1997 could substantially change the economic situation in Guatemala. Although economic growth is low, macro-economic stability prevails. However, Guatemalans are somewhat skeptical, because in 1996 the economic situation did not respond to the prior year's expectations.

According to the AGG indicator, created by the Center for National Economic Investigation (CIEN) for Gerencia magazine, it can be seen that, during 1995, economic growth was almost constant throughout the year. In 1996, the economy grew in less proportion when compared to the prior year. Possibly, economic growth for the present year will be lower than 4%.

Accumulated inflation for the second week in October was 8.4%, thus it is deduced that it will be very difficult to reach the government's goal. It is expected that, at year's end, inflation will be at one or two points above the maximum limit of the established goal, resting somewhere between 10% and 12%.

The mean active interest rate of the banking system has stabilized, and has even shown a slight decline. This decline is mainly due to the change in fiscal policy. With this new policy, less resources are assigned to debt, and there is less government intervention in the national financial markets, which helps to lower market rates.

The economic goals set by the government for next year are published with the General Income and Expenditure Budget 1997. This budget has raised expectations among Guatemalans. Its objective is to define the economic and social policies that the public administration will follow during that year.

The budget for next year ascends to Q13,840.9 million, with an increment of 11.5% with respect to 1996. The government presumes an economic growth of 5.5%.

The distribution of the State income for next year will be of Q10,342.5 million in ordinary income and Q3,948.5 million in capital income. According to projections of the Public Finance Ministry, in 1997 the tax income will rise 7.3%, with respect to budgeted income for 1996.

Capital income figures for next year must be highlighted, for most of this income will come from the privatization of federal companies (Q1,569.8 million).

The budget for 1997 presents several noteworthy changes with respect to the prior year: privatization of federal companies and support to monetary policies. The sale of these companies will directly reduce internal debt. On the other hand, privatization and demonopolization of the service companies improves the quality of the services they provide. With the sale of stock, an extraordinary source of income will be created, and will be used to amortize public debt, thus liberating financial resources that can be assigned to prioritary sectors like education, health, and security.

The Central Government will commit to handing Q1200 million to cover the deficit generated in the monetary branch. Operational losses of the Bank of Guatemala have put strong pressure on the local price levels. It is noteworthy that the government has recognized that the solution to this problem is of fiscal character. If the deficit is not leveled in time, the macro-economic stability of the country and, thus, sustained economic growth, will be put on risk.