Guatemala: Legal Market Overview
(Guatemala, July 2020)
Guatemala has the largest economy of Central America, excluding Panama, and its gross domestic product (GDP) represents one third of the region’s GDP. It has strong macroeconomic indicators with adequate reserves, a controlled public deficit and debt, controlled inflation, and a stable exchange rate. Guatemala’s economy is mostly dependent on agricultural exports, tourism, and remittances sent by immigrants working in the United States. Guatemala is the world’s first exporter of cardamom, the second exporter of bananas, the fifth exporter of sugar and the seventh exporter of coffee.
In 2015, Guatemala experienced a political crisis due to an investigation initiated by the International Commission against Impunity in Guatemala (CICIG) that led to the President and Vice-president being ousted from power. However, even during the turmoil, Guatemala’s economy and its institutions remained stable. Guatemala’s current President began its term in January 2020 and most of the government’s work has been focused on the COVID-19 pandemic and the measures implemented to control it. The country has been under “lockdown” since March 2020 and understandably there has been a decline in the economy.
The World Bank estimates that, in 2020, Guatemala’s economy will contract by 1.8% due to COVID-19, and that it will grow 4.4% in 2021. In April 2020, the Republic of Guatemala issued US$1.2 billion in sovereign dual-tranche bonds, comprised of:(i) US$700,000,000 aggregate principal amount of 6.125% Notes due 2050, through a reopening of the Republic of Guatemala’s original 2050 Notes issued in 2019, with proceeds to be used for general budgetary purposes; and, (ii) US$500,000,000 aggregate principal amount of 5.375% Notes due 2032, with proceeds to be used to finance or refinance, in whole or in part, eligible social investments that are, directly or indirectly, related to the Republic of Guatemala’s COVID-19 prevention, containment, and mitigation efforts. The government’s plan to reactivate the economy includes the prioritization of public infrastructure, especially through public-private partnerships. The Law for Public-Private Partnerships (the “P3 Law”) was approved in 2010, however no projects have been approved yet. The P3 Law requires that all projects awarded be approved by Congress. To date, only one project has reached this stage and Congress denied the approval. However, the agency in charge of the P3 projects has several projects in the pipeline that could be approved in the following months. Currently, projects such as the aerometer and a transport system for Guatemala City are being evaluated.
In the past years, Guatemala has made an effort to revamp and modernize the public sector and to facilitate business. In 2018, the Commercial Code was modified and now allows for shareholders’ and board of directors’ meetings to be held through electronic platforms. These reforms have been useful and have allowed companies to continue to operate and hold meetings, even with the restrictions imposed on gatherings due to the COVID-19 emergency. Also, the Mercantile Registry has an electronic platform that allows for the online submission of new companies. The process to register a new company has been shortened and most companies are newly registered within two weeks. The Mercantile Registry works together with the Superintendence of Tax Administration (SAT) and now when a company is registered with the Mercantile Registry it obtains its tax number at the same time. Also, the Ministry of Labour has recently implemented an electronic platform to register contracts and for the approval of internal work regulations.
Even though important changes have been made, there is still room for improvement. There are some areas that need to adapt more quickly, especially the Judicial Branch that has been stalled, handling only some criminal and constitutional matters since March 2020. The Judicial Branch has not been able to implement systems that allow employees to continue working from home and hearings have had to be cancelled. Hearings in criminal procedures have been delayed and are being rescheduled for 2024.
Sofía Escribá, Senior Associate