Politically, the year 2015 has been an exceptional one for Guatemala. A month after the resignation and arrest of former president Otto Perez Molina amid a corruption scandal involving a multimillion-dollar customs scam (known as ‘La Línea’), Jimmy Morales, a political newcomer and former TV comedian with no prior experience in government, was elected president with an overwhelming 72% of the vote in the country’s October 2015 elections.
The arrest of Otto Perez Molina in particular, and other steps taken towards the dismantling of organised crime, are generally seen by the public as a landmark moment in the country’s path towards a modern democracy. It has certainly sent a positive signal that Guatemala’s justice system was not only willing but also able to take on the battle against corruption (albeit with support from international counter impunity commission, CICIG). Many hope that this in turn will lead to an increased willingness to invest in the country.
Unsurprisingly, the country’s tax administration has subsequently been undergoing extensive overhaul with recent proposals for a new Tax and Customs Administrative Tribunal. While the re-doubling of the fight against tax crime is generally positive for the country’s image, companies also fear the criminalisation of tax matters. In the legal services sector, while on the one hand recent events may create more work, in the short term, many lawyers are also wary that this tougher stance and a heightened mistrust in tax officials may have a negative effect on trade, and ultimately add to the regulatory obligations required of companies.
Regardless of these recent events, Guatemala -the largest and most populous of the Central American economies- has maintained relatively robust economic performance. After a GDP rise of 4.2% in 2014, which marked the highest rate of growth since the beginning of the decade, Central Bank figures show growth of 3.9% in 2015 (predicted to contract slightly further, to 3.7%, in 2016). Due to its long history of macroeconomic stability (even during political crises), and successive governments’ commitment to fulfilling public debt obligations, Fitch Ratings recently rated Guatemala at BB Stable.
The country’s economic outlook is closely linked to that of the US, Guatemala’s biggest trading partner by far. The US is also the greatest source of remittances and the growth of these returns, which contributes to consumer demand, surged in the first quarter of 2016, marking the strongest gains for nearly eight years.
Despite the local banking sector also being under scrutiny with some banks accused of being involved in money laundering, the banking and finance sector remains stable. Its consolidation has remained very gradual over the years and local banks maintain their leadership in terms of market share in what is a highly competitive market. Recent trends include renewed interest in structured products and a revival in the demand for aircraft finance, and there is optimism that there will be a flow of infrastructure projects developed under private public partnerships (PPP), which will create considerable finance-side activity. Elsewhere, Guatemala’s microfinance sector is expanding rapidly, and recent parliamentary regulation of the sector should encourage further growth in the industry. By contrast, a controversial credit card law (sanctioned by then acting-president Alejandro Maldonado) which limited the interest rates charged by credit card issuers, took effect in March, only to be suspended less than a month later by the Guatemalan Constitutional Court. While the law was intended to protect people from going into debt, its net effect –either due to loss of credit access or a behavioural shift– was to reduce spending.
The IP market has grown steadily since industrial property legislation was enacted 16 years ago. Most recently, accession to the Trademark Law Treaty administered by the WIPO was approved by Guatemalan congress and came into force in March 2016. Implementation of the treaty will simplify and expedite the filing of trade mark registrations.
With criminal/white-collar cases on the rise, many law firms are seeking to bolster their dispute resolution practices. Issues around corruption and impunity have caused not only individuals but also regional and large family businesses to seek legal advisors in relation to matters such as fraud, white collar crime, theft and cybercrime. Traditionally the larger commercial law firms in Guatemala did not focus on establishing criminal practices within the firm but chose to subcontract due to both cost and security preoccupations. As in other countries, for example Mexico, this landscape is beginning to change, with many firms making lateral hires or trying to develop criminal practices from the bottom up.
The Guatemalan legal market has not remained aloof from the trend towards regionalisation in Central America. In this context, key movements include local firm Asensio, Andrade & Asociados’ incorporation as the Guatemalan office of emerging regional player García & Bodán; local powerhouse Mayora & Mayora, S.C.’s first foray abroad with the opening of an office in Honduras; and indications that Lexincorp is seeking to more fully and efficiently integrate the firm’s services in the region with the appointment of a regional director. These moves come in the wake of Costa Rican heavyweight Pacheco Coto’s absorption of the former Guatemalan office of ACZALAW, Abogados Centroamericanos Asociados, and leading local firm Arenales & Skinner-Klée’s incorporation into regional alliance LatamLex, in 2013 and 2014 respectively. With another Costa Rican heavyweight, BLP, also circling the Guatemalan market with an eye to complete its regional presence, it is unlikely that the current wave of regional consolidation is over. Beyond these movements, the market features both those firms that have already obtained a regional presence, such as Aguilar Castillo Love, Arias & Muñoz, Central Law Guatemala and Consortium Legal, as well as proudly independent local champions, including QIL+4 Abogados, Carrillo y Asociados and Comte & Font – Legalsa. Meanwhile, a number of firms find themselves under scrutiny due to revelations emerging from the so-called ‘Panama Papers’.