In our view, one of the most important elements of the program and to which attention should be paid, has to do with projections for public finances.
Given the relative similarity of economic conditions between 2010 and 2011, the most important is the role played by the Central Government in managing the growing fiscal deficit.
Although the BCCR estimate a slight deterioration in public finances, with a deficit from 5.3% in 2010 to 5.4% in 2011, it is difficult to see the consolidation of this scenario this year, in the absence of a conscious decrease in government spending.
If revenue increases through tax reform, its impact on revenue would begin to be relevant only by 2012. Added to this scenario is a level of economic activity similar to that of 2010, the result of such reform would be a moderate growth in revenue.
The primary deficit (current income minus current expenditure, excluding interest payments), which drives the government to incur into more debt each month, resulting in a process of acceleration of the deficit, is worsen by increased interest payments. The growth of the primary deficit, absent for almost 10 years, is the most important difference in the macroeconomic scenario and the main threat to economic stability and its adverse consequences on interest rates, exchange rates and inflation.
Leaving the issue of public finances aside, the BCCR's economic projections are more favorable for production, while inflation targets show a more flexible position.
The output growth (GDP) is estimated at 4.3%, above the 4% expected last year. The inflation target as low as 4% to 5%, equal to 2010.
It is expected that conditions of various productive sectors remain similar in 2011, and sectors that were strong, such as agriculture, trade, business services and transportation, continue to contribute significantly to economic growth.
Inflationary pressures are primarily of international character, affected by rising prices of food and raw materials, and may experience higher oil prices if the U.S. economy achieves greater dynamism.
Despite these potential price pressures, a target of 5% is realistic and could help the national economic growth.
Experts agree that 2012 will be a year of slight growth, low inflation and devaluation.
The 30 economists consulted by the weekly publication El Financiero, forecast a GDP growth of around 3.3%, mainly driven by construction and trade sectors through domestic consumption. Interest rates will remain at levels similar to 2011, while the exchange rate could vary between 3 and 6%, reaching between 520 and 540 colones to the dollar at the end of 2012.
Analysis of the Guatemalan economy, as a result of the first revision of the Stand-By arrangement between the IMF and Guatemala.
GDP growth has been slower than expected, and is projected to be below ½ percent in 2009. Inflation plummeted to -0.3 percent (y-o-y) at end-July, due to the decline in commodity prices and weak domestic demand.
Inflation deceleration and Risks to economic recovery.
The quarterly report from the Executive Secretary of the Central American Monetary Council (SECMCA) focuses on the region's inflation and recovery prospects.
Inflation, measured by year-on-year change in consumer prices, slowed in the second quarter of 2010 to 4.9%, compared to 2.9% in June 2009. This level is within the target limits set by the region's central banks.
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