Ratings agencies signal confidence in Guatemala

A week into Guatemala’s political crisis, sparked by unrest over the 2021 budget, the OAS said it will send a special mission to analyze the problem, while ratings agencies are voicing tentative confidence the sovereign will resolve the situation.

Rolando Martínez, Fitch Ratings senior director for financial institutions, told BNamericas that the agency continues to monitor the situation. He added that Fitch’s placing of the sovereign and five local banks on negative watch involved Guatemala’s ability to pay debts, specifically coupons on external bonds amid growing fiscal pressures exacerbated by the pandemic. 

“There are risks in Guatemala present at this time that we are monitoring to see how they are resolved,” Martínez told BNamericas. “Obviously, then, they have the potential to become major risks that affect recovery, economic dynamics and credit.”

“However, I think it's too early to determine that. We have yet to see how they develop,” he said.

“One is the social problem unleashed by the budget proposal, but for the moment it has been withdrawn, and I imagine they are going to present something new,” said Martínez. 

The 2021 budget bill that passed last week came under criticism for failing to provide adequate emergency health spending, while giving the go-ahead on several infrastructure projects that are still in early works and would do little to immediately mitigate the pandemic’s health and economic impacts. 

The ensuing social unrest led to violent clashes, and the national assembly was set on fire last week. However, the violence appears to have been contained after the assembly’s decision Monday to hold off on sending the approved budget to the executive to become law.

S&P’s affirmation Thursday of its current review of the sovereign, upholding the outlook as “stable” confirms trust in the government’s ability to meet its obligations.

“We believe that the sovereign has the financial capacity and the will to pay its debt,” wrote S&P in a note, adding, “Guatemala's strong external position, moderate general government debt-to-GDP ratio, and sound monetary policy constitute relative strengths.” 

The agency also accounts for Guatemala’s “still developing public institutions of government and a challenging political environment that limits the effectiveness of policy making.”

Tensions remain high in the country with much attention now centered on the investigation of national law enforcement officers over alleged abuses in the use of force in last week’s demonstrations.

There are also major questions now over how and by when the budget will be reviewed, and it is hoped the effort to maintain a dialogue between the government and opposition will be aided by the OAS mission, requested by the Alejandro Giammattei administration and headed by former Argentine secretary of strategic affairs Fulvio Pompeo.

The mission, set to arrive Friday, is set to receive information from state institutions and other entities and learn about the inter-institutional dialogue implemented at the initiative of President Giammattei “to analyze issues of transparency and accountability … and analysis of the general budget of state income and expenditure,” according to an OAS statement.

Pictured: Assembly lawmakers announce the suspension of the 2021 budget as approved on Monday.