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Guatemala had a traditional, subsistence economy before the Spanish conquest in the early 1500s, producing corn, beans, chocolate, cotton, and a wide variety of fruits and vegetables. To these indigenous products, the Spaniards added wheat, sugarcane, livestock, and European fruits and vegetables. Guatemala exported small quantities of cacao, sugar, cotton, and other crops early in the colonial period, but in the 18th century the Spanish government put greater emphasis on exports. Since then, Guatemala’s dependence on foreign markets has steadily increased.
In the 19th century, first cochineal dye derived from insects and then coffee became the principal Guatemalan export. Coffee revenues paid for early development of the country’s cities, roads, and other facilities, and the elite class of coffee planters became powerful in government and the military. In the early 20th century bananas became an important secondary export, and large foreign-owned banana companies contributed greatly to the development of the nation’s network of railroads, ports, and communications systems. In the late 20th century Guatemala significantly diversified its exports, with sugar, cardamom, cotton, livestock, and other products gaining importance.
Manufacturing developed in Guatemala after 1945, adding another dimension to the economy and permitting the rise of an industrial elite alongside the coffee planters. The growth of manufacturing was greatly aided by the establishment of the Central American Common Market (CACM). Recently, assembly plants (maquiladoras) for clothing and other export products have become important. The rapid growth of Guatemala’s population ensures that producing food crops remains a major economic challenge. However, profitable export crops have expanded into the best land, forcing Guatemala to import more food and thereby increasing the cost of living.
The Guatemalan economy grew at about 5.5 percent per year throughout the 1960s and 1970s, but civil disorder and world economic crises during the 1980s brought an economic downturn. Gross domestic product (GDP) growth in the period 2006 averaged 4.5 percent annually, reaching $35.3 billion in 2006. The per capita GDP in 2006 was $2,711.40, placing Guatemala behind Panama ($5,200.60), Costa Rica ($5,053.50), and El Salvador ($2,758.50) but well ahead of Honduras ($1,325.20) and Nicaragua ($958.10).
Until 1980 Guatemalan governments usually pursued conservative fiscal policies. But during the 1980s they were encouraged by international lenders to accept large loans, and Guatemala’s external debt grew dramatically, from $760 million in 1978 to $2.8 billion by 1990. Since then, austerity measures have slowed its growth. To pay interest on the debt, the government has imposed budget cutbacks, which most seriously affect the lower classes. Financing of the debt also kept interest rates high, impeding investment in the economy. In the 1990s, most economic indicators for Guatemala showed improving conditions, but benefits were not evenly distributed, and the standard of living for many continued to decline.
Forestry and Fishing
Guatemala’s large forests, estimated at 3.9 million hectares (9.7 million acres) in 2005, have been declining at an average rate of 1.1 percent annually, as trees are cut for firewood and construction timber. Some valuable stands of mahogany and cedar remain. In 2006 timber production reached 17.1 million cubic meters (603 cubic feet).
The commercial shrimp and fish industries grew during the 1990s, with the yearly catch increasing from 2,782 metric tons in 1985 to 16,756 metric tons in 2005. Domestic seafood consumption is small.
Mining accounted for only 0.6 percent of the GDP and employed 0.2 percent of the labor force in 2002. Copper mining was the largest operation, but small quantities of antimony, tungsten, and limestone were also extracted. Petroleum is the major mineral resource of Guatemala, but the amount produced does not nearly meet the country’s consumption needs. Production rose from 1.5 million barrels in 1990 to 8 million barrels in 2004. Petroleum consumption in 2003 was 24 million barrels. Most Guatemalan crude oil is used for asphalt and other derivatives.
In 2006 manufactures accounted for 13 percent of the GDP. Products are mainly exported to the countries of the Central American Common Market (CACM). The CACM provided the main stimulus for investment in manufacturing after 1960, and output grew rapidly in the 1970s, but slowed in the 1980s because of political instability. In the 1990s manufacturing recovered somewhat, although it grew at a slower rate than the GDP. Its contribution to GDP remained steady in the early 2000s. From the late 1980s, plants that assemble clothing and textiles, mostly for export to the United States, have become an important part of the manufacturing sector. Leading manufactures include processed food, cosmetics, pharmaceuticals, chemicals, glassware, paper, and furniture.
Guatemala’s use of electricity (488 kilowatt-hours per person in 2003) is one of the lowest rates in the Western Hemisphere. Although Guatemala’s rapid-flowing mountain streams provide potential for hydroelectric plants, in some areas as much as 85 percent of the residents lack electric power. Even in Guatemala City there are sometimes electrical shortages. The government is working to privatize electrical services, and private companies have begun to supplement electricity provided by the National Energy Institute (INDE). Wood and other traditional fuels supply 62 percent of the domestic energy used; most of the remainder comes from petroleum.
Currency and Banking
The Guatemalan currency is the quetzal (7.60 quetzals equal U.S.$1; 2006 average). It was established in 1926, with 1 quetzal equal to U.S.$1, where it remained until 1986. Then, because of inflationary pressures, the quetzal was devalued to 2.50 quetzals to the dollar, and it has continued to decline in value against the dollar. The Bank of Guatemala (established 1946) is the central bank and sole issuer of national currency. Both foreign and domestic private banks operate throughout the country, as does one owned by the army.
Tourism became Guatemala’s second most important source of foreign exchange earnings, behind coffee, in 1993. In 2006 the delightful climate, colorful indigenous communities, and ancient Maya ruins attracted 1,502,000 visitors, who spent an estimated $1,013 million. Civil disorder deterred expansion of tourism through the 1980s and early 1990s, but with a peace agreement signed in 1996, the tourist industry began to recover.
The ruins of Maya ceremonial centers such as Zaculeu, Tikal, Uaxactun, and Piedras Negras attract tourists and archaeologists from all over the world. Chichicastenango is a colorful market town in the highlands. Antigua Guatemala, the old capital, has a number of well-preserved colonial buildings and was designated a World Heritage Site by UNESCO in 1979.
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