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Poverty and Potential in Central America

Jaime Daremblum

It is election season in Central America. On September 11, while the United States was marking a somber anniversary, Guatemalans were heading to the polls to pick their next president. No candidate received a majority, so there will be a two-way runoff vote on November 6.

The favorite to emerge victorious is conservative Otto Pérez Molina, a retired general and former military intelligence chief, who led all candidates with 36 percent support in the first round. The same day that Guatemalans choose between Pérez Molina and centrist businessman Manuel Baldizón, Nicaraguans will decide whether Sandinista leader Daniel Ortega gets another five years in the presidential palace. Most expect that Ortega will cruise to reelection, though Nicaraguan politics is wildly unpredictable, and we should not rule out a late surprise.

The outcome in Guatemala will determine how a beleaguered and polarized citizenry responds to an escalating security crisis. The outcome in Nicaragua may lead to a further erosion of constitutional democracy. In each case, the presidential winner on November 6 will be charged with governing one of the poorest countries in the Western Hemisphere. Yet despite their deeply entrenched poverty, both Guatemala and Nicaragua have enormous untapped potential. With better political leadership and better public institutions, they could be much richer.

For starters, the two countries boast an abundance of tourist attractions, including volcanoes, mountains, rain forests, and beaches. Guatemala also has magnificent Mayan ruins (most notably, the ruins of Tikal), and Nicaragua is home to famous Spanish colonial cities such as Granada and León. Guatemala is a major sugar and banana exporter; Nicaragua is a major beef exporter; and both are major coffee exporters. Since 2006, Guatemala and Nicaragua have enjoyed preferential access to U.S. markets under the Central American Free Trade Agreement. Each country has a young, fast-growing population, and each could become a very appealing destination for foreign investment.

Indeed, the United Nations Conference on Trade and Development believes: 1

Guatemala has the potential to become the main hub for FDI in Central America, given its macroeconomic stability, the size of its internal market, a geographical location facilitating trade and competitive labour costs.

Meanwhile, foreign investment in Nicaragua has increased by 77 percent over the past five years, according to the Miami Herald.2 Foreign investors see plenty of opportunities, reports3 The Economist. Levis jeans and parts for BMW cars are among the things already made there, tempted by Nicaraguas low costs.

Unfortunately, both countries face serious hurdles to greater economic development and faster poverty reduction. Guatemala has witnessed a surge of violent crime, thanks to deadly youth gangs and Mexican drug cartels (particularly the organization known as Los Zetas). Its homicide rate is more than twice as high as Mexicos, and the cartels are effectively controlling substantial chunks of Guatemalan territory.

According to a 2010 study4 by security analyst Hal Brands, the influence of nonstate criminal actors rivals or exceeds that of the government in up to 40 percent of the country. Things got so bad late last year that President Álvaro Colom declared a state of siege in the northern province of Alta Verapaz, which borders Mexico. He made the same declaration for Petén (another northern border province) this past May, following a massacre by Los Zetas. In the first seven months of 2011, notes5 the U.S. State Department, approximately 42 murders a week were reported in Guatemala City alone.

Pérez Molina says he will crush organized crime with an iron fist, and his blunt, no-nonsense message has struck a chord with Guatemalans weary of all the violence. Critics allege that he committed human-rights abuses during the long Guatemalan civil war (which began in 1960 and did not end until 1996). Thus far, however, no hard evidence has emerged to implicate the ex-general, who considers his past military service a valuable asset to his political career. I regard it as an advantage that the 30 years I was in the Army gave me the opportunity to know the whole country, to live inside, to be close to the problem, Pérez Molina recently told6 the Christian Science Monitor. The training, discipline, order are important attributes when youre in government and need to make decisions.

Of course, the only sustainable long-term solution to violent crime in Guatemala is stronger, more responsible public institutions especially improved police forces and a better judicial system. In the World Economic Forums latest Global Competitiveness Index7 (GCI), Guatemala ranks 132nd out of 142 countries and economies for the quality of its public institutions. It ranks dead last for overall security, 129th for the business costs of terrorism, and 138th for the reliability of police services. According to Guatemalan executives, crime is easily the most problematic factor for doing business in their country, followed by corruption and inefficient government bureaucracy.

Compared with Guatemala, Nicaragua has relatively low crime rates. But it suffers from rampant corruption, and President Ortega is attempting to resurrect a Sandinista dictatorship. Indeed, he has made a mockery of the rule of law: In 2008 the Sandinistas stole municipal elections, and in 2009 they used authoritarian tactics to override term limits and allow Ortega to launch an unconstitutional reelection campaign. (The Nicaraguan constitution explicitly forbids presidents from seeking reelection.) In the 201112 GCI, Nicaragua places 130th for the quality of its public institutions (barely ahead of Guatemala). Transparency International has ranked it8 as one of the most corrupt countries in Latin America.

It is a nation where anti-Ortega journalists face increasing harassment. Consider the story of Silvia González, a writer for the newspaper El Nuevo Diario. After reporting on the strange death of former Contra fighter José Gabriel Garmendia whose quixotic armed rebellion against the Ortega government came to an end last February, when he was shot dead by Nicaraguan security forces and also on Sandinista corruption, González began receiving menacing phone calls from thuggish supporters of the ruling party. Terrified by their threats, she recently fled to Miami. I am afraid that they will kill me, she told9 the Associated Press. That is why I left.

Ortega is clearly not a true democrat, nor is he a true friend of capitalism. Yet he has adopted pragmatic economic policies in order to appease the Nicaraguan business community10. The Sandinista leader has also benefited from massive Venezuelan investment and oil subsidies, thanks to his ideological comrade Hugo Chávez.

But Chávez has cancer, and Venezuela politics is highly unstable. After traveling to Managua this past March, Miami Herald columnist Andres Oppenheimer summed up11 the general consensus among the Nicaraguans with whom he spoke: If Chávez fell, or Venezuela stopped sending subsidized oil, or the IMF stopped making emergency loans, or commodity prices fell, Ortegas government would collapse. Oppenheimer pointed to a hard truth about the countrys future: Sooner or later, Nicaragua will have to make a national agreement to respect the rule of law, or it will never emerge from poverty and despair.

Such an agreement would greatly boost Nicaraguas long-term economic prospects. Likewise, better legal institutions would help Guatemala reduce gang and drug violence, which has taken a significant toll on GDP growth. But these changes will only come about if the two countries elected far-sighted political leaders committed to real democracy. Voters should remember that when they head to the polls on November 6.

Read this article in Spanish here.12

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