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Development in spite of poverty, war and corruption: How Guatemala managed to overtake Ukraine

Author : Vyacheslav Cherkashyn

A poor country, more than half of the population of which is employed in the agricultural sector and about 60% live below the poverty line made it possible to ensure 45% higher income per capita in 2019
22:52, 21 August 2019

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Various cultures, various continents, different fates. But sometimes in a heap of diversity and in spite of everything we can find some amazing coincidences. Guatemala is a state in Central America with a difficult modern history.

For thirty-six years (from 1960 to 1996), a civil war raged in it (as for us, we have the fifth year of the occupation of Crimea and the conflict in the east).

A poor country, more than half of the able-bodied population is employed in the agricultural sector and about 60% are below the poverty line (the Ukrainian poverty level is not so mournful, but 27% does not honor us).

According to UNAIDS, more than 60 000 people in Guatemala live with HIV (AIDS) (Ukraine is increasingly called the country of "developed" sex tourism).

The level of the shadow economy is simply terrifying - 71% of the population was engaged in informal work in 2018 (we have a little better level - about 37-40%).

Many economically active citizens flee to work abroad (mainly to the USA), and the volume of remittances from American migrants ranges from 750 to 950 million dollars a month (about 4 million Ukrainians are involved in the labor migration, and remittances of migrant workers are an important component of the stability of national currency)

The rampant of corruption led to the Maidan "in Guatemalan style" in 2015: thousands of people came out to demand the resignation of President Otto Perez Molina amid a high-profile corruption scandal. A wave of re-election brought to the top of the power an actor - comedian Jimmy Morales.

Many then expressed fears about his abilities in leading the country: "after all, he is much better versed in comedy than in politics" (what a gorgeous analogy with the figure of the new president!).

There are differences. Firstly, a week ago, President Morales, who was accused of corruption and fraud, who also curtailed the reforms of the first years of his rule and survived three attempts to remove immunity from prosecution, lost power.

On August 11, the second round of the presidential election took place, the leader of the Forward party, Alejandro Jammattei, won 59% of the vote.

Secondly, despite the difference in the size of the economies (ours is 1.6 times more), Guatemala's economic and fiscal policies made it possible to ensure 45% higher income per capita in 2019 (4 670 versus our 3 220 dollars per year, - IMF data).

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Although in 2006 the average income of Guatemalans was lower than the incomes of Ukrainians by 3% (2 260 against 2 220 dollars a year).

The motto of the country of "many trees" is "Grow free and rich." And there, contrary to war, poverty and total corruption, they followed it. Guatemala is a country in which more than 30 years (since 1987; I recall that the war ended only in 1996), the annual economic growth did not fall below + 2.4% of GDP (with the exception of 2009).

The World Bank named the country's economic authorities a top performer in Latin America.

And now the realities of Ukraine. Half of the time of existence (14 years out of 28), our economy either falls or has zero value.

What is the reason for the differences in the economy with such a similarity of problems?

The most important area of ​​Guatemalan economic policy in the long term has been the implementation of neoliberal reforms and a policy of close cooperation with the United States.

A program was launched for the "large" privatization of the largest enterprises in the public sector, affecting energy, telephone and television, most of the transport infrastructure.

In Guatemala they have the lowest ratio of taxes to GDP in Latin America, the size of the government in GDP distribution is only 12.6% (for comparison: in Ukraine, the level of distribution of GDP through public finances is slightly less than 40%).

A significant role in stable economic growth is played by mass labor expansion to the USA (up to 1.5 million, or every tenth resident), providing a "stable and strong inflow of remittances from abroad." It makes up about 11% of GDP and it is forecasted that this percentage will grow to 13.8% by 2023 (for example: the population of Ukraine is three times as large, and transfers from abroad are almost the same for us).

The experience of this postcolonial state development gives Ukraine several key observations:

- even with a poor and corrupt government, a low level of trust in government institutions, it is entirely possible to achieve stable economic growth, if the degree of state intervention in the economy is significantly reduced;

- mass labor migration can (and should) be turned from a problem into a competitive advantage and an element of stability of the national currency;

- reform of institutions is easier to carry out with a strong external ally (some structures, such as the Prosecutor General's Office, have significantly improved the work effectiveness with the help of the USA; the US Congress allocated 2.1 billion dollars for some Guatemala initiatives in 2016–2018).

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