Economy

Guatemala is the largest and most populous country in Central America. The agricultural sector accounts for about one-quarter of GDP, two-fifths of exports, and half of the labour force. Coffee, sugar, textiles, fresh vegetables and bananas are the country's main exports. Also economically important are remittances from Guatemalans working abroad. The rate of inflation was 5.7% in 2006.

Guatemala's GDP for 2006 was estimated $35.25 billion, with real growth at approximately 4.6%. After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth over the next several years.

Guatemala's economy is dominated by the private sector, which generates about 85% of GDP. Agriculture contributes 22% of GDP and accounts for 75% of exports. Most manufacturing is light assembly and food processing, geared to the domestic, US, and Central American markets. Over the past several years, tourism and exports of textiles, apparel and non-traditional agricultural products such as winter vegetables, fruit, and cut flowers have boomed, while more traditional exports such as sugar, bananas, and coffee continue to represent a large share of the export market.

The United States is the country's largest trading partner, providing 38% of Guatemala's imports and receiving 50% of its exports. The government sector is small and shrinking, with its business activities limited to public utilities - some of which have been privatised - ports and airports and several development-oriented financial institutions. Guatemala was certified to receive export trade benefits under the United States' Caribbean Basin Trade and Partnership Act (CBTPA) in October 2000, and enjoys access to US Generalized System of Preferences (GSP) benefits. Due to concerns over serious worker rights protection issues, however, Guatemala's benefits under both the CBTPA and GSP are currently under review.

Current economic priorities include:

• Liberalising the trade regime;
• Financial services sector reform;
• Overhauling Guatemala's public finances;
• Simplifying the tax structure, enhancing tax compliance, and broadening the tax base.
• Improving the investment climate through procedural and regulatory simplification and adopting a goal of concluding treaties to protect investment and intellectual property rights.

Import tariffs have been lowered in conjunction with Guatemala's Central American neighbours so that most fall between 0% and 15%, with further reductions planned. Responding to Guatemala's changed political and economic policy environment, the international community has mobilized substantial resources to support the country's economic and social development objectives. The United States, along with other donor countries (especially France, Italy, Spain, Germany, Japan, and the international financial institutions) have increased development project financing. Donors' response to the need for international financial support funds for implementation of the Peace Accords is, however, contingent upon Guatemalan government reforms and counterpart financing.

Problems hindering economic growth include high crime rates, illiteracy and low levels of education, and an inadequate and underdeveloped capital market. They also include lack of infrastructure, particularly in the transportation, telecommunications and electricity sectors, although the state telephone company and electricity distribution were privatised in 1998. The distribution of income and wealth remains highly skewed. The wealthiest 10% of the population receives almost one-half of all income; the top 20% receives two-thirds of all income. As a result, approximately 80% of the population lives in poverty, and two-thirds of that number live in extreme poverty. Guatemala's social indicators, such as infant mortality and illiteracy, are among the worst in the hemisphere.

In 2005 Guatemala ratified its signature to the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) between the United States of America and several other Central American countries.