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Trump’s Twitter Threat Sparked a Remittance Boom in Guatemala

Trump’s Twitter Threat Sparked a Remittance Boom in Guatemala

(Bloomberg) -- U.S. President Donald Trump’s threats to impose remittance taxes and tariffs on Guatemala last month helped boost remittances sent to the country to the second-highest monthly total on record.

Guatemalans living mostly in the U.S. sent home $948 million in July, up 15.8% from a year ago. Central bank President Sergio Recinos said Trump’s threat prompted Guatemalans in the U.S. to send home money ahead of any possible new taxes. The bank has since revised up their projection for 2019 remittance growth to a range of 9.5% to 12.5%, from 7.5% to 10.5% previously, he said.

“Right now it’s having a positive impact, and it’s probably due to that,” Recinos said during an interview in Guatemala City. Low unemployment in the U.S. has also been a boon to migrants, he said.

Guatemala’s outgoing government signed a safe-third country agreement with the U.S. in July that could force Guatemala to take in migrants mainly from El Salvador and Honduras fleeing north. While the details of the deal have yet to be settled, Recinos said as many as 2,500 migrants per year could take refuge in Guatemala. They will compete with Guatemalans for jobs, but the economy is capable of absorbing them, he said, adding that if the number grows to above 50,000 it could be a drag on the economy. President-elect Alejandro Giammattei criticized the accord.

Trump’s Twitter Threat Sparked a Remittance Boom in Guatemala

Guatemala’s economy will likely expand 3.4% this year and 3% to 4% next year led by construction and the financial industry, while inflation will remain within the bank’s 3% to 5% target, Recinos said. The government’s fiscal deficit will widen to 2.1% of GDP this year from 1.8% last year.

Recinos said there is space for the government to boost spending and recommended the new administration pursue fiscal reform to boost the tax take of around 10% of GDP in order to increase development.

“The tax take we have isn’t enough to meet Guatemala’s social needs,” he said. “We have a big challenge there in improving social indicators and fostering growth.”

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 at wbrandimarte@bloomberg.net, Robert Jameson

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