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Guatemala, Economy

cochineal dye, maquiladoras, subsistence economy, Central American Common Market, CACM

Guatemala has had a strong traditional, subsistence economy since 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, sugar, 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 has steadily increased its dependence on foreign markets. 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 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. After 1945 manufacturing developed, 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. Guatemala’s rapidly growing population means that domestic food production remains a major part of the economy. But profitable export crops have expanded into the best land, forcing Guatemala to import more food, increasing the cost of living.

The Guatemalan economy grew at about 5.5 percent per year throughout the 1960s and 1970s, but civil disorders and world economic crises during the 1980s brought an economic downturn. Gross domestic product (GDP) growth in the period 1990-2000 averaged 4.1 percent annually, reaching $19 billion in 2000. The per capita GDP in 2000 was $1,670, placing Guatemala behind Panama ($3,460), Costa Rica ($4,160), and El Salvador ($2,110) but well ahead of Honduras ($920) and Nicaragua ($470).

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, but in 1994 the debt was $3 billion, equal to about one-fifth of the GDP. To pay interest on the debt, the government has imposed budget cutbacks, which most seriously affect the lower classes. 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.

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