Guatemala: Selected Issues Paper
Author: International Monetary Fund. Western Hemisphere Dept.
Publication Date:
08 Jun 2018
eISBN:
9781484360125
Language:
English
Keywords:
ISCR; CR; remittance; corruption indicator; anti-corruption effort; State machinery; ICRG corruption index; government institution; Anti-money laundering and combating the financing of terrorism (AML/CFT)
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Selected Issues Paper

Abstract

Selected Issues Paper

Improving Governance for Greater and More Inclusive Growth in Guatemala1

While there has been significant progress since the 2015 political crisis, there is scope to intensity anti-corruption efforts. Conventional growth regressions suggest that per capita GDP gains from improved governance are likely to be substantial. Sustained government support plays a central role in the ongoing fight against corruption.

A. Introduction2

1. Guatemala’s efforts to tackle endemic corruption are evident. The 2015 political crisis led to broad-based anti-corruption efforts. The government reasserted its control over the tax and customs administration, reformed public procurement practices, and enhanced the independence of the general attorney’s office. In parallel, the General Prosecutor’s Office (GPO) and the International Commission Against Impunity in Guatemala (CICIG) are making inroads into dismantling networks suspected of illegal activities in areas such as tax fraud, illicit campaign financing, irregular procurement practices, and influence peddling in the judiciary. Since 2014, the GPO has dismantled 178 criminal organizations operating at the national level and confiscated assets for over USD28.5 million (Ministerio Publico, 2018).3

2. Guatemala’s Financial Intelligence Unit (IVE) has stepped up the capacity to conduct financial analysis and supervision of compliance with AML/CFT regulations over time. An effective AML framework can contribute to the prevention, detection and confiscation of ill-gotten gains. In recent years, IVE has undertaken many initiatives to improve its core responsibilities in conducting operational analysis of suspicious transaction reports (STRs) and enhancing supervision of AML/CFT obligations by reporting entities. These include enhancing the skills and knowledge of the AML/CFT supervisory personnel, raising awareness among reporting entities with respect to AM/FT risks and risk mitigating obligations, and increasing onsite inspections of reporting entities (GAFILAT, 2017). These initiatives have contributed to an increase in the number of STRs from reporting entities (Table 1) as well as in the number of financial intelligence reports disseminated to other AML/CFT stakeholders, in particular the GPO. ML cases filed and admitted for trial in first instance criminal courts have been stepped up, although the number of convictions of ML offenses has not seen a significant impact.

Table 1.

Guatemala: Financial Intelligence and Enforcement on Money Laundering

article image
Source: Mutual Evaluation Report, Gafilat.Note: IVE = Financial Intelligence Unit, ML = money laundering, STR = suspicious transactions reports. National reporting requirements attended by IVE for investigation on money laundering, asset forfeiture unit, and high-impact CICIG cases. Judgements of processing includes money laundering, bribery, tax/customs fraud, kidnapping or abduction, trade, trafficking and illegal storage, misppropriation or embezzlement, customs contraband, human traffiking, money transfer, extortion.

3. Anti-corruption efforts in response to the 2015 political crisis had been appreciated by the public. Public’s perceptions that corruption had increased during 2016 were the second lowest in the Latin America region (Figure 1). Similarly, citizens’ perceptions on how effective a government fighting corruption, and how socially accepted to report a corruption case, placed Guatemala as one of the top countries in the region.

Figure 1.
Figure 1.

Guatemala: Anti-Corruption Efforts in Regional Perspective

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Source: People and Corruption: Latin America and the Caribbean, Global Corruption Barometer. Transparency International, 2017. The survey was conducted between May and December 2016 to 22302 citizens across 20 Latin American and Caribbean countries.1/ Affirmative includes increased substantially, increased somewhat.2/ Favorable includes very well, fairly well, and well.

4. Against this backdrop, this paper analyzes the association between corruption and economic growth. Despite that corruption data are notoriously imprecise given the obscure nature of corruption (Heywood and Rose, 2014), the empirical evidence suggests significant negative effects of corruption on economic growth. Early evidence about the negative impact of corruption on economic growth based on a cross-country empirical analysis is presented in Mauro (1995). Similar results are obtained by Wei (1999), Méon and Sekkat (2005), Gamberoni et al. (2016). For excellent reviews of the literature, see Svensson (2005), Campos et al. (2010), Ugur and Dasgupta (2011), and IMF (2016). Evidence about the negative economic impact of corruption is also found in microlevel studies, such as Svensson (2003), Fisman (2001), and Fisman and Svensson (2007). We revisit these findings using the most recent available data and relying on cross-country identification.

uA04fig01

Cross-Country Association between Corruption and GDP per Capita, 2015

(Corruption normalized indices; index = (observation-average/standard deviation)

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Sources: International Country Risk Guide; Transparency International; Verisk Maplecroft; World Bank, World Governance Indicators.

5. The paper is organized as follows. Section B discusses the channels through which corruption may affect growth. Section C presents the cross-country empirical analysis and discusses potential for faster growth from improved governance. Section D presents avenues for reform.

B. Governance and Growth: The Evidence

6. Weak governance may undermine the growth potential through various channels:

  • Investment. Weak institutions increase the cost of doing business and make the appropriation of investment returns less certain (Hausmann et al., 2005), overall reducing investor’s risk appetite to invest. Guatemala’s governance weaknesses are in the areas of rule of law and overall government effectiveness, with little progress over the past decade (Figure 2). In parallel, Guatemala’s gross investment rate has stagnated at 15 percent of GDP after the Global Financial Crisis, significantly below the global, regional, and peers’ marks (see companion Selected Issues Paper “Investment, Confidence and Uncertainty in Guatemala”).

  • Human capital. Poor governance subtracts from government credibility and acts as an impediment to revenue mobilization, hence inadequate provision of public goods health and education—the most basic of human capital. Mauro (1998) and Gupta, Davoodi and Tiongson (2000) demonstrate that higher levels of corruption impacts negatively in the provision of health and education. IADB (2016) and ICEFI (2016) provide more details on the context of the inadequate level of provision of health and education in Guatemala.

  • Productivity. Weak institutions may affect productivity through different channels. First, they may act as a barrier to entry, even bigger than taxes, regulations or infrastructure (Campos, Estrin and Proto 2010). Second, firm-level evidence suggests that weak governance may hinder employment growth and innovation (Aterido, Hallward-Driemeier and Pagés 2007; De Rosa, Gooroochurn, and Görg 2010),3 lowering firms’ overall efficiency (Dal Bo and Rossi, 2006).4 Third, weak governance may slow, or even prevent, public investment execution, with poor infrastructure constraining in turn the productivity of private inputs. In the case of Guatemala, reforms of the Procurement Law adopted over the past two years have facilitated greater oversight over public spending and contributed to tackling corruption, but have as a side-effect, led to slower execution of spending in the short term.

Figure 2.
Figure 2.

Guatemala: Most Problematic Factors for Doing Business

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Sources: Global Competitiveness Report, 2008–09 and 2017–18.
uA04fig02

Education

(Years of schooling and GDP per capita)

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Sources: IMF, World Economic Outlook; UNESCO Institute for Statistics (UIS); and IMF staff calculations.1 Mean years of schooling; Percentage of population (age 25+). Latest year available from 2010 to 2016.

C. Cross-Country Evidence

7. We estimate the impact of corruption on economic growth using panel regressions. Conventional (absolute) convergence regressions are augmented with different corruption indicators. This allows us to look at the impact of corruption on per-capita GDP growth controlling for other growth determinants. The regression is estimated using annual data for 89 countries including advanced and emerging economies. To mitigate the problem of reverse causality, we regress the one-period lagged value of the corruption index on per-capita GDP growth. More specifically, we use the following specification:

Yit=c+α⋅Corrupit−1+γ⋅Yi,0+δ⋅Yi,02+β⋅Xit+ϵit

where Yit is per-capita GDP growth, Corruptsit-1 the lagged corruption indicator, Xit is a vector of control variables and εit is the error term.

8. We exploit the cross-country variation of corruption by running pooled OLS regressions, controlling for country characteristics that affect long-term growth.5 We run separate regressions using four different corruption indicators: (i) the ICRG corruption index; (ii) World Bank’s control of corruption (CCI) index; (iii) World Economic Forum (WEF)’s ethics and corruption index; and (iv) WEF’s irregular payments and bribes index (for a detailed description, see Annex I). Following Barro (2001, 2015) and Contreras and Pinto (2015), we include the following control variables: the log of initial (level and squared) GDP per capita—to control for mean reversion in growth; life expectancy and fertility rate—to control for demographic differences; years of schooling for men and women—to capture human capital investment; inflation and government consumption ratio—to reflect macroeconomic stability; and trade openness and change in terms of trade—to capture the effect of external shocks.6

9. Our regression results suggest a significant and positive relationship between governance and GDP growth (Table 2).

Table 2.

Guatemala: Impact of Corruption on Per-Capita Real GDP Growth

article image
Source: IMF staff estimates.Notes: Robust standard errors are in parentheses. * p<0.1, ** p<0.05, *** p<0.01.

  • For all the four corruption indicators that we use, a higher score indicates lower corruption in the country. The coefficients of the one-period lags of the corruption indicators are all positive and significant, suggesting that lower corruption would raise per capita GDP growth.

  • The signs of the control variables are broadly as expected. The coefficients are significantly positive for log GDP and negative for the square of log GDP, implying a likely non-linear relationship between growth rate and level: for the poorest countries, the marginal effect of GDP level on growth is positive; but for the richest countries, the marginal effect becomes strongly negative (see Barro, 2001). Longer life expectancy and higher fertility rate increase the size of the population and therefore tend to lower GDP growth per capita. Years of schooling are in general positively corelated to per-capita GDP growth, although the insignificant results may reflect poor quality of schooling data. Government consumption ratio is negative and strongly correlated to per-capita GDP growth, as it includes public outlays that do not directly promote productivity. Higher inflation usually suggests lower macroeconomic stability, and is estimated to have negative correlation with GDP growth. Trade openness is estimated to be positively related to growth, so as the improvement in terms of trade.

10. There are significant gains to be reaped from lower corruption in Guatemala. Regression estimates suggest that, if Guatemala were to close the governance gap with the average country in the sample, its real per-capita GDP growth could be between 0.2 and 0.8 percentage points higher relative to baseline, depending on the corruption indicator considered. Results at a more granular level suggest that improving trust in politicians, tackling diversion of public funds and reducing favoritism in decisions of government officials can deliver the largest growth gains.

Figure 3.
Figure 3.

Guatemala: Growth Gains from Closing Governance Gap with Sample Average

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Source: Staff calculations.Note: RHS chart indicators all taken from the WEF Institutions pillar and entered one at a time in a specification similar to the one reported in Table 2 in the place of the aggregate governance indicators. All coefficients are significant (at varying levels).

D. Reform Avenues

Sustaining Reform Momentum Through a Multi-Pronged Strategy

11. International experience shows that an effective anti-corruption strategy requires perseverance. Strong political ownership and sustained support from civil society play a vital role in reducing tolerance towards corruption. A newly elected Congress oversaw a flurry of legislation early in 2016 (IMF Country Report No. 16/281) and palpable progress is underway in breaking up important criminal groups. These welcome efforts would benefit from additional anti-corruption measures in the fiscal, law enforcement, market regulation, financial sector oversight and public order and enforcement domains.

uA04fig03

Lower and Less Inclusive Growth

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Tax Revenues

12. Tax administration reforms are off to a good start. Unveiled cases of tax graft in 2015 sharply eroded the credibility of the SAT, weakening tax compliance, and leading to collection losses (Figure 4). As a result, measures were adopted in 2015 to institute a new SAT law aimed at strengthening the integrity and accountability of SAT staff. Ongoing efforts needing perseverance include:

  • New standardized, transparent processes that make it more difficult for officials to engage in corrupt practices (strengthened control of goods and their valuation in customs, control of special regimes, effective control of VAT through improved taxpayer registration).

  • The publication of the list of VAT-refund recipients to avoid undue reimbursements.

  • Retain qualified staff in the SAT and fully integrate information systems to facilitate the flow information between SAT, National Civil Police, IGSS, Ministry of Labor and Commercial Register.

  • Deepen the existing inter-institutional agreements involving SAT and private operators and authorities in borders; and harmonizing tax and custom processes with bordering countries.

Figure 4.
Figure 4.

Guatemala: Custom’s Prices and Tax Collection

Citation: IMF Staff Country Reports 2018, 155; 10.5089/9781484360125.002.A004

Sources: Superintendencia de Administración Tributaria and Staff calculations.

Public Expenditures

13. Visible efforts directed at promoting transparency of public expenses should be expanded. By releasing resources for investment in physical and human capital, improvements in transparency and the quality of public spending would likely increase GDP per capita in Guatemala.

  • The Third National Action Plan of Open Government 2016–20187 jointly elaborated with the CSO’s and the Open Budget exercise are good initiatives to facilitate the evaluation of government policies and deter corruption.

  • Going forward, there is scope to consolidate and expand the coverage of fiscal reports, enhance the transparency in financial statements of local governments, and bring to fruition the public sector personnel census.

Public Investment

14. Reforms of the Procurement Law, adopted over the past two years, have facilitated greater oversight over public spending and contributed to tackling corruption. The new regulations, which forbid government contracts with state officials and sponsors of political parties, was supported by the adoption of an e-outlet (“Guatecompras”) to provide transparent information on procurement transactions and the introduction of reverse auctions to enhance competition among suppliers. While a leap forward, there is ample room to increase transparency in procurement practices:

  • Further increase transparency of “Guatecompras”. The online procurement portal should disclose documents at all stages of the contracting process and publish information on municipalities procurement activities, with certification and technical assistance from the Ministry of Finance on large procurement contracts. Efforts to make “Guatecompras” fully operational by providing technical assistance to companies, executing units, supervisors are also important.

  • Clarify the scope of application for concurrent regulations and reconcile legal interpretations by procuring and auditing agencies. Having set up a Public Prosecutor’s unit at the CGC will facilitate the pre-screening of cases avoiding the unnecessary escalation from administrative to criminal sanctions. In addition, new regulations should be adopted to increase the transparency of fideicomisos.8

  • Further efforts are also needed to speed up spending execution without diluting the warranted focus on better governance: allow for a more streamlined procedure for MINFIN to approve payments on pending contracts; allow auditors from the Comptroller General to participate as observers in public bids; define procedures outside of the penal system to handle procedural errors in contracting.

  • Introduce sanctions to combat fraudulent dividing up of procurement transactions9 and remove tax incentives to those entities breaching procurement regulations.

  • The newly created vice-ministry for transparency and procurement will oversee and coordinate the myriad of entities involved in procurement with a strong focus on fiscal transparency.

Market Regulation

15. The government is in the process of implementing a comprehensive business facilitation reform to deter corruption. This includes easing procedures for the granting of construction licenses and providing administrative services to business electronically (e-government) on tax reporting (declaraguate)10 and business registration (minegocio.gt).11 In addition, the Commercial code now has introduced an arbitration instance for the resolution of business disputes (i.e., breach of contracts) as an alternative to a civil suit.

Anti-Money Laundering

16. A robust AML/CFT framework is important to support anti-corruption efforts. Proceeds of corruption are usually laundered to avoid detection or confiscation, and an effective AML framework can contribute to both prosecuting and deterring corruption. Under the Financial Action Task Force (FATF) standard, a country’s AML framework must require (i) risk based supervision of financial institutions and designated non-financial businesses and professions (DNFBPs); (ii) transparency of the ultimate beneficial owner of corporate vehicles; and (iii) effective and operational agencies specialized in preventing and combatting money laundering. These measures, among others, can protect the integrity of the public sector, prevent the abuse of the private sector, and increase the transparency of the financial system to facilitate detection, investigation and prosecution of corruption, therefore enabling the recovery of proceeds of crime.

17. Building on recent efforts to reinforce financial integrity, a stronger AML framework will be paramount to support efforts against corruption and organized crime. Intensified on site inspections by Guatemala’s Financial Intelligence Unit (IVE), and enhanced customer due diligence has helped uncover laundering of proceeds of corruption, including through the capture of banks. Further reinforcement of the AML/CFT regime would support efforts to deter illicit payments. This includes the prompt submission to parliament of a bill, drafted with support from international organizations. The bill would enact risk-based supervision of financial institutions and designated non-financial business and professions (DNFBPs), which could ensure effective enhanced customer due diligence of politically exposed persons, and suspicious transaction reporting for better oversight.

18. The authorities should continue to increase transparency on the ultimate beneficial owner of legal persons. Guatemala has taken steps to increase transparency in identifying the beneficial ownership of legal persons. Bearer shares have been eliminated and converted to nominative shares, and IVE’s 2014 guidelines require reporting entities to establish the identity of those shareholders with a participation greater than 10 percent of the total shares. Additional measures should be adopted to enhance transparency, including an obligation for reporting entities to refrain from entering into, or to terminate, a business relationship when the ultimate beneficial owners cannot be identified (FATF Recommendation #10) and ensuring that the authorities have timely access to accurate information on the ultimate beneficial owners of legal persons.

Enforcement

19. In 2003 the Government of Guatemala requested the United Nations assistance in the creation of a mechanism to support the State in the investigation and prosecution of organized crime. Years after the 36-year-old civil war in Guatemala, the country continued to grapple with a wide spread problem of petty and organized crime, and a prevalent inefficiency of government institutions. After a wave of attacks against human rights activists, the Government of Guatemala requested the United Nations support in the creation of an agency that would investigate and prosecute organized crime—the Commission against Impunity in Guatemala (CICIG). CICIG commenced operations in 2007, and soon after uncovered the existence of sophisticated macro-criminal organizations that had captured different areas of government, from the illicit financing of political parties to the use of the State machinery to produce illicit assets and their consequent laundering. The CICIG’s mandate has been extended five times, and it is up for renewal in September 2019.

20. Collaboration between the General Prosecutor’s office and the CICIG has been effective at promoting independent investigation of acts of corruption. While the CICIG has signed MOUs with several government agencies, including the IVE, the SAT, and the Comptroller General’s Office, its closest relation is with the Prosecutor General’s Office (PGO). Since its inception in 2006, the CICIG has collaborated with the PGO in the investigation of complex criminal networks that have infiltrated government institutions. This close collaboration has resulted in increased prosecutorial capacities and independence, a strengthened legal framework through reforms promoted by the CICIG, and in the uncovering of several high-profile cases (Box 1).

Unveiling High-Profile Corruption Cases: A Collaborative Effort Between the Public Prosecutor and the CICIG

The CICIG is an independent United Nations body created in 2006. Following 36 years of civil war and long post war period during which organized crime continued to grow, the Guatemalan government requested the United Nations support in the creation of a mechanism for the investigation and prosecution of organized crime. After a consultation with the Constitutional Court, the CICIG was designed as an agency that would support the Public Prosecutor’s Office, and work alongside a special unit of prosecutors created specifically for this purpose. The CICIG is led by a Commissioner who is recruited internationally by the UN and has the grade of Under Secretary General (USG), and its staff is also recruited internationally.

CICIG’s mandate consists of three objectives. First, to investigate the existence of illicit security forces and clandestine organizations that commit crimes that affect the fundamental human rights of the citizens of Guatemala, identify the illegal group structures, their modes of operation and sources of financing. Second, to collaborate with the Guatemalan Government in the disarticulation of clandestine organizations, promote the investigation, prosecution and sanction of the individuals involved in the illegal groups. Third, to make recommendations to the Government for the adoption of policies directed at eradicating these criminal groups. Additionally, CICIG is also authorized to make administrative complaints against public officials and can act as an interested third party in disciplinary procedures initiated against them. CICIG can also provide technical assistance to government agencies to fight organized crime.

To support the CICIG, a special unit within the Prosecutor General’s Office was created, called the Special Prosecutor’s Office against Impunity (FECI). The FECI is charged with the investigation and prosecution of those cases of organized crime selected by the Prosecutor General’s Office and the CICIG as involving clandestine organizations or illegal security forces, based on the criteria established in the Agreement and determined by the Prosecutor General and the Commissioner, together. CICIG/FECI cases are decided by High Risk Tribunals, created by Decree number 21–2009 to decide on cases that pose a higher risk to magistrates, judges, prosecutors, and other judicial employees, as well as witnesses, defendants and other actors, which includes organized crime.

Over the last few years, the MP and the CICIG have dismantled several networks suspected of illegal activities. A few of the most prominent cases include:

  • Tax Fraud. A case unveiled in 2015 known as La Linea would have involved importers benefitting from an expedite customs clearance and/or dismissal of customs duties in exchange of payouts to government officials. Investigations on another case led to one of the largest fines on record on a company trying to bribe tax officials to dismiss fraud allegations.

  • Illicit Government Contracts. (i) Criminal networks would have gained control over public institutions assigning and paying contracts, breaching procurement regulations. Proceeds from these operations would have allegedly financed political campaigns; (ii) Irregular award of contracts was also present in the provision of goods and services such as medicines, medical equipment, and promotional events. Selected companies (in some cases linked to public officials) lacking infrastructure, technical capacity or personnel required for the provision of goods or services would have breached their contract obligations.

  • Judiciary. Bribery charges have been brought against judges and magistrates for issuing illegal decisions regarding construction license permits, revoking political parties’ permissions and protecting relatives, in exchange of payouts or promotions in the Judicial branch.

  • Financial sector. Bank’s executives would acquire undervalued properties from the same bank’s portfolio through irregular auctions were funds would be transferred to paper companies’ current accounts.

21. However, for anti-corruption efforts to be effective, judicial integrity must be strengthened. While the investigation and prosecution of acts of corruption has increased, the number of convictions has not seen a significant impact (Table 3). At the same time, recent convictions and investigations against members of the judiciary have brought into light the need to enhance judicial integrity. This could partly be due to a lack of transparency in the appointment of judges and magistrates as well as on an insufficient disciplinary regime that does not cover all magistrates (Box 2). This can be achieved through (i) transparency and accountability throughout the selection process of judges and magistrates, beginning with a review of the appointment procedures of the nominations committee, and deeper scrutiny of the members; (ii) and an effective implementation of a transparent merit-based system for the advancement of judges’ careers. Online publication of all judicial decisions is step towards reinforcing legal certainty.

Table 3.

Guatemala: Prosecution and Conviction of Acts of Corruption

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Source: Office of the General Prosecutor.

Enhancing Judicial Integrity: Appointment Procedure

According to article 217 of the Constitution, magistrates are appointed from a list compiled by a “nominations Committee”. This committee gathers one representative from each Law University in the country, an equal number of representatives from the Bar Association, and an equal number of Supreme Court magistrates. The Law on the Nominations Committees establishes that the committee itself will draft the profile of the candidates and a scoring table for each requirement. The vacancy announcement must be published, as well as the candidates’ names, once selected. Once candidates’ requirements are verified, and once the interview process is concluded, candidates are scored and the commission will compile a list based on those scores. The list is then submitted to Congress for the subsequent appointments. There is no requirement that the selection process or the voting must be made public, and the candidates’ scores are not binding for the final appointment decision. Increased transparency in this selection process could improve judicial integrity, and subject the members of the commission to higher scrutiny in the selection of candidates.

22. Alongside increased judicial integrity, higher judicial effectiveness is much needed. A production based business model could result in increased judicial efficiency. This could include a number of reforms, such as (i) reorganization of courts (separating technical from managerial functions), (ii) simplification of administrative procedures, online access to services, proactive case management, improved budgetary mechanisms, and performance accountability (Esposito, Lanau and Pompe, 2014).

23. Asset disclosures have proven to be a valuable tool to combat corruption. Asset disclosures as included in the Public Probity Law, have been already used in the investigation of corruption and illicit enrichment by the General Prosecutor and the CICIG, with good results. Emblematic cases and ongoing investigations have proven that asset disclosures are an important source of information and support efforts to achieve the integrity of public officials (Table 4). Since 2014, the Comptroller General’s Office has received, verified and sanctioned officials administratively for delayed disclosure. It has submitted a total of 540 cases for criminal investigation by the PGO, including for breaches to the Public Probity Law and incurring in delays, or for unexplained patrimonial increases. However, for the system to be truly effective, important reforms are needed, such as (i) the implementation of electronic filing of asset disclosures, which will relieve significant resources currently used to digitalize forms; (ii) access to banking information for the purpose of verification; (iii) the online publication of asset disclosures of all public officials, which will increase transparency and accountability, all of which require legal reforms.

Table 4.

Guatemala: Asset Disclosures and Administrative Sanctions

article image
Source: Office of the General Prosecutor.

24. An updated legal framework could enhance anti-corruption efforts. A suite of draft laws is already with Parliament, waiting debate and approval. Laws supporting anti-corruption efforts include a reform to the criminal code (which includes a reform to the crime of illicit political party financing), a reform to the General Comptroller’s Office law (to include open government reforms and preventive auditing mechanisms), a reform to the Public Procurement Law, and a reform to the law on the Judicial Power (to separate administrative and jurisdictional functions). Additional laws are needed, which are not yet included in this package, such as a reform to the Law on Appointment Committees, the Public Probity law, or the new AML/CFT law.

Annex I. A Description of Third-Party Corruption Indicators

1. Since corruption is notoriously difficult to measure, we rely on several different data sources:

  • Corruption Index from the International Country Risk Guide (ICRG). This index varies between 1 and 6 (with lower values indicating higher corruption) and captures the extent of corruption within the political system, in particular in reference to “excessive patronage, nepotism, job reservations, ‘favor-for-favors’, secret party funding, and suspiciously close ties between politics and business.”

  • Corruption Perception Index from Transparency International. This index varies from 0 to 100, with lower values indicating higher corruption. It is constructed by averaging 12 different data sources that capture the perceptions of business people and country experts about the level of corruption in the public sector.

  • Control of Corruption indicator from the Worldwide Governance Indicators. This index varies from -2.5 to +2.5 (with lower values denoting higher corruption) and is constructed by aggregating multiple underlying data sources. It captures “perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as capture of the state by elites and private interests.”

  • World Economic Forum (WEF)’s ethics and corruption index and WEF’s irregular payments and bribes index is a survey-based index compiled by the World Economic Forum (WEF) in its Global Competitiveness Report. Ethics and corruption is the average of two variables: Diversion of public funds: In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption? (1 = very common; 7 = never occurs) and Public trust of politicians: How would you rate the level of public trust in the ethical standards of politicians in your country? (1 = very low; 7 = very high). Similarly, irregular payments and bribes index average score across the five components of the following questions: In your country, how common is it for firms to make undocumented extra payments or bribes in connection with (1) imports and exports; (2) public utilities; (3) annual tax payments; (4) awarding of public contracts and licenses; (5) obtaining favorable judicial decisions? In each case, the answer ranges from 1 [very common] to 7 [never occurs].

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1

The 2004 review of the IMF’s surveillance highlighted the need for systemic coverage of governance issues within the IMF’s mandate and called for enhanced and consistent treatment of governance issues in staff reports, enhanced coverage of the supply side of corruption, and enhanced use of material from other sources. An Executive Board review of the 1997 policy is envisaged this year.

2

Prepared by Yara Esquivel, Esther Perez, Jasmin Sin, Roany Toc Bac, and Christian Vera.

3

The first study, comprising 69,305 firms from 107 countries, showed that corruption created employment growth bottlenecks for medium and large firms over 2000–2006. The second study, based on enterprise data for Central and Eastern Europe and CIS, documented the association between corruption and firms’ innovation and overall performance.

4

Based on a dataset comprising 80 electricity distribution firms from 13 Latin American countries, the study finds a positive association between firms’ inefficiency levels and corruption.

5

For some countries (especially advanced economies), the corruption index shows little variation over time. As Barro (2015) points out, variables that have little within-country time variation cannot be estimated with precision using country fixed effects. In a framework without country fixed effects, estimate bias can be eliminated by including a rich array of control variables.

6

We exclude investment ratio and measures of institutional quality (e.g. law and order, democracy) from our list of control variables because they are highly correlated with a country’s degree of corruption.

8

contracts with a trustor providing financial resources for a specific objective and mandating to a trustee (financial institution) the realization of such objective.

9

The division of a large procurement operation into smaller transactions with a view of bypassing strict bidding and contracting requirements.

10

SAT is exploring the possibility to consolidate firms’ quarterly tax filings into the annual tax report, saving companies close to 40 hours in tax filing per year (240 hours currently).

11

This would allow registering companies online in the Commercial Register, the SAT, the IGSS and the Ministry of Labor.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Guatemala: Selected Issues Paper
Author: International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2018: Issue 155
Publisher:
International Monetary Fund
ISBN:
9781484360125
ISSN:
1934-7685
Pages:
88
DOI:
https://doi.org/10.5089/9781484360125.002
  • View in gallery

    Guatemala: Anti-Corruption Efforts in Regional Perspective

  • View in gallery

    Cross-Country Association between Corruption and GDP per Capita, 2015

    (Corruption normalized indices; index = (observation-average/standard deviation)

  • View in gallery

    Guatemala: Most Problematic Factors for Doing Business

  • View in gallery

    Education

    (Years of schooling and GDP per capita)

  • View in gallery

    Guatemala: Growth Gains from Closing Governance Gap with Sample Average

  • View in gallery

    Lower and Less Inclusive Growth

  • View in gallery

    Guatemala: Custom’s Prices and Tax Collection

Guatemala: Anti-Corruption Efforts in Regional Perspective

Cross-Country Association between Corruption and GDP per Capita, 2015

(Corruption normalized indices; index = (observation-average/standard deviation)

Guatemala: Most Problematic Factors for Doing Business

Education

(Years of schooling and GDP per capita)

Guatemala: Growth Gains from Closing Governance Gap with Sample Average

Lower and Less Inclusive Growth

Guatemala: Custom’s Prices and Tax Collection