Growing Tensions With U.S. Cast Shadow Over Guatemalan Election

(Bloomberg) -- Growing tensions with the U.S. over migration are poised to overshadow Sunday’s elections in Guatemala, where a former first lady and an ex-director of prisons will battle for the country’s top job in a runoff vote.

Sandra Torres, the ex-wife of former President Alvaro Colom, has pledged to deploy the army to tackle gang wars while expanding social programs in impoverished communities to halt waves of migrants fleeing north. Alejandro Giammattei, who oversaw the nation’s riot-prone penitentiary system from 2002 to 2007, has also promised measures to curb crime, as well as policies to encourage private investment and bolster economic growth to 6% a year.

They both criticize a safe third country agreement with the U.S. that could force Guatemala to take in thousands of U.S.-bound migrants, mostly from El Salvador and Honduras. President Donald Trump has threatened tariffs on exports and taxes on remittances if Guatemala doesn’t follow through on the deal, sparking the biggest drop in Guatemalan dollar bonds in 14 months.

In a sign of heightened U.S. interest in Sunday’s election, Secretary of Homeland Security Kevin McAleenan met with both candidates last week and a congressional delegation led by Speaker Nancy Pelosi visited Guatemala on Thursday.

“The next administration is going to find itself in a situation that’s a bit of a lose-lose,” said Eurasia Group analyst Risa Grais-Targow. “Either they implement the agreement and try to work with the U.S., even though it will have significant consequences for them, or they reject the agreement but potentially face some of those threats against the economy.”

The U.S. provided $257 million in aid to Guatemala in 2017, but the number of migrants kept on growing. Over 104,000 were detained by the U.S. at the southwest border in June, more than double the number from a year earlier. Many of them were Guatemalans. An estimated 70% of Guatemala’s labor force is engaged in informal work, and many rural residents earn less than the minimum wage of about $400 per month.

Tight Race

Torres won 25.5% of the votes in a first round held June 16, while Giammattei got 14%. With a crowded field of 19 candidates, neither won enough votes to avoid a runoff.

A July 17 poll by Cid Gallup for local think tank Fundacion Libertad y Desarrollo showed Giammattei leading voter intention with 39.5% and Torres trailing with 32.4%. The remaining 22.8% said they wouldn’t vote for either candidate.

Turnout will be key on Sunday, said Phillip Chicola, a director with the think tank. Most Torres’ supporters polled said they will definitely cast a ballot while Giammattei’s backers were less certain of whether or not they will vote. Low turnout would favor Torres, he said.

Polls are open from 7 a.m. to 6 p.m. local time, with results expected Sunday night.

Low Debt

Guatemala’s economy expanded 3.1% in 2018 and growth this year will be between 3% and 3.8%, according to the central bank. At 24% of gross domestic product, Guatemala’s public debt levels are among the lowest in the world. Remittances, a key driver of the economy, are expected to grow to $10.1 billion this year from $9.3 billion in 2018.

Both candidates have said they see space to boost public spending, but a fractured congress with 19 parties will prevent the winner from loosening the purse strings too much, said Oppenheimer emerging market analyst Nathalie Marshik. No party will have a majority in the 160-member unicameral congress. Torres’ UNE party won the biggest block of congress in June with 53 seats while Giammattei’s Vamos party obtained 16 seats, the second largest block.

“For the market, Giammattei would be the best candidate. Torres is viewed as more of a big spender and less market friendly,” she said. “No matter what, this is a fiscally conservative congress, debt levels are very low and they are well known for low budget deficits.”

The winner of Sunday’s election will be sworn in to a four-year term on January 14.

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

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Walter Brandimarte

©2019 Bloomberg L.P.