Wondering About the Guate Economy? It’s Bad

I get an increasing amount of email from potential expats asking about Guatemala.  I’m happy to help and answer, as time permits.  One of the regular questions is what the local economy is like.  I had to subscribe to a free-trial to the Latin American Monitor to get access, but the article indicates just how much remittances have fallen from the US.  Keep in mind that remittances are either the #1 or #2 source of revenue, depending on who you ask, with coffee exports taking the other spot.

Anyway, here’s a portion of the VERY short article (who in their right mind sells subscriptions to online publications these days instead of selling advertising, and then provides so little data?) that explains what is going on:

We argued in early March ( online subscribers see ‘Regional Fallout From Lower Remittances’, March 4) that the drying up of remittance flows entering Central America would start to have a profound impact on the regional economy. This trend appears to hold particularly true for Guatemala, where a record drop in year-to-date remittance inflows has seen economic activity dip into negative territory. Year-to-date remittance flows fell by 9.6% y-o-y in February, marking the worst outturn since August 1999. With employment prospects in the US likely to deteriorate before recovering, we believe that the central bank’s forecast of 3.5% remittance growth this year is far too optimistic.

The article goes on to say that remittances account for 12% of household budgets, in what is already a poor country.  There isn’t really any discretionary cashflow for these people, so just imagine what losing 12% of your income can mean.  I overheard a local woman the other day say that her sons had regularly sent her $200 a month for years and now they are sending nothing.  I imagine this is widespread.

The US and the EU are creating money out of thin air to finance public spending, but this socialist scheme will eventually lead to massive inflation and potentially currency collapse.  There isn’t the foreign appetite for Guatemalan bonds or the tax base to support debt offerings so Guatemala doesn’t have that option (better in the long run anyway).

All of this will mean opportunities for people who have foreign-currency based incomes or assets or who have cash to spend, because prices in general should fall.  Anything that is labor intensive will fall even further.  (Good news if you need a maid or want to start a coffee plantation).

If you’re thinking about moving to Guatemala, prices should be better over the next year than they have been the last year.  So move your savings out of the dollar or the Euro, in to gold or silver, and then into Guatemala.