Guatemala: Outsider candidate wins presidential elections, but an uphill political struggle and tense transition await

Event  

On 20 August, the second round of the presidential election took place. It was a run-off between two centre-left candidates: Bernardo Arévalo from the Seed Movement and Sandra Torres from the National Union of Hope. Arévalo – an outsider candidate who unexpectedly won a place in Guatemala’s presidential run-off – won the Guatemalan presidency by a landslide. 
He is supposed be sworn in on 14 January 2024. However, a tense transition and possible efforts to block Arévalo from taking office are likely. The opposition demands a review of the results while the Attorney General's office is pursuing a legal case to suspend Arevalo's political party. Moreover, if he takes office in January (which is the baseline scenario given international support of the election results by the USA and the EU), governing effectively is likely to be difficult.

Impact  

Arévalo ran his presidential campaign on fighting corruption, which is a sensitive topic in the Central American country. Guatemala’s ranking in Transparency International's Corruption Perceptions Index has been steadily deteriorating in the past decade: the country ranked 150th out of 180 in 2022, tied with countries such as Afghanistan, Cambodia and Lebanon. When Arévalo takes office, his fight against corruption is likely to increase the risk of revisions of contracts signed by the previous government and could place pressure on the expropriation risk depending on the chosen policies (category 4/7). Arévalo has also emphasised stronger environmental protection, a hot issue in Latin America. Stricter regulations and some delays to projects are therefore on the cards.

It remains to be seen how much of his campaign promises Arévalo will be able to meet. Despite his landslide win, Arévalo will face an uphill battle in governing. His party only has 23 of 160 seats in Congress. Hence, the president-elect will be forced to form alliances to pass legislation in a highly fragmented congress, likely watering down his campaign promises. Moreover, prosecutors could bar the members of his political party if they win the legal case. Forging alliances will prove to be even more difficult in this case. Furthermore, institutions could refuse to co-operate with Arévalo and stifle his agenda even further. There is therefore a risk that voters will be disappointed by his government's slow progress on tackling corruption, a key campaign promise, which will increase the risk of unrest and place pressure on the political violence risk in the medium to long term (category 3/7).

On the upside, Guatemala’s real GDP growth is forecasted at 3.2% this year and at 3.5% next year, while public debt stood below 30% of GDP end 2022, a relatively low level. The robust economic growth together with the fiscal room will support financing of increased social spending, another campaign promise of Arévalo.

In the current context, Guatemala’s political risk ratings remain stable. The country is classified in the second lowest risk category (2/7) for short-term political risk, given its relatively low short-term external debt to current account revenues and strong buffer of foreign exchange reserves (around six months of import cover in June 2023). The medium- long-term political risk is in category 4/7 due to the country’s elevated external debt to current account revenues and dependence on remittances from the USA. On the upside, continued investment due to nearshoring from the USA could stimulate the economy. However, accelerated climate change could hurt it, as the small economy is already prone to hurricanes and droughts. 

 Analyst: Jolyn Debuysscher – J.Debuysscher@credendo.com