Honduras This Week Central America

CENTRAL AMERICAN ROUNDUP

ECLAC 'moderately optimistic' over Latin American growth

(LATIN.NET) -- Latin America and the Caribbean will grow by an average 4.5 percent this year, up from last year's 3.5 percent and the 1990-94 3.7 percent average, according to the latest Economic Commission for Latin America and the Caribbean (ECLAC) report.

However, while GDP per inhabitant is expected to grow 2.6 percent in the region this year, up from 1996's 2 percent, ECLAC warns that this is still insufficient to counteract the widespread poverty and unequal distribution of income.

Argentina will show the highest GDP growth this year, around 7 percent, followed by the Dominican Republic and Chile's 6 percent and 5.5 percent respectively. Nicaragua, Mexico, Uruguay, Peru, and El Salvador will grow by around 5 percent; Guatemala, 4.5 percent; Bolivia and Venezuela 4 percent; Brazil, Honduras, and Haiti 3.5 percent; Panama, Colombia, Ecuador and Paraguay, 2.5 percent; and Costa Rica 2 percent.

Faster growth is linked to capital inflows this year of $70 billion, up from last year's $63 billion. These inflows, claim ECLAC, will more than compensate for growing current accounts deficits, which are projected to increase this year to some $55 billion.

The regional inflation rate is forecast to come in at 12 percent, down from 18 percent last year, and the lowest seen in 50 years. Of 23 countries considered, 15 will enjoy one-digit inflation rates this year. A key negative factor in the 'moderately optimistic' outlook depicted by ECLAC is unemployment.

The above article appeared in Latin.Net, a weekly newsletter published by Dr. Chris Brogan that provides an analysis of key event's in Latin America.

More information about the newsletter can be obtained at http://ourworld.compuserve.com/homepages/LatinNet/

CENTRAL AMERICAN ROUNDUP

Guatemala Bounces Back

(LATIN.NET) -- The Guatemalan economy, the largest in Central America with a GDP of $16 billion, is 'sound, robust and growing' after bounding from the economic slow down of 1996. Guatemala's real GDP grew by 3.1 percent in 1996, a decline from the 4.9 percent achieved during 1995 and looks set to record 5 percent growth this year.

Coffee and sugar and, more recently have traditionally fuelled growth, by non-traditional exports, such as assembled clothing, winter fruits and vegetables, furniture and cut flowers. Tourism has also developed significantly and should continue to grow.

In 1996, more than 500,000 visitors came to Guatemala. The inflation front is also providing favorable news, with the 12-month rate to June coming in at 8.97 percent, the lowest rate in 12 years, and well within the government's target range for the year of 8-10 percent.

With imports stable, exports rising sharply, and net international reserves in excess of $1 billion, there is every chance that Guatemala will record its first current account surplus in years. A successful $150 million bond issue in July, an unqualified internal debt restructuring program and the resumption of privatization have all added to the bullish mood.

POWER PRIVATIZATION UNDERWAY

On 18 August, the Guatemalan Electric Company (Empresa Electrica de Guatemala SA, EEGSA) completed the sale of the 90 MW 'La Laguna' plant and the 76 MW 'Stewart & Stevenson' generating plants in Escuintla to the Guatemalan Generating Group (Constellation Power Development Inc), a subsidiary of Baltimore Gas & Electric Company.

The deal attracted six offers from five U.S. firms, including Enron and AES Aurora, and one Venezuelan company. All participants promised to pay a fixed price of US$30 million for 90 percent of the ailing La Laguna and Stewart & Stevenson thermoelectric plants, but Constellation won the bidding by offering to fulfill the terms of the prior purchase agreement at an average cost of 5.199 cents per kilowatt-hour.

The winning bid combines the purchase of the entire generative capacity of the 95 percent state-owned distributor, the Guatemala Electricity Company (EEGSA), with an 18-year prior purchase agreement requiring EEGSA to buy 150 MW from GGG by the third year.

Observers described the bidding process leading up to and including the sale as 'impeccably organized' and highly transparent. The price of $30 million is thought, by officials and participating companies alike to be fair, given that La Laguna is old and inefficient and that the Stewart & Stevenson turbine suffers from constant technical problems.

Suggestions that the turbines were sold too cheaply assume that the price paid when originally purchases were made in 1991 were fair. Most industry specialists believe it was overpriced.

EEGSA SET FOR PRIVATIZATION?

Under the General Law of Electricity approved by the Congress last year, no single company can operate in more than one of the electricity sub-sector of generation, transmission and distribution. The sale of the EEGSA plant marks the first stage in the eventual privatization of EEGSA itself, which now performs a purely distributive function.

Privatization, which is expected to take place next year, should be fairly straight-forward since EEGSA is already a limited company, enabling the government to sell the state's share without having to face the type of legal challenges that have complicated the privatization of the fully state-owned Guatemalan Telecommunications Company (GUATEL).

However, the tariff hikes necessary to improve EEGSA's attractiveness to investors, will create some controversy. Indeed, electricity tariff increases are already under way.

THE JEWEL IN THE CROWN

In October, the jewel in the privatization process, state telecom firm GUATEL, will be sold, and preparations are underway for the sale of Guatemala's two major airports is in the offing. GUATEL itself has already been turned into a 'private' company, telecomunicaciones de Guatemala S.A or TELGUA, and is now in the process of selling shares to foreign investors.

An important stage in the company's privatization took place on 29 August when GUATEL workers signed letters of resignation with the old company, and contracts to work for the private GUATEL. In return they were given their share of a 5 percent stake for workers in the new company.

Five telecommunications companies have been invited to submit bids for a 51 percent stake in TELGUA: GTE, MCI and SBC Communications of the United States, TelMex, the largest Mexican long distance company, and a subsidiary of France Telecom.

It is important to note, however, that the telecommunications sector will remain closed to competition, with a public monopoly being displaced by a private monopoly. The demonopolization of the sector is unlikely to take place until after the next elections. Only 3.5 percent of the population currently have telephones.

Nicaragua prez threatens strikers

(LATIN.NET) -- President Arnoldo Aleman has threatened to suspend government contracts with unions participating in a strike that has partially crippled Nicaraguan transportation network.

The strikers are demanding that Aleman's government stop issuing licenses for more transportation services. Aleman claims the policy will lead to greater competition, better service and reduced fares.

Panama Canal Zone attracting sizeable investments

(LATIN.NET) -- According to Panama's Inter-Oceanic Region Authority (ARI), more than $800 million in foreign investment are in the pipeline for the next five years. Up to 140 projects along the Canal, which returns to Panamanian control on 31

December 1999, are being studied, including the sale of the trans-isthmus railway to a U.S. company that has proposed investing some $300 million to upgrade equipment and infrastructure in the areas handed back so far.

The handover of assets began gradually in 1979, when the 1977 canal treaties went into effect. But from now to 1999, Panama will receive assets, which have been costed at some $30 billion.

So far Washington has delivered to the Panamanian state the international ports of Balboa and Cristobal, located at the two ends of the canal, eight military bases, two airports, the trans-isthmus railway, 1,200 buildings, 8,250 hectares of land, food processing plants, and other infrastructure. Processing zones on the Caribbean coast, two new ports for containers, and the upgrading of two other recently privatized ports, the refurbishing of an airport for domestic flights, and an international university are some of the projects currently underway.

FISCAL REFORMS LAGGING

Still, some concerns remain. Despite a successful program of

diversification, the economy still depends heavily no the vagaries of the world coffee market rests heavily on the performance of a handful of agricultural commodities, notably coffee. Low coffee prices (as in 1996) generally translate into economic slowdown, high prices (as is the case now) economic buoyancy.

There is, moreover, little tangible evidence of the mass of social and infrastructural projects planned following the end of

the civil war. Some $2 billion has been pledged to help finance these by the international donor community, but conditions have been attached with Guatemala, required to increase tax revenues to 10 percent of GDP by 1998 and 12 percent of GDP by 2000 to generate its $700 million share of the funding for these programs. As yet, little progress has been made to effect fiscal reforms.

Indeed, progress on enacting President Arzu's structural reform plan generally has been sluggish with political support lukewarm.

All original articles and photographs published in Honduras This Week are protected by international copyright law. Reproduction, in whole or in part without prior written permission, is strictly prohibited.

Published online by Marrder Omnimedia