Presidential Favorites Say Low-Debt Guatemala Can Boost Deficits

(Bloomberg) -- The two frontrunners in Guatemala’s Presidential election today both see space for the nation to take on more debt to tackle the poverty and violence that have driven millions to flee to the U.S.

Former first lady Sandra Torres said the country can run a bigger deficit to fund infrastructure investments that boost growth. Her main rival, former prison Director Alejandro Giammattei, also made the case for wider deficits on Sunday.

Guatemala has a tradition of conservative fiscal policy, and one of the world’s lowest debt levels at 24% of gross domestic product. Central bank vice-president Jose Alfredo Blanco last year described the country as the “Germany of Central America” due to its aversion to borrowing.

Both Torres and Giammattei say the country can afford to loosen the purse strings a little.

“If the government doesn’t execute the budget, the economy slows,” Torres told reporters in Guatemala City, before casting her vote. "Of course there is space" to run bigger deficits.

Giammattei, who polls show is likely to face Torres in a runoff vote, told reporters the deficit should widen to 2.5% of GDP in order to boost development, from 1.8% last year. He said he would target economic growth of 6%, in order to reduce poverty.

Guatemala’s economy expanded 3.1% in 2018 and growth this year will be between 3% and 3.8%, according to the central bank.

Extreme poverty, aggravated by a drought that has hit coffee farmers, has driven many to flee northward. That has soured relations with the U.S., and led President Donald Trump to say he would cut off aid to the country, as well as to El Salvador and Honduras, over their failure to curb migration.

If none of the candidates get more than 50%, there’ll be a runoff vote in August. Voters will also elect legislators for congress, and mayors. Polls close at 6 p.m. local time with initial results expected later this evening.

To contact the reporter on this story: Michael McDonald in San Jose, Costa Rica at mmcdonald87@bloomberg.net

To contact the editor responsible for this story: Matthew Bristow at mbristow5@bloomberg.net

©2019 Bloomberg L.P.