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Guatemala peace accords could spark investment
Development Business / January 31, 1997

By Larry Luxner

ANTIGUA, Guatemala -- When German-born coffee exporter Klaus Monkëmüller landed in Guatemala City on Nov. 30, 1960, he couldn't have possibly known that on the same day, leftist guerrillas would launch their armed struggle against Guatemala's CIA-backed military government, setting off Latin America's longest-running civil war.

Now, after 36 years of bloodshed, peace has finally broken out in this troubled nation -- leaving Monkëmüller and millions of others to wonder what'll happen next.

The turning point came on Dec. 29, 1996, when President Alvaro Arzú and leaders of the Guatemalan National Revolutionary Unity (URNG) guerrilla group signed a peace treaty at a ceremony attended by over a dozen Latin American heads of state and thousands of observers from around the world.

The development not only ended a war that has killed up to 140,000 people since 1960, but opens the way for massive development aid and renewed investor confidence in Guatemala, whose 10.3 million inhabitants make it the biggest nation in Central America.

Yet many Guatemalans worry that the imminent peace will also put thousands of soldiers out of work, which is exactly what happened in neighboring El Salvador after that country's civil war came to an end in 1992.

"Most people are afraid that even though hostilities may stop, robberies and assaults by uncontrolled groups will go on," said Monkëmüller, general manager of Unicom S.A. in Guatemala City. "Coffee growers have faced extortion by the guerrillas and by uncontrolled bandit groups which sometimes involve military and police. The coffee sector has been hit hard by attacks and occupations. Even now, with refugees coming back from Mexico, there have been invasions of well-managed farms."

URNG rebel leader Rodrigo Asturias says Guatemala needs $100 million of international aid just to bring the guerrilla forces back into society and ensure lasting peace.

"Money is at the heart of the matter," Asturias recently told the Inter Press Service. "In El Salvador and Nicaragua it wasn't stressed enough, and there were problems."

According to the Dec. 29 agreement, the guerrillas will soon begin demobilizing the 3,000 fighters they have stationed in eight different bases. Under the eyes of international observers, the rebels will turn their arms over to UN delegates before either returning to their camps or going back to their homes.

Guatemala, whose economy is highly dependent on coffee, bananas, cardamom and other agricultural exports, last year reported a GDP of $13 billion and per-capita income of around $1,200. Its economy grew 3% in 1996, down from 5% growth in 1995 -- though many observers say the peace treaty could spark a real economic boom.

"For a country that had been undergoing tremendous violence, this is certainly a requriement to start promoting serious development," says Isaac Cohen, Washington director of ECLAC, the UN's Economic Commission for Latin America and the Caribbean.

"First of all, fewer resources will be dedicated to the war, and secondly, the country will become more attractive to foreign investment and tourism," Cohen told Development Business. "Those opportunities have been wasted because of the conflict."

Cohen, who left his native Guatemala 30 years ago, says the Arzú government must support non-traditional exporters by trying to keep markets open for them and by sustaining a realistic exchange rate for the quetzal, currently trading at 5.93 to the dollar.

There's no doubt the fighting has taken a huge toll on the Guatemalan economy. Nearly 450 villages were destroyed in the army's decades-long campaign to wipe out communities sympathetic to the guerrillas, according to The Washington Post. Under the peace accords, the Arzú government has agreed to implement new programs that could cost up to $2.7 billion over the next three years. With an annual budget of about $1.85 billion, the paper reports, the government will need $1.7 billion in aid from such institutions as the World Bank, the International Monetary Fund and the Inter-American Development Bank.

Yet Cohen warns that in the case of Guatemala, "the capacity to absorb foreign aid to execute development projects is not there, and that becomes a bottleneck to the possibi-lity of obtaining foreign assistance. For example, if you want money for electricity, you have to bring electricity rates [up] to a level that allows the financing of a project. It's not enough to promise money."

In November 1996, the IDB approved three loans totaling $84.8 million for Guatemala. Two loans totaling $50 million are designed to help rebuild the physical infrastructure in northern Huehuetenango department, where the conflict took a heavy toll. A third IDB loan of $34.8 million will help improve sanitation and environmental management in the Guatemala City metropolitan area. Previous IDB loans to support the peace process include $42.3 million approved last July for small-scale social investment projects in low-income communities, and $150 million approved in 1995 to build, rehabilitate and maintain roads in areas cut off by guerrilla fighting.

"Once they sign the peace treaty, we'll see lots of economic help, but it won't last long -- maybe one or two years," said Ricardo Santacruz. "What the country has to do is make intelligent investments so later on, it can live off its own resources."

Santacruz is a top official at Gexpront, Guatemala's association of non-traditional exporters. That organization -- which receives funding from the U.S. Agency for International Development -- aims to steer Guatemala away from its traditional dependence on coffee, bananas and cattle, and towards high-value exports such as garments, electronic components, pineapples, baby vegetables and raspberries.

Yet non-traditional exports have their own problems. In late 1992, Guatemalan snow peas were blocked from entering the U.S. market when it was discovered that pesticides not approved by the FDA were being sprayed on the crop. Exports resumed, but shipments are now being scrutinized at the port of entry for FDA violations. Likewise, Guatemalan raspberries were suspected as the source of a recent outbreak of cyclospora in 21 U.S. states, the District of Columbia and the Canadian province of Ontario.

Even if non-traditional exports continue their rapid growth, coffee will still be the mainstay of Guatemala's economy for a long time to come. At the moment, coffee represents 27% of the country's foreign-exchange earnings, and 39% of total export revenues from agricultural products. In terms of gross domestic product, coffee brings in 7% of GDP, rising to 10% of GDP in boom years.

"It seems like things are going to get worse before they get better, in terms of integrating the guerrillas back into society without becoming outcasts," says Chuck Jones, whose company, Doña Mireya Inc., employs 1,200 workers at a coffee plantation in San Marcos, a six-hour drive west of Guatemala City near the Mexican border. "It's happened before, where the rebels lose their cause and they need to find a place for themselves."

Adds José Angel López, a native of Huehuetenango and a director of Guatemala's National Coffee Association: "During the years of conflict, coffee activities were affected not only from the point of view of damages to the coffee infrastructure, but also the loss of human life. We're talking about big farms and small farms, workers and exporters. I think this peace treaty is an opportunity to improve our levels of productivity. We can't do that in an atmosphere of violence and fear."

Despite the stumbling blocks, few doubt Guatemala's ability to attract investment once peace prevails. The question is how long the aid will last, and whether the presence of thousands of unemployed soldiers and guerrillas will turn out to be more destabilizing than the war itself.

"After the euphoria passes, jobs will have to be generated," says Santacruz of Gexpront. "I'm sure the agribusiness sector can contribute to the creation of jobs, but we can't solve everything. What this government must do is invest in infrastructure. If there are roads, telephones and electricity, investment opportunities will come."

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