Tearing Down the Walls: Growth and Inclusion in Guatemala

Despite being considered a Middle-Income Country (MIC), Guatemala’s social indicators reflect slow growth and a skewed income distribution

Wednesday, August 20, 2008


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Education attainment is extremely low (between four and five years on average) for a MIC and, despite advances in enrollment in primary education, the illiteracy rate remains close to one third. Health indicators are similarly poor: only two thirds of the population enjoys access to basic health care, the child malnutrition rate is high, and maternal and infant mortality rates are among the worst in Latin America. Not surprisingly, the poverty rate is unusually high for a MIC, since over half of the population lives below the poverty line.

Guatemala is the largest country in Central America in terms of population (almost 13 million). About 40% of the population is indigenous and live in rural areas. In addition, population is growing rapidly (around 2.5% per annum) and is relatively young (about half the population is under eighteen years of age). Also, Guatemala is the largest economy in Central America (over US$32 billion) with economic activity relying mainly on commerce, agriculture and manufacturing. GDP per capita currently stands at around US$2,500.

The Peace Agreement as a milestone
The civil strife ended in 1996 with the signing of a Peace Agreement. The long conflict deepened historical divisions, thwarted institutional development and weakened governance. The Peace Agreement sought to establish an agenda of public policies to develop the country and reduce inequality, emphasizing social policies targeted to those who were historically marginalized (indigenous and rural populations). The Peace Agreement did not provide a detailed roadmap on how to achieve the objectives After the agreement, the coordination among different groups of interests and the design of those policies proved to be very hard, and therefore little progress has been done so far in terms of reaching the agreement’s goals.

Economic performance: steady but slow
Despite the fact that real GDP growth averaged slightly more than 4% per year since 1950, per capita GDP growth averaged only 1.3%. As a result of slow growth, the country has been falling behind internationally, its share on the world GDP is today 21% below the share in 1980. The comparison is even less favorable when we look at high-growth emerging economies. For instance, Singapore’s GDP per capita is almost seven times Guatemala’s GDP per capita today, while at the end of the fifties they were similar. Costa Rica, the fastest growing country in the Central America region, grew by 54% between 1975 and 2000 (real GDP per capita), whereas in the same period Guatemala only did it by 20%.

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From a press release issued by the IMF:

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