Guatemala Crisis Deepens Over Bid to Expel Anti-Graft Chief

(Bloomberg) -- Guatemala’s second political crisis in two years is deepening after the courts blocked President Jimmy Morales’s attempt to expel a UN-backed, anti-corruption chief. Senior cabinet ministers resigned amid street protests and an international backlash.

Marchers took to the streets for a third day Monday after Morales ordered the expulsion of Ivan Velasquez, just days after he said he was investigating the president for illegal campaign financing. The nation’s Constitutional Court overturned the presidential order on Sunday.

The ministers of health and labor and the deputy director of the country’s foreign investment promotion office all presented resignation letters on Sunday, while protesters gathered in front of the National Palace banging drums and carrying signs reading “resign now.” Morales has also fired his foreign minister, who had threatened to step down if the president moved against Velasquez. It is Guatemala’s second political crisis since 2015, when former President Otto Perez Molina was forced to leave office on corruption allegations.

"With so many government ministers resigning he is going to find himself so isolated that he is going to end up like Otto Perez Molina, or he is going to try and flee the country," said Jo-Marie Burt, senior fellow at the Washington Office on Latin America.

Yields on Guatemala’s bonds coming due in 2022 rose 8 basis points to 3.65 percent in New York, their biggest daily increase since February 21. The government has $2.9 billion in outstanding dollar bonds.

Political Instability

The UN-backed International Commission Against Impunity, or CICIG, was installed in 2007 to help weed out corruption and high-level organized crime. Morales said Sunday that CICIG had exceeded its mandate by pressuring Congress to pass constitutional reforms and should focus on fighting violent crime and strengthening institutions. The military veterans association announced support for Morales’s move and Finance Minister Julio Hector Estrada has said he will stay in his post.

“We have entered a new chapter of political instability,” former Vice President Eduardo Stein said in a phone interview. “There has been large fraying of political support for the president.”

The U.S. Embassy and at least nine others in the country announced their support for Ivan Velasquez, who will stay in Guatemala for the time being. Heather Nauert, a spokesman for the State Department, said the U.S. is “deeply concerned” by Morales’ move to bar Velasquez, whom she said has been effective in fighting corruption.

Central America’s largest economy, Guatemala exports coffee, sugar and textiles to the U.S. An estimated 2 million Guatemalans living in the U.S. will help send home a record $7.8 billion in remittances this year, according to the Central Bank, accounting for 11.4 percent of the nation’s GDP.

Campaign Financing

Velasquez, a Colombian national, and Attorney General Thelma Aldana said on Friday they were investigating Morales for illegal campaign financing and presented a motion to courts to strip him of his immunity from prosecution. As secretary general of his ruling FCN-Nacion political party, Morales did not properly report at least $825,000 in contributions during his 2015 rise to power, they said.

If courts rule in favor of the request, it must then be sent to Congress where it needs a two-thirds majority to be approved. Prosecutors could then seek Morales’s arrest. Should Morales be removed from power, vice president and former university rector Jafeth Cabrera would be next in line to take over.

The government said in a statement on Friday that Morales "has been and is respectful of the laws and due process."

Aldana announced her "unconditional support" for Velasquez and called for "strict compliance" with the court decision overturning his expulsion.