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Guatemala seen in better economic shape but security is worse

GUATEMALA CITY, Aug. 11 (UPI) -- Guatemala has emerged in a better shape from the shocks it received in the 2008 global economic downturn and is now set on a stable course toward recovery, expert reports on the country's financial outlook said.

Fitch Ratings said it was affirming the Central American country's local and foreign currency Issuer Default Ratings, which are used to measure risk, at "BB+."

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It said Guatemala's rating outlooks on both local and foreign fronts are stable. At the same time, Fitch has affirmed Guatemala's short-term IDR at "B" and the country ceiling at "BBB-."

There was no immediate Guatemalan government reaction to the rating action but analysts said the rating would enable the country to manage better its financial transactions while its political situation remained fragile.

In June the International Crisis Group, an independent, non-profit, non-governmental organization, published a damning report, "Guatemala: Squeezed between Crime and Impunity," which said the country had become a "paradise" for organized crime.

The Fitch assessment of a stable outlook for Guatemala means that, while large questions loom on the political situation, the government is seen by the international financial community to be managing adequately after the negative effects of the global economic and financial crisis.

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Some recent cyclical deterioration in Guatemala's key sovereign credit metrics was minimal relative to peer credits, Fitch said.

"Guatemala's sound macroeconomic fundamentals and its authorities' commitment to managing downside risks helped the country's resilience during the worst global economic downturn in recent history," said Theresa Paiz Fredel, senior director for Latin American sovereign ratings at Fitch.

A Fitch report warned that Guatemala's economic growth isn't likely to recover to pre-crisis levels and will remain modest in the near future. It said the country's growth could range 2 percent-3.5 percent.

Guatemala's track record of macroeconomic stability, low public and external debt burdens relative to peer medians, as well as the government's solid commercial debt repayment history continue to support the sovereign's ratings, Fitch said.

The country's key credit weaknesses including its low tax base, high level of poverty and income inequality, as well as its weak social and governance indicators, continue to weigh on Guatemala's ratings. "These factors will take time to address and are likely to constrain Guatemala's ratings to sub-investment grade over Fitch's rating horizon," the ratings agency said.

Paiz Fredel said Guatemala's current political and economic environment and its fragmented, multi-party political system has derailed fiscal and tax reform initiatives. She indicated that social and tax reforms could help make Guatemala more attractive for investment.

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"Conversely, political gridlock or increasing political or social instability which undermines confidence or macroeconomic stability could negatively affect Guatemala's ratings," she warned.

"A sustained and marked deterioration in Guatemala's fiscal and external solvency indicators could also undermine sovereign creditworthiness."

In its report released June 22, the International Crisis Group said, "Guatemala has become a paradise for criminals, who have little to fear from prosecutors owing to high levels of impunity.

"An overhaul of the security forces in the wake of the peace accords created an ineffective and deeply corrupt police. High-profile assassinations and the government's inability to reduce murders have produced paralyzing fear, a sense of helplessness and frustration," said the group.

In a deteriorating situation, it said, Guatemalan population has turned to vigilantism "as a brutal and extra-institutional way of combating crime."

The group urged U.N. Secretary General Ban Ki-Moon to appoint a new head for the International Commission against Impunity in Guatemala, set up to fight high-level corruption. In June, its Spanish director, Carlos Castresana, resigned saying the government of President Alvaro Colom hadn't kept its promise to support CICIG's work and reform the justice system.

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