The Challenges of Country-Led Development: Insights from Guatemala

November 15, 2016

A team from the CSIS Global Food Security Project recently traveled to Guatemala, home of the largest Feed the Future portfolio in the Americas. Despite its middle-income status, Guatemala continues to grapple with severe malnutrition, which undermines its human development potential. Ineffective governance is an artefact of political division, foreign meddling, and genocide, as Reid Hamel explains.

Guatemala is overwhelmingly the wealthiest of the 19 focus countries within President Barack Obama’s Feed the Future Initiative. Thanks to the industry and size of its migrant population, it also boasts the largest flow of financial transfers from abroad among the group.

By these metrics, Guatemala would seem an odd candidate for the intensive U.S. investment in food and nutrition security it has absorbed over the past six years. But Guatemala is plagued by some of the world’s highest rates of stunting, a symptom of chronic malnutrition that represents irreversible damage to physical and cognitive development and perpetuates the intergenerational transmission of poverty. More than half of all rural Guatemalan kids are stunted and many indigenous areas in the Western Highlands tallied stunting rates between 65 and 70 percent in 2014. Indeed, children born to indigenous mothers are nearly twice as likely to be stunted as those who are not.

This is a national disgrace for a country with the means, but not the political will, to spend its way to a solution. A focus on good governance and accountability is a key plank of the U.S. government’s new Global Food Security Strategy, “recognizing that developing countries, above all others, must own and be empowered to lead and guide these efforts to drive progress.” Such leadership has been increasingly questionable in Guatemala in recent years despite a number of well-crafted policies that fail to transcend the page.

Under-Resourced Ambitions

Overall public spending is very low, largely due to the inability or unwillingness of successive national governments to increase tax revenue, although efforts are ongoing. Though poorer neighbors Honduras and Nicaragua both capture about 20 percent of gross domestic product (GDP) in taxes, Guatemala has stagnated at around 12 percent. While most rural households are engaged in farming, public spending in agriculture equates to well under half a percent of GDP (meanwhile, Comprehensive Africa Agriculture Development Program [CAADP] countries have committed to allocating at least 10 percent of national budgets to agriculture). Investments in agricultural research and development are more alarming still, equal to a tiny fraction of a percent (0.14, to be precise) of the value of agricultural output, the lowest in the region.

Public health investments are equally disquieting at about 1.5 percent of GDP; there are only 3 health workers for every 10,000 people in rural areas and fewer still speak local languages. Health systems experts told the CSIS Global Food Security Project that the health budget could easily be quintupled and well used. The comparably inadequate water and sanitation infrastructure bears its own share of the blame for high stunting rates: a recent survey of over 1,200 communities in the Western Highlands found that 44 percent had no access to piped water at all. And where systems do exist, only a small fraction are chlorinated.

Compounding the challenge of anemic public financing is a vacuum of both political leadership and management capacity entrenched in a culture of endemic corruption. The CSIS team was repeatedly told that the new government, in place since January, has failed to spend the revenue already in its coffers this year. Within days of coming into office, the administration also chose not to renew the contracts of over 1,000 agricultural extension workers (already a gross undersupply at three agents per municipality). Positions are slowly being refilled, nine months later, and some former extensionists have been rehired for jobs they were previously deemed unqualified for. Both agricultural and health systems rely overwhelmingly on short-term contract workers, and tales of contract allocation for political allegiance over professional qualification abound.

Former president Otto Pérez Molina, who resigned in September 2015 amidst a massive customs corruption scandal, stands accused of accepting $38 million in kickbacks in an unrelated scandal pertaining to construction contracts. In June, he and his vice president, Roxana Baldetti, were among 70 former officials charged with embezzlement. Current President Jimmy Morales, a well-known comedian with no political experience, slid to overwhelming victory last fall on a platform of anticorruption with the straightforward campaign slogan, “not corrupt nor a thief.”

Improving Government Performance: Carrots and Sticks

But change is slow to come in the absence of compelling incentives for improved government performance at both central and local levels. And without such change, Guatemala’s congress is unlikely to authorize more robust budgets. What can be done to improve public service quality and accountability while curtailing corruption? And what role can international donors play to expedite a progression toward transparency and results for the most vulnerable and disenfranchised?

A substantial academic literature focuses on incentivizing better civic performance through both supply- and demand-oriented channels. Several recent contributions might translate well within the Guatemalan context:

Transparency: When local government leaders in Malawi were told that a letter outlining their resource distribution decisions would be sent to local communities, they were more likely to allocate based on need rather than political expediency.

When local government leaders in Malawi were told that a letter outlining their resource distribution decisions would be sent to local communities, they were more likely to allocate based on need rather than political expediency. Accountability: After Brazilian municipalities were randomly audited for use of federal funds, those that had been audited in the past exhibited significantly fewer irregularities than those that had not (even after controlling for municipal characteristics).

After Brazilian municipalities were randomly audited for use of federal funds, those that had been audited in the past exhibited significantly fewer irregularities than those that had not (even after controlling for municipal characteristics). Financial and Nonfinancial Rewards: The use of performance-based financing has grown dramatically in the field of public health in recent years (performance may be measured at the district, facility, or even individual level). But nonfinancial rewards, in the form of public recognition, were found to be even more effective than financial incentives for public service delivery in Zambia.

The use of performance-based financing has grown dramatically in the field of public health in recent years (performance may be measured at the district, facility, or even individual level). But nonfinancial rewards, in the form of public recognition, were found to be even more effective than financial incentives for public service delivery in Zambia. Benchmarking: On the demand side, the provision of a basic civics course in Mali covering information about local government capacity and responsibilities increased the previously infrequent sanctioning of poorly performing politicians by raising community expectations. The research suggests that information alone is insufficient to drive behavioral change without an appropriate comparative reference point, and such reference points are differentially unavailable in developing countries.

Guatemala is a fertile testing ground to examine the potential impacts of such thoughtful approaches to improved governance. The U.S. Agency for International Development (USAID) Mission is already ahead of the donor curve in terms of evaluation foresight (it’s one of the few Feed the Future countries with a pure quasi-control group), and better governance is among its top technical priorities. But overall Feed the Future resources for evaluation are paltry, as noted by a recent Brookings Institution paper. The initiative spends approximately 1 to 2 percent of its budget on monitoring and evaluation, in stark contrast with the President’s Emergency Plan for AIDS Relief (PEPFAR), which recommends allocating 5 to 10 percent of program resources for research and learning activities. Research is often perceived to be expensive, but the compounding costs of ineffective programming are much more so.

Now Is the Time to Invest

There is a sound business case for getting Guatemala’s public-sector investments right today rather than 20 or 30 years hence. The country’s population dependency ratio, or the number of children and elderly that each working-age citizen effectively needs to support, has been falling rapidly for the past 20 years. It will continue to decline at a slower rate for two more decades (although an accessible family planning program would augment ratio favorability) before tipping back upward by mid-century as the population ages. The temporarily low dependency ratio associated with the demographic transition (sometimes referred to as the “demographic dividend”) opens a short-lived window of opportunity for a country to invest in hard and soft infrastructure and other public goods, like agricultural research. Rural Guatemalans have already waited far too long for needed improvements in health, education, and market infrastructure, and such investments will only become more expensive vis-à-vis other budgetary allocations in the future.

The U.S. Self-Interest

The complexity of the United States trying to make headway within an obviously broken system rightly calls into question the logic of concentrating limited Feed the Future resources in Guatemala at all. But the justification is unassailable, if perhaps equally complex. There are two obvious prongs of self-interest at play here: trade and migration.

Since the Central American–U.S. Free Trade Agreement (CAFTA) went into effect in 2006, exports to Guatemala have increased by 107 percent while imports have grown by nearly a third. The United States imports nearly $2 billion worth of Guatemalan agricultural products alone each year, making it one of our largest agricultural suppliers.

To the extent that border apprehensions reflect undocumented migrant flows, Guatemala’s outbound population has simultaneously swelled in recent years. In 2011, 1,565 unaccompanied Guatemalan children were apprehended along the southwest border. Within three years, that count had increased ten-fold, and it grew to nearly 19,000 in 2016 (with an additional 28,000 children from Honduras and El Salvador). Meanwhile, Mexico has significantly stepped up its efforts to curtail migration from the northern triangle and has more than doubled its own apprehensions in recent years.

The drivers of continuous migration flows are complex: though the impact of organized crime cannot be discounted, Guatemalan youth also lack economic opportunities at home (and the two phenomena are naturally codeterminant). Climate change is undermining the productivity and aspirations of even the most committed farmers as Central America experiences its most severe drought in decades, adding urgency to the case for agricultural investment.

A Sordid Past

But there is another reason that the ongoing struggle for good governance in Guatemala should command U.S. attention and investment, one that is also a mainstay of international development textbooks the world over. A U.S. firm, the United Fruit Company, had operated profitably in the country for decades by the mid-twentieth century. In that time, it had become Guatemala’s largest employer and landowner, in part by discouraging the national government from building highway infrastructure that would have eroded its railroad monopoly. But when President Jacobo Árbenz Guzmán passed an agrarian reform decree in 1952 that expropriated over 40 percent of the company’s land for redistribution, its future became tenuous. United Fruit lobbied the Dwight Eisenhower administration that Árbenz intended to align Guatemala with the Soviet bloc. While the evidence was scant, many personal ties between the U.S. administration and United Fruit dictated foreign policy: Secretary of State John Foster Dulles’s former law firm represented United Fruit, his brother Allen was both CIA director and a United Fruit board member, and the company’s principal lobbyist was married to Eisenhower’s personal secretary, among other connections. The CIA orchestrated a coup d’état, overthrowing the Árbenz administration and placing Carlos Castillo Armas in his stead.

While Eisenhower intended for the installation of Castillo to stem the tide of communist tendencies in the region, Castillo did not prove to be a stabilizing force. Rolling back a decade of social progress, he forced peasants off of their newly acquired land to return it to United Fruit. He formed the National Committee of Defense Against Communism and purged the government and trade unions of suspected leftist sympathizers. He banned political parties and peasant organizations, stripped half the population of voting rights, delayed elections, and introduced a new constitution while having himself declared president for four more years. After his assassination in 1957, the nation disintegrated into nearly four decades of dictatorship and violence.

In 1996, Guatemala saw the end of a brutal, 36-year civil war. Over a million people were displaced in the conflict that killed 200,000; a 1999 UN-sponsored Truth Commission found that 93 percent of deaths were connected with U.S.-supported government forces. While the Commission stopped short of finding the United States complicit in its proclamation of genocide (a diagnosis rebuffed by both President Morales and his predecessor), it stressed that the United States was well aware of the “scorched earth” policy in the early 1980s when entire indigenous villages were massacred.

(Re-)Focusing on Governance for Food Security

Today’s Guatemala is caught in the undertow of the last government’s scandal-filled wake, but its troubled history is not much further below the surface. The United States has demonstrated its intention to be a good neighbor and partner to achieve mutually beneficial development goals, with greater food and nutrition security chief among them. To realize the relationship we strive to have tomorrow, we must account for the one we shaped yesterday.

The design, and ultimately the success, of Feed the Future is predicated upon robust complementarities in public resource provisioning. USAID/Guatemala should avail itself of all the carrots and sticks in its arsenal to spur an abiding political and financial commitment to evidence-based and results-oriented governance programs. Such investments will pay dividends in agricultural growth, food security, and poverty-reducing employment creation for Guatemalans today and for generations to come.

Reid Hamel is a research fellow with the Global Food Security Project at the Center for Strategic and International Studies in Washington, D.C. A comprehensive report of CSIS observations of and recommendations for the Guatemala Feed the Future investment portfolio will be published in early 2017.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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