Guatemala’s recently passed fiscal reform, scheduled to take effect in 2013, raises taxes for upper-middle-class and wealthy earners.

Fiscal reform is an issue of particular importance in Guatemala, a nation with one of the world’s greatest gaps in income distribution. While Guatemala’s annual GDP is the highest in Central America, tax rates have consistently hovered around 10 percent, the lowest in the entire region. The international community has long encouraged fiscal reform as an obvious step toward reducing debt and inequality. In a visit to the country in 2010, U.S. Secretary of State Hillary Clinton expressed firm support for the measure.

As part of the 1996 Peace Accords ending Guatemala’s 36-year civil war, the government agreed to raise tax revenues as a percentage of GDP from 8 percent to 12 percent by the year 2000. The previous administration, under President Álvaro Colóm, made repeated efforts to pass a fiscal reform only to be blocked by resistance from congress and the private sector.

However, last month the fiscal reform package passed in expedited fashion as a matter of national urgency: with more than 105 of 158 representatives supporting it, Guatemala’s Congress was able to hold an immediate vote, bypassing a lengthy debate process. It passed in Congress with 102 votes, a near two-thirds majority.

The reform will allow Guatemalans earning less than 48,000 quetzales (US $6,200) yearly to pay nothing in taxes; currently all earning above 36,000 quetzales (US $4,645) are obliged to pay. Those earning over 300,000 quetzales (US $38,709) annually will pay 7 percent income tax, up from 5 percent. Middle-class earners making between 48,000 and 300,000Q will pay 5 percent.

With an emphatic, “I swear,” last weekend Otto Pérez Molina became the first former soldier to be democratically elected as president of Guatemala since the 1996 Peace Accords.

By his side was Roxana Baldetti, who was sworn in as the first woman to hold the title of vice-president in the country’s history.

The inauguration, attended by 98 international missions, including 12 heads of state and Spain’s Prince Felipe de Borbon, had an element of tension to it. When President Otto Pérez Molina promised to spend 55-60 percent of his government’s time on security, he could not have meant within the first 24 hours of his presidency.

Events around the country threatened to overshadow Pérez Molina’s big day.

The murder of congressman Valentin Leal Caal, in close proximity to the Congress building in Zone One of Guatemala City, occurred a day before the presidential handover.  Leal Caal was elected as a candidate for LIDER, headed by Manuel Baldizón, who lost to the retired general in the second round of the Guatemalan election in November.

The sixty-sixth session of the United Nations General Assembly’s (UNGA) general debate began this morning in New York. Secretary General Ban Ki-Moon opened the debate session followed by Nassir Abdulaziz Al-Nasser, president of the 66th UNGA and Qatar’s permanent representative to the UN.

This year, the first head of state to speak was Brazilian President Dilma Rousseff, followed by U.S. President Barack Obama. President Rousseff’s prominent speaking slot at the UNGA is not only significant for Brazil, but also for women: Rousseff was the first female president in the UN’s 66-year history to open the General Assembly—a fact she highlighted at the opening of her remarks.

Rouseff began her visit to New York at a special meeting on Monday regarding non-communicable diseases, which was chaired by the former president of Chile—and current executive director of UN Women—Michelle Bachelet. Rousseff also co-chaired a meeting yesterday with Obama on open government partnership.

Additional Latin American heads of state that will deliver their opening speeches today to the morning session of the UNGA include: Mexican President Felipe Calderón; Argentine President Cristina Fernández de Kirchner; and Colombian President Juan Manuel Santos. In today’s afternoon session, Honduran President Porfirio Lobo, Paraguayan President Fernando Lugo, Guatemalan President Álvaro Colom, and Bolivian President Evo Morales will deliver their remarks.

Access a webcast and agenda of the 66th UNGA General Debate.

On the day that the United States reflected over the 10-year anniversary of the September 11 terrorist attacks, Guatemala went to the polls to elect its next president. The contest pitted three leading candidates against each other: Otto Pérez Molina, a former army general, of Partido Patriota (Patriotic Party, or PP); Manuel Baldizón, business tycoon, of Libertad Democrática Renovada (Renewed Democratic Freedom, or LIDER); and academic Eduardo Suger, of Compromiso, Renovación y Orden (Commitment, Renewal and Order, or CREO).

Pérez Molina had a comfortable lead in the polls in the lead-up to the election; if he had earned more than half the vote he would have made history by being the first national candidate since the 1980s to avoid a runoff vote. But, having secured only 35 percent of votes from more than 7 million tallies, he won the first round but not by enough to avoid a second round. Meeting him in the runoff, scheduled for November 6, is Baldizón, who received 23 percent of votes. Suger finished a distant third with 16 percent.

"Several sectors of the dominant [Guatemalan] forces expected Otto Pérez Molina to win in the first round to save costs,” said Álvaro Velásquez, 42, professor of social sciences and political analyst at Facultad Latinoamericana de Ciencias Sociales in Guatemala City. “Now the people have spoken to contradict this. That's good news for the power of the vote.”

But Pérez Molina can still make history in November; given his extensive military background and Guatemala’s history under decades of military rule, he can be the first ex-soldier to be democratically elected in Guatemala. Baldizón, a successful businessman with alleged ties to narcotraffickers, hails from the northern region of Péten—a department that borders Mexico.

Three of Guatemala’s ten presidential candidates in separate campaign events yesterday promised to leave untouched many of the anti-poverty programs established by outgoing President Álvaro Colom. The programs, which have been overseen by Mr. Colom’s wife, Sandra Torres, are extremely popular among Guatemala’s poor and were the basis of Ms. Torres’ recently abandoned run for the presidency.

The top contender in Sunday’s first-round election, former-General and Partido Patriota candidate Otto Pérez Molina, vowed that his top priority in office will be to crack down on crime and gang-related violence “with an iron fist.” But Molina also proposed expanding programs that promote greater social inclusion and creating a new government ministry that will focus on social development. Líder party candidate Manuel Baldizón, currently second in polls, delivered a similar message to supporters in Guatemala’s northern city Santa Elena, saying he is the only candidate “truly committed” to the fight against poverty.

In polls released yesterday, Baldizón trailed Perez by a hefty 16 percentage-point margin. However Guatemala’s electoral system requires a runoff in the event that no candidate receives a majority of first-round votes—given a second-place finisher eight more weeks to catch up to Molina before second-round voting on November 6.

The Guatemalan Supreme Court this morning rejected an appeal by former First Lady Sandra Torres to allow her to run for president to in elections on September 11. The winner will take office from President Álvaro Colom, Torres’ husband until March 2011. Article 186 of Guatemala’s constitution bans relatives of any sitting president from running for office. After divorcing President Colom, Ms. Torres, had hoped their legal separation would exempt her from the provision.

As first lady, Ms. Torres maintained a high profile in overseeing numerous government-sponsored anti-poverty programs and has enjoyed widespread popularity. That reputation led many to believe she could win the presidency under the incumbent Unidad Nacional de la Esperanza (UNE) party. Numerous polls, however, have shown her trailing the leading conservative candidate and former army general Otto Pérez by a wide margin.

It is unclear whether Mr. Torres will continue the appeals process to the federal Constitutional Court—Guatemala’s highest court—or choose to bow out of the race. Analysts also say no clear successor to Mr. Colom is evident from within his own party.

The Guatemalan Supreme Electoral Court yesterday ruled against Sandra Torres, ex-wife of President Álvaro Colom, in her bid to compete in the country’s September 11 presidential election. The court’s decision was based on legal fraud stemming from Torres’ divorce from Colom on March 11.

The divorce was an effort to bypass a provision in the Guatemalan constitution that bars close relatives of a former president from taking power. Aimed at limiting autocratic rule, the clause dates back to Guatemala’s transition to democracy in the mid-1980s. According to Deputy Christian Boussinot of Torres’ Coalicion de la Unidad Nacional de la Esperanza y la Gran Alianza Nacional (National Unity of Hope—UNE), the party plans to appeal the decision.
 
Even before the Court’s decision, Torres was trailing behind her presidential rival, former army general and Partido Patriota (Patriot Party) candidate Otto Pérez Molina, by 27 percentage points in an exit poll of 230,000 voters conducted by Prensa Libre and released yesterday. Given the high levels of insecurity in Guatemala, Pérez Molina’s military background and anti-crime platform make him a popular candidate. If Torres had been allowed to run and won the election, she would have become Guatemala’s first female president.

The Guatemalan president has had a trying year. His country remains one of the murder capitals of Latin America, with an estimated 16 people killed every day. His national police are overstretched and often corrupt. And in May, he himself was (falsely) accused of murdering a prominent Guatemalan lawyer, in a crisis that came close to overturning his government.

Yet to hear President Álvaro Colom speak, you would think it had been smooth sailing all the way.

Colom, a gentle and reed-thin man in a sweater-vest, told reporters at the UN last week that “as president, I can express my satisfaction” with Guatemala’s fight against corruption in the government and the police force.

“I think we’re moving forward,” he added. “I wish it were faster, but I think it is moving forward.”

For decades, impunity has reined in Central America. Dictatorial rule, coups, murder, and genocide have, for the most part, gone unpunished. This month, however, events in Guatemala have suggested a potential turning of the tide. In the last three weeks, Guatemalan authorities have solved the potentially destabilizing Rosenberg case and arrested ex-President Alfonso Portillo for money laundering $70 million when he was in power. Meanwhile, in Honduras, the rule of law appears as in jeopardy as ever, as the Congress has rewarded de facto President Roberto Micheletti and pledged amnesty for all those involved in ousting President Manuel Zelaya. When it comes to the rule of law, Honduras lags as far behind as ever.

Since the Peace Accords brought Guatemala’s 36-year civil war to an end in 1996, Guatemalan activists and international observers have demanded justice for the state-sponsored genocide in the 1980s. For the most part, however—as in most of Latin America—justice has not come. Moreover, since the late 1990s, crime has spiraled out of control, perceptions of corruption are high, and the legal system has proved incapable of apprehending and prosecuting both common criminals and thieving politicians. Pervasive impunity partially explains the horrific practice of lynchings that plagues Guatemala. But the failing of the rule of law in the region also contributes to Guatemalans’ disenchantment with democracy (desencanto democrático).

Not only have Guatemalan voters lost faith in democratic government’s ability to bring economic development and alleviate massive poverty, but vast swaths of the citizenry have come to believe that the laws simply do not apply to the powerful. As the Latin American Public Opinion Project (LAPOP) has shown, perceptions of corruption and insecurity negatively affect democratic values in Guatemala. Compared with other Latin American countries, it is unsurprising that Guatemala ranks low in popular preference for democracy as a form of government.

The global economic decline has hit Central America hard. Unemployment has increased, remittances from emigrants have declined and governments face rising deficits and debt that jeopardize their ability to meet increased social demands. The story is similar in much of the world, but the situation is particularly precarious in these countries, because they are among the poorest nations in the Americas and have weak economic and social safety nets.

Governments in the region have responded to the economic decline by promoting fiscal adjustments to improve their balance sheets. El Salvador recently passed a gasoline tax and revised its value-added tax, and President Mauricio Funes hopes to pass tax increases on liquor, tobacco and luxury goods. In Honduras, de facto President Roberto Micheletti proposed sweeping reforms, before withdrawing the media-dubbed paquetazo due to pressure from Congress and president-elect Porfirio Lobo to put off major legislation until the new government assumes power. Meanwhile, Guatemala has witnessed the fiercest budget fight of all. Supporters of President Álvaro Colóm’s proposed reform have taken to the streets and threatened opposition legislators, but these efforts have failed to keep Colóm’s opponents from obstructing congressional proceedings. Thus far, Colóm appears to be losing the legislative battle.

Taxation is a contentious issue in every country in the world, but the topic is especially fraught in Guatemala. Guatemala has long had the lowest tax ratio—tax revenue as a percentage of gross domestic product—in Latin America, a region notorious for weak tax collection. The low tax ratio is part of a legacy of a racist, extractive Guatemalan state, predicated on making profits for economic elites through the cheap (for many decades, forced) labor of a predominantly indigenous majority. Since the state cared little about the needs of most Guatemalan citizens throughout most of the country’s history, social spending was minimal and taxes remained negligible.