically receive national treatment,

 but a variety of regulatory hurdles can serve as a barrier

to investment. Some professional services may be supplied

only by those with locally recognized academic credentials,

and mining activities face additional restrictions as minerals

and petroleum are the property of the state. Complex and

non-transparent laws and regulations, inconsistent judicial

decisions, burdensome bureaucracy, and corruption contin-

ue to deter investment. Residents and non-residents may

hold foreign exchange accounts. There are no restrictions orcontrols on payments, transactions, and transfers. Foreign

investors may not own land immediately adjacent to riv-

ers, oceans, or international borders. The government must

provide compensation if it expropriates private property.

FiNANciAL FrEEdM: 50 no changeGuatemala’s small financial system is dominated by bank-

centered financial conglomerates. The banking sector has

undergone reorganization and is well capitalized, and the

number of non-performing loans is relatively low. The

five largest banks account for almost 80 percent of total

assets. A number of non-bank financial institutions carry

out investment banking and medium-term and long-term

lending. Foreign banks’ presence is small, and their mar-

ket share accounts for about 8 percent of deposits. Bank

supervision and transparency have been strengthened

under a legal and regulatory framework adopted in 2002

and legislation passed in 2005 and 2006, which also makes

government intervention easier. Capital markets are weak

and not fully developed. Two commercial exchanges deal

almost exclusively in commercial paper and govern-

ment bonds. The 2008 Stock Market Law was intended

to improve mechanisms to make information concerning

issuing institutions more readily available. Amendments

to the Banking Law were submitted to Congress in June2009 but have not been implemented yet.

PrPErTy riGHTs: 35 no change Judicial resolution of disputes is time-consuming and often

unreliable. Civil cases can take as long as a decade. Judicial

corruption is not uncommon. Inadequately documented

titles and gaps in the public record can lead to conflicting

claims of land ownership. Land invasions by squatters are

increasingly common in rural areas, and evicting squat-

ters can be difficult. Successful prosecution of intellectual

property rights cases is rare. Guatemala is ranked 88th out

of 125 countries in the 2010 International Property Rights

Index.

FrEEdM FrM crrUPTiN: 34 + 3.0

Corruption is perceived as widespread. Guatemala ranks

84th out of 179 countries in Transparency International’s

Corruption Perceptions Index for 2009. Bribery is illegal,

 but corruption remains a serious problem that companies

may encounter at many levels. Guatemala has ratified the

U.N. Convention Against Corruption.

LABr FrEEdM: 53.4 – 0.9

Labor regulations are rigid. The non-salary cost of employ-

ing a worker is moderate, but dismissing an employee

is relatively costly. A large portion of the workforce is

employed in the informal sector.