Guatemala president faces tough fight on tax reform | Markets | Markets News | Reuters

As I mentioned in a post last week, I am pessimistic about the short- to medium-tem possibility of bring criminal violence under control in Central America. One reason is that the region's governments have failed to push through fiscal reforms that would raise revenue necessary to finance meaningful poverty reduction and job creation programs. For several years now, Guatemala has been criticized for its inability to bring its meager tax rate in line with those of other developing countries.

As part of the 1996 peace accords, the government agreed to raise its tax revenues as a percentage of GDP (or tax ratio) up to 12% by 2000. A US Agency for International Development Report stated that Guatemala had only been able to bring its tax ratio up to 10.28% in 2003.

President Alvaro Colom is again pushing reforms that will marginally increase Guatemala's tax rate in hopes of increasing government revenue to tackle a variety of problems in the country According to Reuters:

Guatemalan president Alvaro Colom is pushing for a fiscal reform package to boost dwindling finances needed to fight high crime and poverty, but stiff opposition threatens to kill the plan.

While previous Guatemalan presidents also pushed reform, Colom is under stronger pressures to achieve meaningful reforms following a failed effort this past August and because

This year, Guatemala's economy has slowed sharply because the global recession has crimped demand for exports like textiles.

Further weakening the economy, Guatemalans living in the United States are sending less money home after losing their jobs or getting deported.

Tax collection in Guatemala, which also exports sugar and coffee, could fall 8.5 percent this year, the finance ministry said in September.

According to Reuters, while the Guatemalan Finance Ministry has proposed reducing government spending by 3.7% of GDP this year, opposition parties are still calling upon the government to make greater spending cuts before considering any restructuring of the tax system.