VZCZCXYZ0000
RR RUEHWEB

DE RUEHGT #0158/01 0501618
ZNR UUUUU ZZH
R 191618Z FEB 09
FM AMEMBASSY GUATEMALA
TO RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/SECSTATE WASHDC 6978
INFO RUEHC/CENTRAL AMERICAN BASIN COLLECTIVE

UNCLAS GUATEMALA 000158 
 
SENSITIVE 
SIPDIS 
 
DEPT PLS PASS TO USAID LAC/CAM - SEIFERT 
DEPT PLS PASS TO TREASURY - SARA SENICH 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL GT
SUBJECT: IMF'S DARK FORECAST FOR GUATEMALAN ECONOMY 
 
¶1.  (SBU) Summary:  During a February 11 meeting with 
Econoff,  Alfred Schipke, the local IMF Representative, noted 
the Guatemalan economy will likely experience a sharper 
downturn than currently forecast.  Supporting his analysis 
was a noticeable decrease in remittances, sharply slowing 
growth in tourism and exports and additional anecdotal 
evidence.  End Summary. 
 
¶2.  (SBU) Schipke, who has regional responsibilities for the 
IMF and close working relationships with Guatemala's economic 
team, is a valuable resource due to his deep understanding of 
the regional economy and his willingness to give his 
unvarnished opinion.  During a February 11 meeting with 
EconOff, Schipke explained that the Guatemalan economy 
generaly tracks closely with the U.S. economy except fora 
two to three quarter lag from when a downturn hts the U.S. 
to when it hits Guatemala.  He said the second and third 
quarters of this year are likely to be the toughest, and 
Guatemala's recovery is likely to be prolonged, as it will be 
elsewhere in the world.  Schipke said that talk of Guatemala 
being "well positioned" to weather the storm is policymakers 
and businessmen not wanting to face reality.  Schipke said 
that Guatemala is just as dependent on the U.S. as in 
previous downturns.  He explained that remittances are now 
more important than ever (over 12 percent of GDP) and the 
diversification of exports away from the U.S. will not help 
because most of the diversification is with other countries 
in Central America, all of which are also dependent on the 
U.S.  He concluded that talk of internal Central American 
trade being a motor for continued economic growth is 
"nonsense". 
 
¶3.  (SBU) Schipke believes some of the positive economic news 
that came out late last year were "one-off events" and should 
not be interpreted as Guatemala somehow being immune from the 
global economic situation.  For example, Schipke said that 
the textile industry experienced a slight increase in the 
fourth quarter of 2008 (despite an overall down year).  He 
explained that this was not due to increased sales or 
competitiveness, but rather due to importers wanting to 
purchase inventory with the shortest possible lag time due to 
uncertainty in the U.S.  Since Guatemala can deliver products 
in only two months versus the six months it takes for Chinese 
suppliers, there was some shifting to Guatemalan textile 
producers.  Schipke expects this to disappear as demand 
continues to crumble in the U.S. 
 
¶4.  (SBU) According to Schipke, GOG spending plans could be 
threatened should collections fall short of expectations. 
The current budget assumes 4.5 percent GDP growth for 2009 
and commensurate increases in tax revenues -- a likely 
scenario.  He explained that internally, the Finance Ministry 
is recalculating based on 3.5 percent growth to see how 
spending would need to be adjusted.  Likely further downward 
revisions in growth estimates will inevitably impact spending 
and possibly the budget deficit, currently projected at 2 
percent of GDP.  He said that in practice, revenue 
assumptions utilized for the budget purposely underestimate 
actual collections by about 5 or 10 percent.  He concluded 
that this is a strategy used by the executive to have more 
spending flexibility for the collections over and above 
budgeted amounts.  This year collection underestimates should 
cushion a possible budget shortfall if expected growth does 
not occur. 
 
IMF Activities 
-------------- 
 
¶5.  (SBU) Schipke is in discussions with the government about 
increasing Guatemala's IMF borrowing quota by 300% (to $900 
million).  He said that although the extra funds are not 
needed at the moment, if exports and remittances deteriorate 
over the course of the year, placing pressure on the exchange 
rate, it would give the Central Bank an extra cushion to 
resist possible speculative attacks on the Quetzal should 
traders perceive a vulnerability.  (Note:  In a recent 
meeting with the Ambassador, Finance Minister Fuentes said he 
thought Guatemalan external accounts were solid and the 
reserve picture was improving due to a rapid decline in 
imports.  End note.) 
 
¶6.  (SBU) Schipke said that the IMF wants to open a technical 
assistance regional office in Guatemala to coordinate 
regional financial sector development activities.  Schipke 
has already garnered financial support from a number of 
European countries and would like U.S. support.  Schipke 
believes that it would be good for the U.S., since even with 
token support, the U.S. would have a seat on the steering 
committee and access to all the information generated by the 
office. 
 
¶7.  (SBU) Comment:  Schipke's remarks track with substantial 
anecdotal evidence embassy officers have heard of large 
businesses experience ten and twenty percent sales declines, 
with sales deterioration accelerating in the second half of 
the year.  In 2009, remittances, tourism and exports, the 
major drivers of the Guatemalan economy, are either declining 
or experiencing substantially slowing growth.  It seems clear 
that growth for 2009 will be substantially below current 
estimates of 3 to 3.5 percent and lower tax collections will 
likely put significant pressure on spending programs 
including the government's plans to spend more on the 
security and police sectors while increasing social spending. 
 End Comment. 
McFarland