Guatemala’s New Government Warms Up To China

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In this issue, which is the last of the year, you will find:

•Guatemala’s New Government Warms Up To China

•Frontrunner Martinelli Is Barred From Running In Panama

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•Guatemala’s New Government Warms Up To China
629 words | 3 minutes reading time

Guatemala is an outlier among its neighbors. Since 2007, China has gradually stripped Taiwan of its allies in Central America; only Guatemala and Belize remain. President Bernardo Arévalo’s new government has shown its desire to establish formal trade links with China, but China has quickly snapped back: Guatemala cannot have its cake and it, too; from Beijing’s perspective, it must choose.

• The United States is Guatemala’s largest trading partner. Guatemala’s trading profile is significantly aided by CAFTA-DR. Indeed, the country’s primary appeal as an investment destination is as a U.S.-oriented manufacturing hub. 

• Guatemalan-Taiwanese relations date back to 1933. The Taiwanese government is especially notable for its investment in Guatemalan highways, hospitals, and agriculture. In 2006, both parties signed an FTA, although trade with China dwarfs that with Taiwan.

• Semilla, the leftist party that recently entered government, is eager to take advantage of the Chinese market. It is thought that such an arrangement would particularly benefit the Guatemalan agro-export sector, although the balance of trade would be highly asymmetrical in China’s favor. 

Panorama. Currently, the Taiwanese government can only count on the official backing of 12 small states around the world. The majority are Pacific and Caribbean island-nations; the most important ones are Guatemala, Paraguay, and the Holy See. Incidentally, Paraguayan President Santiago Peña is avowedly pro-Taiwan and has vowed to stand firm.

• The last Central American country to break with Taiwan was Honduras in 2023. Leftist President Xiomara Castro was seduced by promises of large infrastructure investments. Beijing has been forthcoming with investments—Central America, after all, is a significant battle front—but it remains to be seen whether the largest project, a transoceanic corridor, will receive funding.

• Taipei, as it itself has admitted, cannot compete with Beijing’s checkbook diplomacy. Yet it has shown its willingness to redouble cooperation and aid efforts; unlike China, it is unlikely to engage in the dumping of goods.

• For Guatemala, switching recognition to Beijing could have an additional consequence: angering Washington, which resents increased Chinese influence in Central America. 

Between the Lines. Although the Guatemalan government has expressed the need to acknowledge China’s weight in the international arena, it emphasizes that this does not constitute an “ambush” against Taiwan or the United States. The Chinese are inclined to agree with the Guatemalans, whom they have rebuked, saying no relations can be contemplated before Guatemala acknowledges the One China policy.

• In 2021, Guatemala exported $336 million to China. The main exports were ferroalloys ($212 million), coffee ($66 million), and nickel ore ($17.9 million). Guatemala’s exports to China show an interannual increase of 9.19%, which is reasonably positive.

• Just during the month of December 2023, China exported US$348 million and imported US$22.4 million from Guatemala, for a positive trade balance of $325 million. Guatemala’s deficit, therefore, is enormous and would grow larger amid warming relations.

• Guatemala maintains a perennial trade deficit, importing roughly half of what it exports. Under normal conditions, this would result in a scarcity of hard currency and the devaluation of the quetzal. In Guatemala, as with the rest of Central America, the difference is made up by enormous remittance inflows.

The Balance. The Senate Committee on Foreign Relations has recently expressed worry over Guatemala’s warming up to China. Senator Jim Risch, Ranking Member of the Committee, considers ties with China to be a major setback for human rights, prosperity, and security in the Western Hemisphere. In layman’s terms, such an undertaking would explicitly go against U.S. interests in the region.

• Such defiance would be unusual. President Arévalo relied on abundant U.S. support to ensure his inauguration would take place. For his sake, the White House sanctioned numerous Guatemalan officials, including most members of the Guatemalan Congress. 

• Needless to say, the country is reliant on the United States for its exports and remittance flows. This has not stopped Guatemala’s neighbors, but in this case, U.S. leverage is stronger.

•Frontrunner Martinelli Is Barred From Running In Panama
647 words | 3 minutes reading time

On February 2, the Panamanian Supreme Court rejected former president Ricardo Martinelli’s appeal, deeming his sentence on corruption charges final. Martinelli, until recently the frontrunner for the presidency, will have to serve a sentence of 10 years and eight months and pay a fine of $19.2 million 

• The sentence is unappealable. Panamanian law disqualifies those sentenced to over five years’ imprisonment from holding public office, meaning Martinelli's political career has effectively come to its end. Panama’s Electoral Tribunal could have ignored the sentence and allowed him to run, but this has not come to pass.

• The former president’s lawyers criticize the Court’s decision as unjust. They insist that Martinelli has had electoral immunity since February 3. Panamanian courts have rejected this argument.

• Martinelli says he is the victim of a kangaroo court. He has called on his supporters to vote for José Raúl Mulino, his running mate. It is not certain that they will obey him: he is the embodiment of personalism in politics.

Between the Lines. According to Martinelli, the justice system, unduly influenced by President Laurentino Cortizo (PRD, center), has been particularly cruel to him, with his trial starting before he had even been indicted. Martinelli’s financial dealings are undoubtedly nebulous, but admittedly, the trial advanced at an unusual pace.

• Martinelli speaks of the “worst miscarriage of justice” since Panama’s independence and claims the current government wishes to kill him. He has since taken refuge at the Nicaraguan embassy in Panama City, which Brian Nichols, Assistant Secretary of State for Western Hemisphere Affairs, decried.

• Martinelli also said he would denounce President Cortizo, along with Vice President (and presidential candidate) José Gabriel Carrizo, before the National Assembly.

• The former president has an ace up his sleeve: an alliance with Zulay Rodríguez, known for seeking to restrict Venezuelan immigration. She is nominally a PRD member, yet she is running as an independent. She is unlikely to become presidency, but her support is nonetheless valuable.

The Data. Panama is a country in dire straits. Drought has affected the Panama Canal, inflicting losses of $700 million upon the state. Moreover, the recently closed Cobre Panamá mine represented 5% of the GDP, more than 7,000 jobs, and 75% of locally produced exports.

• In addition, the exchequer will no longer receive mining royalties, which had a legally established minimum of $375 million. It was expected that in 2025, royalties would exceed $400 million. A large part of the funds were already earmarked for the country’s bankrupt Social Security Fund.

• The country’s reputation as a safe destination for foreign investments has also been damaged. Panama has shown itself to be unexceptional among its peers; it, too, carries political risk for foreign investors.

• It is hardly surprising, then, that Martinelli leads all the polls, yet he will not be allowed to run. If one excludes him, the most popular candidate is Zulay Rodríguez, with just 14% of the vote; 49% say they do not know whom to vote for.

The Balance. Martinelli will not return to the Palacio de las Garzas, Panama’s presidential residence. He will need his running mate, Mulino, or perhaps Rodríguez, to win the presidency. The governing party, PRD, is also unlikely to win, meaning some form of resolution is possible.

• If Mulino manages to clinch the presidency, he will likely govern as Martinelli did from 2009 to 2014. During his term, Martinelli focused on infrastructure investments and commissioned Panama City’s metro system. It should be remembered that during his term, Panama’s GDP achieved growth rates of around 9%.

• Regarding Martinelli, Panamanians are wont to say: “He stole, but he did [good things],” that is, he managed to complete some crucially important projects. The former president detests the description—he insists on his innocence—but the phrase perfectly encapsulates the reasons for his popularity.

• Corruption, in short, is particularly irritating when things go wrong. Leaders would do well to understand that, despite their behavior, the electorate can be rather forgiving, especially when one is remembered fondly.