Joker to President, Morales Has Scant Time to Fix Guatemala

  • Corruption tops agenda after former president jailed for graft
  • $59 billion economy is a gateway to U.S. for migrants, drugs

Jimmy Morales, a comedian who has never held elected office, was sworn in as Guatemala’s president on Thursday and vowed to fight corruption and bring stability to a country that saw its president, vice president and central bank chief jailed in graft cases last year.

Morales recognized a "crisis with public finances" and "deficient transparency mechanisms" during his inaugural address Thursday night. He called on Guatemalans to "maintain unity" and pledged to be "drastic and severe" with corrupt officials.

"We were awoken by the collective rejection of corruption, that sickness that decays us and continues to decay many sectors of our country," Morales said. "I promise to give the best of myself, to live a life of honor, sacrifice and hope. Guatemala has a new opportunity."

After campaigning on a slogan that he is “neither corrupt nor a thief,” Morales will oversee a nation with a $59 billion economy which serves as a key gateway for migrants and drug trafficking heading toward Mexico and the U.S. While he won 67 percent of the vote in an October run-off, his party holds just 11 seats in the 158-member legislature and analysts say he may struggle to capitalize on his popular mandate.

“The government is coming into office with a population that is completely disenchanted with the political elite, they are demanding change,” said Risa Grais-Targow, a Latin America analyst at the Eurasia Group. “He is going to have a pretty short honeymoon period and a narrow window in which he can show that he is serious about corruption and try to effect change.”

Chasing Investors

To raise investor confidence in a crime-plagued nation that exports everything from textiles to gold, the 46-year-old Morales said in November that he would “establish clear rules" for foreign investors “and those rules will be respected." He has floated a plan to change the country’s 1 percent metal mining royalty and pledged to lower interest rates for small and medium-sized businesses.

“It’s indispensable to recover the confidence of national and foreign investors,” Morales said Thursday. “Guatemala must be transparent with public expenditures, guarantee legal certainty and work together -- institutions, companies and citizens -- so investors get to know the hospitable, hard-working Guatemala."

Boosting the economy will also mean tackling a homicide rate that has long been among the highest in the Western Hemisphere, fueled by street gangs with ties to Mexican drug cartels. Yet the political turmoil and corruption charges against the previous government remain at the top of many Guatemalans minds. In a sign of how short his honeymoon will be, protesters whose months of demonstrations helped force the resignation of then-President Otto Perez Molina in September have said they’ll resume their rallies on inauguration day.

State Looting

"His top challenge is going to be establishing trust in state institutions," said Paulo de Leon, director of Central American Business Intelligence, a Guatemala City-based research group. "We’ve been living through a looting of the state for the last 15 years. Getting away from that would be recommendable."

Grais-Targow of the Eurasia Group said she’ll be watching to see who the new president appoints to key cabinet posts, including the Finance Ministry, a move expected in the hours following his inauguration. The country’s economy expanded 3.3 percent year-on-year in November.

“There’s always been this disconnect in Guatemala where this macro story is very solid, but then in terms of basic development indicators and the basic services the government has consistently fallen short because the tax burden and resources they have to work with are so low,” she said. “With the right government Guatemala has a lot of potential.”

Former Central Bank President Maria Antonieta del Cid said Morales’s government could opt to sell international bonds to finance a spending gap of 1.9 percent of gross domestic product. The country’s bonds have lost 3.1 percent the past 12 months, the second most among 15 Central American and Caribbean nations tracked by JPMorgan Chase & Co.’s CACI index.

‘Dangerous Headwinds’

However he finds the money, Morales will need all the help he can get. He takes office managing a 70.7 billion quetzal budget ($9.2 billion) that shows a falling tax take and calls for 12.5 billion quetzals in debt. The government will get a boost as part of a $750 million U.S.-aid package to help stem a flow of child migrants that surged to a record in 2014, prompting a flurry of political debate about the southern border in Washington.

“Guatemala is suffering from a number of very dangerous headwinds,” said Christopher Sabatini, a Latin American studies professor at Columbia University in New York. “One is electing a president that doesn’t have much of a honeymoon, he doesn’t have much of a team, doesn’t have much of a party in congress. That’s not much of a mandate for rooting out corruption.”

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