Historical Inflation in Guatemala PDF

# III. DESARROLLO HISTÓRICO DE LA INFLACIÓN EN GUATEMALA ## En Guatemala, la inflación ha sido un fenómeno generalmente estable y controlado. - Salvo algunas excepciones, observadas en los períodos comprendidos entre junio de 1985 a marzo de 1987, diciembre 1989 a noviembre 1991, y en julio de 19...

# III. DESARROLLO HISTÓRICO DE LA INFLACIÓN EN GUATEMALA ## En Guatemala, la inflación ha sido un fenómeno generalmente estable y controlado. - Salvo algunas excepciones, observadas en los períodos comprendidos entre junio de 1985 a marzo de 1987, diciembre 1989 a noviembre 1991, y en julio de 1993, the inflation has not exceeded an annual rate of 15 percent. - In that sense, there has not been any period of hyperinflation in the country despite facing an internal armed conflict for 36 years, which would coincide with the usually accepted statement of military spending financed with excessive monetary issues, causing high inflation. ## 3.1 INFLACIÓN, DÉFICIT FISCAL Y FINANCIAMIENTO DEL ESTADO - The maximum level of inflation during the period from 1984 to 2008 was observed in January 1991 (60.7 percent), associated by some with the financing of the public budget by the Banco Central. - This maximum is contained in the year of the highest inflation in the country in the last two decades (an average of 42 percent in the period January/90 to January/91). - This period of high inflation can also be explained as an immediate effect of the liberalization of interest rates and the exchange rate in 1989, as part of the consolidation of the monetarist approach in the financial institutions of Guatemala, and it is not specifically explained by an abuse in the inorganic monetary issuance. - In 1990, the budget deficit was 2.1 percent of GDP, whose low levels do not represent a strong pressure on inflation; even by the end of 1991, the public budgetary balance showed a fiscal surplus equivalent to 0.01 percent of GDP. - The budget balance of 1990 and 91 is less than the 2.9 percent GDP deficit observed in 1989, and well below the 4.7 percent reached in 1980 and 1982, the 7.4 percent of 1981, or the 2.8 percent of 1999 several years after the implementation of the IMF measures, and yet, in those years, inflation was below that observed in 1990 and 91. - It should be noted that the monetarist tradition argues that it is the excess public indebtedness financed by excessive monetary issue through central banks, the cause of high levels of inflation (hyperinflationary periods observed in Latin America in Argentina, Bolivia, Brazil or Peru, but never in Guatemala). - Such economic phenomenon, and consequently the recipe to alleviate such evil, coincided little or nothing with the Guatemalan case; however, the International Monetary Fund –IMF- modernization finance program was imposed through dubious practices, with the aim of privatizing government financing, besides public services, characteristic of the structural adjustment programs implemented by the International Financial Institutions since the 1980s. - The privatization of government financing reached its highest level with the constitutional reform of 1994, despite the fact that inflation on average did not exceed 13.4 percent the previous year. - On the contrary, in the year of that constitutional reform, external public indebtedness increased by 14 percent (for the Central Government the increase was 24 percent) and the domestic debt (including the financing of the Central Bank) went from a 14 percent variation in 1993 to 9 percent in 1994 (a sign of the displacement of new public indebtedness towards external sources). The ghost of hyperinflation due to excessive monetary issuance lacked support in inflationary behavior of the country, and on the contrary, was welcomed as a banner for the implementation of the modernization (privatization) finance program mentioned. - Figure 3 shows the inflation rate observed during the period analyzed, as well as the highest points and the corresponding month. - In 1999, monetary issuance increased by 34 percent compared to 1998, a year that coincided with an increase in the budget deficit in relation to GDP, but contained in the years where the prohibition of financing the deficit by Banguat was in effect, without such monetary issuance presenting consequences on inflation. - In the same year, domestic public debt increased by 25 percent, but given the inability of Banguat to finance, the indebtedness had to be contracted with the private sector. - In the configuration of these variables, some interesting points can be observed (see Figure 4): 1) increase in monetary issuance; 2) increase in the budget deficit; 3) increase in domestic indebtedness; 4) price stability (average inflation of 5.21 percent during the year). - The behavior of these aggregates shows that the increase in monetary issuance is not necessarily the cause of inflation and, on the contrary, the prohibition of financing the State by the central bank, privatizes the public sector indebtedness in favor of private local banks and international financial institutions. - This is supported by the fact that in 1999, means of payment (M2) increased by only 8 percent compared to 1998, contrary to the average of 19 percent for the decade, despite the increase in monetary issuance. - The creation of secondary money could be curbed by the displacement of productive credit to the private sector as a result of the preference of banks in financing the Government and not taking on their role of financial intermediation that provides resources to productive business activities. - However, it should be noted that inflation has remained below a 15 percent rate (the last time it exceeded that barrier, it was 15.27 percent in July 1993), while the maximum observed subsequently was 14.16 percent in July 2008. - In the latter year, inflation was pushed up by supply shocks in the prices of oil, wheat and corn (extended to other food expenses), which, as we will see later, correspond to external pressures on prices that Banguat identifies as the main drivers of inflation. - Such pressures, on repeated occasions, have occurred in the years where inflation has exceeded the explicit inflation target set in monetary, exchange rate and credit policy. - It is worth mentioning that, despite the apparent success achieved in controlling inflation, some thinkers consider that the social and economic cost of these measures must be taken into account to relativize the success claimed by the same, as "Although they [neoliberal policies] succeeded in curbing inflation, they did so at the price of increasing social inequality and a very large deficit in the balance of trade... today the economic policy of those countries [those that adopted neoliberal policies] depends closely on what happens on the New York Stock Exchange. It is enough to have massive capital flight, as happened ten or twelve years ago in Latin America, for such policies to fail abruptly, exacerbating social inequalities already existing" - Once this is known, it is important to analyze the behavior of prices according to different spending groups, as policy inequalities can be reflected in different behavior in some essential groups (such as food) than other less important groups for the consumption of poor households. ## 3.2 VARIACIÓN DE LOS PRECIOS EN LA CANASTA BÁSICA ALIMENTARIA - As mentioned above, the food and non-alcoholic beverages division, specifically corn and wheat, is constantly mentioned by Banguat, along with international oil prices and its derivatives, to explain the supply shocks that, on some occasions, have made impossible the achievement of the inflation target set by that body when defining its monetary, exchange rate and credit policy. - Due to this and the importance of these expenses for the poorest population (which, as mentioned in Chapters I and II of this document, can represent 100 percent of consumption for families in extreme poverty), the behavior of prices in the aforementioned division is analyzed.