Guatemala's Kafta-esque Year
By Umberto Mazzei
America's Program, Center for International Policy
Translated by: Tony Phillips
CAFTA went into effect a year ago in Guatemala and a number of regrettable things have happened since. To mention a few examples: 195 million Guatemalan Quetzals (equivalent to US$25 million) have been diverted from Ministry of Education funds to the civil aviation authority to extend an airport, which speaks volumes about the priority of transporting goods over educating children. Then there was the case of the vicious assassination of three El Salvadoran Congressmen and their driver by members of the Guatemalan police force, led by the chief of the Organized Crime Unit.
The political climate is deteriorating rapidly. It would be easy to go on about government scandals, but the focus of this article is international economics. One year after the implementation of CAFTA, the reality seems totally at odds with the prediction made by U.S. Ambassador, James Derham: "Guatemala will be seen as a more attractive nation for investors after July 1 ."
Where's the Investment?
Signing CAFTA did not bring about those foreign investments. PRONACOM, the Guatemalan Program for National Competition, reports, without detailing its sources, that Guatemala received US$839.5 million in foreign investment, creating 17,000 jobs.
Could it be that they are confusing new debt with investment? Their figures do not concur with those of the Bank of Guatemala, nor do they concur with figures from the private sector. They contradict the daily news reports of industries going bankrupt and unemployment.
One thing that has resulted from CAFTA is legal demands from foreign tribunals. Some of these are from foreigners who were in the country before CAFTA was even signed. CAFTA Article 10.16, 1b retroactively protects foreign investments made before it came into force, even when made in established national companies.
Consider the case of Railroad Development Corporation (RDC) against Guatemala in the name of "Ferrovarias de Guatemala" (FEGUA). In 1997 RDC was granted a 50-year concession with the provision that they restore railroads to operation. The company is now demanding US$65 million-US$15 million that it supposedly already invested and $50 million in future profits. It filed this claim having failed in over a decade to restore the railroad to full operation.
The basis of the claim is indirect expropriation. Guatemalan President Berger declared that the use of 12 of the old FEGUA locomotives was damaging the environment. President Berger made this demand the month that CAFTA was signed.
It is a strange coincidence that President Berger became concerned about the old locomotives just as CAFTA came into force, considering his lack of concern before CAFTA. The decision was a stroke of luck for the RDC, which was suffering financial losses. RDC operates on a small scale in the United States. It also operates in Argentina, Estonia, Peru, Malawi, and Mozambique. It has a history of such cases. In Estonia, RDC was forced to withdraw its complaint in a settlement.
Thanks to CAFTA-the Decade's First Deficit
On the first anniversary of CAFTA, the reality does not resemble what was promised by its promoters: AGEXPRONT, the American Chamber of Commerce, VESTEX, FEDEFARMA, Camagro, and CIG, to name the most vocal among them. Under CAFTA, Guatemala's fortunes have demonstrated an abrupt reversal, with its first trade deficit in a decade. This is exactly what was predicted by the groups who were not consulted at the time-the citizens' organizations that were shot at by police and blackballed by the press where newspapers gave them precious few column inches to voice their opinions.