Guatemala Seeks $15 Billion in Loans to Revive Cooling Economy

(Bloomberg) -- Guatemala will seek billions in development loans in an effort to boost public spending and turn around Central America’s largest economy, one that’s cooled in recent years as corruption scandals hit investment.

President Jimmy Morales said the country hopes to secure $15 billion in loans over the next decade from multilateral organizations such as the World Bank, the Inter-American Development Bank and Germany’s Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) to invest in construction and tourism.

Some 80 infrastructure projects were canceled last year amid legal uncertainty as construction companies contracted for the work came under graft allegations, costing the country $400 million in investment while discouraging private enterprise, he said. Cases against the former president and vice president are unfolding in courts and Morales himself faces accusations of wrongdoing.

"We can’t break an economy in the name of the fight against corruption," Morales said in an interview in Washington, where he has met with U.S. officials including Secretary of State Michael Pompeo. "We need to create jobs."

Morales said the loans could be used to build 1 million homes, upgrade ports and build new highways. He said the government will boost budget execution this year to a 25-year-high as it seeks to stimulate economic growth, which slowed to 2.8 percent last year. Gross domestic product could expand 3 percent this year, he said.

"We are leaving state paralysis behind," he said. "If there are no private companies that want to invest, the state can invest. The terror and fears of 2016 and 2017 have been overcome."

UN-Backed Corruption Charges

Morales, 49, defeated a bid in Congress in 2017 to strip him of immunity from prosecution though he faces new charges this year of illegal campaign financing. His son and brother are on trial for their alleged roles in a case to fraudulently bill the previous administration.

He reiterated Friday that he would not renew a mandate for the UN-backed Commission Against Impunity in Guatemala, known as CICIG, which has spearheaded recent graft probes. CICIG’s mandate is set to expire in September 2019, and Morales has claimed it broke the nation’s laws and politicized the justice system. The military surrounded the commission’s headquarters with troop transport trucks donated by the U.S. on the day he made the announcement.

The nation’s courts have a backlog of 1.6 million cases and criminal cases can languish for years before going to trial, according to Morales. He insisted that CICIG should begin to transfer capacities to Guatemala’s judiciary and expressed frustration over a lack of response from the UN to an inquiry made almost a year and a half ago.

"We’ve worked with it for 12 years," Morales said. "If justice isn’t expedient, it isn’t justice."

A former TV comedian, Morales, was elected in a landslide victory in 2015 on the campaign slogan "neither corrupt nor a thief." The country will hold presidential elections next year and the constitution bars him from seeking a second term.

Yields on Guatemala’s bonds coming due in 2022 were unchanged at 4.74% at noon New York time.

--With assistance from Anna Edgerton, Ben Bain and Jennifer Epstein.

To contact the reporters on this story: Michael McDonald in San Jose, Costa Rica at mmcdonald87@bloomberg.net;Bill Faries in Washington at wfaries@bloomberg.net;Michael Shepard in Washington at mshepard7@bloomberg.net

To contact the editors responsible for this story: Matthew Bristow at mbristow5@bloomberg.net, Robert Jameson

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