The Sales Tax Goes Up and Legitimacy Goes Down

It’s been years since Guatemala has seen such massive protests. People reject the sales tax hike, convinced that the government will waste the taxes through incompetence and devour them through corruption. The government’s legitimacy is plummeting.

Juan Hernández Pico, SJ

Amidst a bitter debate between President Portillo and CACIF, the leading business umbrella organization, the ruling Guatemalan Republican Front (FRG) pushed a fiscal reform through Congress on July 27 with the votes of the majority of its own bench plus two representatives of smaller parties. Among other measures, the reform includes increasing the value-added tax (sales tax) from 10% to 12% (El Salvador’s sales tax is 13% and Nicaragua’s 15%) and stiffening up the tax and penal codes related to fiscal matters.

Former President Vinicio Cerezo, who had been forced to withdraw his own fiscal reform in 1987 in response to a business strike, is now a congressional representative. In a perhaps not so curious note, he stayed home on the day of the vote this time.

The day of national dignity

Big business is as opposed as ever to taxes. Its representatives in CACIF declared August 1 the "Day of National Dignity." It announced a nationwide shutdown of business activities and called on other organizations to join them in a march. The Guatemalan Workers Confederation, the University Students Association, the opposition parties and numerous civil society organizations, including some Catholic groups, also called on people to march, but made it clear that their banners and objectives differed from those of CACIF. The strike was a success. Over 90% of the capital’s businesses closed their doors. Some 20,000 people walked from the Plaza de la Constitución to Congress and the Constitutional Court. In addition, several organizations are now preparing to file an appeal against the tax reform before the Constitutional Court.

The protest was indeed nationwide, as businesses closed en masse in many other cities around the country. To find a similar national response, we would have to go back to the self-coup attempted by former President Serrano in 1993, or even to the demonstrations preceding the 1944 Revolution. Women, men and even children were struck down in violent confrontations between anti-riot police and provocateurs in the capital, while the most violent incidents in the rest of the country took place in Totonicapán. There a crowd of people broke windows in the house of the Arévalo brothers, respectively the city’s mayor and a departmental representative, and tried burn it down along with the cars parked inside. Others blocked access to the street and nearby highway, preventing police and fire fighters from getting through.

Total rejection of the sales tax

That night, President Alfonso Portillo said on national television that, while citizens have the right to dissent, the executive branch would uphold the tax reform. The tone of his speech was again confrontational. He explained that the US$500 million the government needs to implement the peace accords cannot be financed by a fiscal deficit, nor can Guatemala count on the Consultative Group’s financial support of an additional $1.9 billion if the state does not contribute its share. He added that former President Arzú’s government left the state some $3 billion in debt. Former Vice President Luis Flores responded the following day by presenting other figures, ostensibly official ones from the Bank of Guatemala. "You are lying," Flores challenged Portillo, charging that the President was trying to justify his government’s ineptitude and corruption with his lies. Later, however, the Bank of Guatemala’s president challenged Flores’ figures. "I believe he is confusing fat with lard," he said.

Most people oppose this reform to increase the sales tax. In a country like Guatemala, which does not have a culture of paying taxes, any tax increase is deeply unpopular. People bristle over the regressive sales tax in particular because it hits low-income people hardest and is unavoidable since it is automatically included in the price of all consumer articles, even those sold without receipts. At the same time as people are being crushed by the combination of high prices and low wages, however, they also know that many businesses, especially the biggest ones, are corrupt and do not turn the sales taxes they collect into the government. And this is not to mention what the governments, with their greater or lesser degrees of corruption, then do with the tax receipts that do reach them.

The result is that people do not see any improvement in the quantity and quality of public services that the government should be able to offer with the income generated by increased sales tax. And the small percentage of educated people, which includes the leadership of grassroots and nongovernmental organizations, are well aware that the reform did not increase or adjust the more progressive direct taxes (income tax, property tax, estate tax, etc.), which makes them even angrier about the sales tax hike.

A nationalistic flavor

Moreover, since the Consultative Group made tax reform a prerequisite for disbursing most of the $1.9 billion to implement the peace accords promised during Arzú’s government, and the "imprudent" US Ambassador Prudence Bushnell publicly stated she supports the reform, the protests are spiced with nationalist sentiment.

CACIF is not above manipulating this sentiment on its own behalf. In one picturesque exercise of demagogy, a few hundred wealthy people elegantly dressed in black silently protested in front of the ambassador’s house for several nights, carrying banners that read, "Prudence, go home! No US intervention in Guatemala!"

Much more than the sales tax

The tax reform is not limited to the sales tax, however. Other taxes were decreed on top of those increased or reformed in 2000—including some that marginally affected income tax—and some forms of tax evasion, such as unlimited gifts to foundations and other exemptions, were eliminated. The tax on commercial and agricultural businesses was increased 1%. The tax on the distribution of fuel oil was increased except when used to generate electricity, and the tax on all other petroleum-derivative fuels was dollarized. The tax on sea and air vessels was doubled. Customs discounts for the import of used cars was dropped, although this merely applied a law on unifying and standardizing Central American customs policies supposedly in effect since 1992. And a tax was established in the form of a stamp of up to one quetzal per liter on soft drinks, alcohol, wine and cigarette packs. The vast majority of these taxes affect producers, distributors and merchants, who, given Guatemala’s prevailing anti-tax culture, are averse to paying them. What’s more, since these sectors refuse to see their luxurious profits reduced even the slightest, people know that even these taxes ultimately get passed on to them, which also explains why so many sectors found themselves on the same side as CACIF in the protest.

Without fiscal culture or civic conscience

The tax reform includes a revision of the penalties and administrative and penal procedures designed against tax evasion and contraband. Any sensible person knows that evasion is rampant in Guatemala and that the screws have to be turned on this issue. Whenever the government talks about creating or increasing taxes, businesspeople suggest that it improve tax collection and prevent evasion so that honest people do not pay for the corrupt. Nonetheless, CACIF immediately starts screaming "fiscal terrorism" whenever the government proposes stiffening the penalties against evasion. Such proposals have included imposing jail time without bail for customs fraud and contraband; jail sentences for tax fraud, undue tax appropriation or failing to cooperate with tax auditors, which would be commuted if the accused pays up; or extending the Superintendent of Tax Administration’s authority to close a business found committing tax fraud.

This attitude shows a striking lack of civic conscience. In the democratic tradition, belonging to a state has always meant accepting that the people’s elected representatives may legitimately and legally require citizens to contribute to the burden of paying for the common good and insist that they not defraud their government. But in Guatemala, the issue is complex. Paying taxes means not only decreasing profits and contributing to a redistribution of wealth, but also losing independent economic power and agreeing to share it with a stronger state than the current one. This is not the inclination of the small but powerful economic group—no more than 1.5% of the total population—that possesses 80% of the country’s wealth.

The unions, students and other grassroots sectors of civil society did not agree with this attitude on the August 1 march. "Our objectives are not the same as CACIF’s," said some of their banners. For this reason, one commentator wrote that the march recalled Easter Week processions, with all the floats in the streets depicting the various scenes in the passion of Christ, but each one organized by its own group and following its own route. And in fact, the march concluded without any unifying social or political speeches.

The dilemma between a strong state and corrupt government

It is clear that people are not indignant over the entire tax reform. The majority aspire for a state that practices justice, passing reasonable, equitable laws that respond effectively, efficiently and honestly to their deeply felt needs for a more humane economy and more reliable security. If most people strongly oppose the new taxes—and one survey showed that 91% opposes the sales tax increase—it is because of the inequity in the tax structure and because they feel the government will waste the money through incompetence or devour it through corruption.

The lack of transparency certainly lends credence to these emotional perceptions. In April, the newspaper Vox Latina found that 80% of those consulted felt that General Efraín Ríos Montt, head of the ruling party and president of Congress, "lies and commits abuses and acts of corruption." This contradicts the slogan he has always boasted of and under which he has run in three elections since 1990. And in Vox Latina’s latest survey, in July, 86% responded that they do not believe that the government spends the money it takes in through taxes correctly. On May 31, Day of the Constitution, Ríos Montt argued that people could not pay for most of the fiscal package and promised it would not become law. Nonetheless, he pushed it through on July 27.

Incompetence: mother
of all corruption

Perhaps what most gets in the way of resolving the dilemma between the need for a strong state and the perception of a corrupt government is that Portillo’s government seems mired in incompetence, the mother of all corruption. According to Vox Latina’s April poll, 78% thinks President Portillo is confused and lacks clear goals, 68% believes he makes bad decisions, 59% believes he is isolated within his party and only 13.4% would vote for him again. By July, only 9% said they would vote for him again. All of this indicates a general perception of vast government incompetence or ineptitude, or that the conflicts within the government and constant confrontations with Congress have fragmented the administration.

The government’s ineptitude torments people. Coming to govern a small but complex country like Guatemala has been a sad adventure for President Portillo, who lacks the capacity and aptitude for dealing with public affairs, is skilled only at using heated, confrontational words, and keeps making promises that never come to anything. He portrays himself as a brave man who confronts and reins in the traditionally powerful sectors and works for the poor, but he lives in a very wealthy neighborhood in the capital alongside those same sectors he confronts, letting the nouveau riche social climbers use their friendship with him and converting his workday lunches into sumptuous parties in trendy restaurants.

Pluralism?

It was no doubt brave of him to form a Cabinet that includes not only followers of a skillful FRG caudillo like Ríos Montt ("You can bend the law without breaking it") whose authoritarianism borders on the fanatic, but also people with histories of service in the leftist opposition, the university, the media and humanitarian and religious organizations. But this step also requires the intelligence to make viewpoints converge in a way that enriches the results. With no one to balance the forces, the result was that a single perspective won out by annulling or coopting the others, and thus the pluralist executive branch remained only half built; in place of a master work we have nothing but the abandoned foundations.

The president’s dreams
a year and a half later

It stirs up both sadness and anger to recall today President Portillo’s great dreams. In his inaugural address, he spoke of building his government on five pillars. The first was the consolidation of democracy based on the project of nation designed in the peace accords. After more than a year and a half of Portillo’s government, the peace accords are at a standstill and the fiscal pact—which is much more than a mere tax reform—remains stalled. Underneath it all lies a contradiction between the enthusiasm and intelligence required to put the peace accords into effect and the lack of interest in them demonstrated by the FRG as a whole and Ríos Montt in particular.

The second pillar, decentralizing power by transferring some to the municipalities, has also gone nowhere. The eternal complaint is that the budget shares that correspond to the municipalities are given only to those run by FRG mayors. The law governing the Departmental Development Councils has not been reformed to allow greater participation for the municipalities. Once again, there is a contradiction between the democratic participation implied in decentralization and the governing party’s taste for authoritarianism.

Backing corrupt
businesspeople and bankers

The third pillar was economic reform to revive growth without privileges. The government’s economic program has been mixed, with some success, some inflated images and quite a few failures. The Bank of Guatemala has succeeded for the moment in keeping the exchange rate and the annual inflation rate in check. But what are dubbed "Open Market Operations" to restrain liquidity and prevent higher inflation have caused the bank’s amortization obligations to shoot up. And although foreign reserves are high and interest rates have fallen somewhat, neither credit nor investments have increased. The Monthly Index of Economic Activity reveals negative trends that oblige analysts to lower the predicted growth rate, already under 3%.

Corrupt businesspeople and bankers have been supported and even favored. The government has presented an image of breaking monopolies in sugar, chicken, cement, fertilizers and other products, but without any significant liberalization of imports or lowering of prices. All the noise around the review of the privatization process was pure image. Congress voted to reduce the national budget, but then later voted to increase it by a significantly greater amount. Presidential resolutions distribute funds to institutions and ministries, including defense, whose budgets should be cut. Congress still has not managed to approve new legislation to regulate the banking sector, and the government has done little if anything to bolster its weak efforts to defend the environment or the strategies to reduce the country’s vulnerability to natural disasters.

The fourth pillar, the fight to reduce the country’s enormous social inequalities, has not been made concrete with a budget increase for education and health or adequate follow-up of the communications infrastructure works implemented by the previous government. The drama of marginalized urban areas, especially in the ravines around the capital, remains to be addressed. Many people fear that the big literacy project will also remain nothing but image, especially because of the lack of democratic dialogue in its planning.

Demagogic populism
breaks all records

The fifth pillar, the fight against impunity and for increased personal security, is an issue of enormous national disappointment. President Portillo has already gone through two government ministers and three National Police directors. The hardest thing about the situation here is that the President apparently believes that crime can only be dealt with by suspending constitutional guarantees and imposing states of emergency. This is where the government’s ineptitude is most costly. The weaker the government’s civil structure, the more the country is squeezed through waste and theft and the more room is opened up for the remilitarization of society, for pro-order and anti-human rights ideologies and for organized crime.

President Portillo’s dreams were very clear, but the problem was how to put them into practice without abusing his exceptional margin of victory in the elections or tearing the country apart. The famous economic, political and social "matrixes" drawn up last year by his advisers were not translated into programs and projects, except for the literacy campaign. Nor did the President and his team design a hierarchy of priorities. As a result, this is rapidly becoming one of the most demagogically populist governments in Latin American memory, to the point that in his last speech on national television, on August 1, Portillo went so far as to defend his government from charges of corruption by affirming that corruption is universal in politics.

From ceremonial fires
to playing with fire

A year and a half ago, the President attended Mass in the capital’s cathedral and received God’s blessing on his government from the Catholic Bishops’ Conference. Before that, he attended a ceremony in which Mayan priests prayed for him to the Heart of the Sky and the Heart of the Earth. But recently, the Bishops Conference called on him "to listen to the people’s clamor in the various areas under his responsibility."
The day before the bishops’ statement, he had traveled to Momostenango, in Totonicapán. Before a crowd of 5,000 people, including 89 mayors from around the country to whom he was going to deliver their budget checks, several indigenous priests sprinkled him with alcohol before a ceremonial fire to expel the bad spirits. Last year in this region, Portillo had said, "You put me here and only you can remove me." It is symbolic that it was the same place he tried to declare a state of emergency less than a year later, after the violent demonstrations against the tax reforms. Fortunately, the opposition broke quorum in Congress on the only working day in which his decree could be confirmed, and the President had no choice but to revoke it. Perhaps he is becoming aware that he is not merely celebrating ceremonies with sacred fires, but also playing with fire.

This crisis has a history

Thirty years ago the anthropologist Richard Adams published a book on Guatemala that immediately became a classic, titled Guatemala, Crucifixion by Power. This title reminds us that Guatemala is not merely a mixed-up country, not even merely a tormented one. Now, as before, Guatemala is a crucified country. The power crucifying it is its internal and external structural situation. The crisis generated by the current tax increase must not make one forget the country’s structure, with its history and predictable evolution.

The Portillo government’s crisis did not start from scratch. Berger, the incumbent National Advancement Party’s candidate and Portillo’s rival in the 1999 elections, lost because the economic slowdown had already begun in the last year and a half of the previous government. He also lost because, while then-President Arzú was not as clumsily confrontational as Portillo, he was so intolerant of criticism, especially from the media, that he made life impossible for Crónica, the country’s best weekly for a decade, until it was forced to sell out and sink into yellow journalism. Arzú’s image of arrogance, characteristic of his lineage, was even projected in his final speech, in which, instead of recognizing his mistakes, he virtually blamed the country for its ingratitude. Arzú’s government handled the privatization and sale of TELGUA, the telecommunications company, without transparency, which cast a shadow over the honesty of a President who had promised to fight energetically against corruption.

Even more important is that the peace accords were never seriously taken up as state policy. Paraphrasing Kundera, we might speak of the "unbearable lightness of the peace accords." Arzú created the Superintendence of Tax Administration and shrank from the rest of the tax reform task, backpedaling in response to the reactions against the property tax incited by FRG rank and file among poor people outside the capital who would not even be affected by the tax. He failed to energetically launch the national cadastral study. He allowed the constitutional reforms needed to put the peace accords into effect to get bogged down in Congress and presented to the population in a confused way. He halted the demilitarization measures with which he began his term. He did not keep the generals who had negotiated the peace accords, Balconi and Pérez Molina, at the head of the armed forces, but rather but them under the head of his presidential security forces.

Arzú betting on forgetfulness

Besides thus delaying the creation of a presidential security force independent of the army, Arzú mortgaged his own reaction to the publication of the Catholic Church’s REMHI report on the atrocities committed during the war, the murder of Bishop Gerardi and the recommendations of the Historical Clarification Commission, which he evaded. The main negotiator for peace, obsessed by short-term politics to buoy up Guatemala’s image, Arzú chose to follow this path rather than tally up the terrible accounts of a state that acted criminally in the internal armed conflict. He gambled on forgetfulness, on loss of memory. As the Pinochet case has shown, these apparently pragmatic decisions can become time bombs that explode in the face of subsequent governments.

As in El Salvador, the failure to urge the state to investigate the secret structures known as death squads denounced by the truth reports has allowed them to remain active at the service of criminal capital and the national and global tentacles of organized crime. They can thus activate themselves at any moment to commit political crimes like the assassination of Monsignor Gerardi. When Arzú decided not to dig down to the roots of corrupt militarism, he allowed them to reach even deeper into the Guatemalan soil under Portillo’s government.

Taxes must support social spending

The tax problem is monopolizing national media headlines and even reaching the international media. The stories emphasize that a people in need, hungry and without food, cannot pay the higher sales tax and insist that it is impossible to pay taxes to an inept, corrupt government that wastes and devours them. But they miss the point that this government, as inept and corrupt as it is, is starting on its own initiative or urged by the international community to establish the legal basis in tax matters (if nowhere else) so that a later government—or this one, if it manages to mend its ways—can program transparent social spending and provide the state services needed for the country to have a healthy, educated, decently housed and well-informed population.

Proposals are needed to establish this foundation more solidly. For example, the sales tax should not be the same for medicines and food, for school paper, notebooks, pencils, computers and books as it is for luxury cars, imported liquor, expensive urban land, fancy construction materials, etc.

The recent escape of dangerous criminals who bribed penitentiary officials and guards to let them out shows how ineffective and inefficient it is to manage the state with ill-prepared and ill-paid officials. How are these officials and guards trained for their work? With how much humanity and responsibility? And how much do they earn? How can we expect substantial improvements in education, which is the basis for human development, with the training and salaries that the state offers teachers? The lyrical language praising teachers covers up the fundamental failure to value the work they do. How many doctors are going to go to the distant corners of the country with the salaries they earn? How many nurses or paramedics will work with skill and concern in the public hospitals?

Many things aren’t working

Anytime anyone talks of raising wages in this country, however, the specter of price rises is conjured up. Taught by the realities of a merciless market, 91% of public opinion rejects an increase in the sales tax even if it were to be accompanied by wage increases, according to Vox Latina’s July survey. Neither the Guatemalan state nor the businesses belonging to CACIF—which does not represent all private enterprise—nor the owners of small stores nor a majority of families with a domestic employee understands the value of human labor. The same is true of many religious institutions. It is clear that the market does not ensure human development in countries that start from so far down the scale as ours and live in the hells of the First World.

Many things here are not working. A renowned poet with a reputation as a leftist wrote in her newspaper column of the marvelous spectacle of the August 1 demonstration, in which businesspeople and unions, politicians and homemakers, humanitarian activists and students could march together. But she named no one in her column except people of renown. Although she said she is the one who does the shopping in her house, she did not name the shopkeeper or the market vendor she buys from, or mention meeting in the march by chance, say, a nurse who had once treated her. Some people have names while others do not. And this is also relevant to the progress of democracy.

Ethnic discrimination and the multicultural challenge

Sam Colop, a Mayan journalist for Prensa Libre, and Aníbal Saldaña, a priest from Totonicapán, called attention to the same reality. A state of emergency is not only out of proportion to the August 1 disturbance in Totonicapán, but is also discriminatory. No state of emergency was declared in Escuintla, a department with large plantations and a ladino majority where the 74 dangerous criminals escaped on June 17. But it was declared, albeit abortively, in Totonicapán, a department whose population is over 90% Mayan, because of damage to the house of a mayor and a legislative representative.

This is just one sign, and says nothing about whether the measure might resolve anything in one case or the other. In the end, it is the same inept, corrupt system that must prevent the escape of prisoners and recapture them, must be guided by the fiscal pact agreed upon by all sectors of society and not by a mere tax reform and must maintain order effectively and humanely. But this sign suggests that beyond momentary populism, power in this country reacts with ethnic discrimination to the problems it faces and is unprepared for the inter-cultural coexistence of various peoples.

Excluding, conflictive globalization

In the deepest roots of popular indignation against the sales tax is people’s economic situation and what they themselves view as the country’s economic collapse, the collapse of the possibility of dignified survival. CACIF invented the slogan "Day of National Dignity" for the August 1 day of national protest, and managed to make it stick with the other organizations that participated. But this slogan sidesteps the structural problem that the human dignity of some 80% of Guatemalans who must make due with 15% of the nation’s wealth goes unrecognized.

Central America’s agroexport system is in an irreversible crisis. The incorporation of Vietnam into coffee production, subsidized by the United States through the World Bank, has plunged Guatemala and the other countries of Central America into even greater misery. While the price of a cup of coffee has not fallen in the world, the bulk of the profits go to the large importers and distributors (Maxwell, Nescafé, etc.) and the restaurants.

The first world markets have not opened to us. International trade does not work for our peoples. This was expressed in the great global solidarity protests in Geneva, Davos, Seattle, where "anti-riot" forces also acted with regrettable brutality. This explains why migration is increasing to the point of becoming the most important source of livelihood for Guatemala, despite the wall of barbed wire, steel and desert. But there is no "Remittance Bank " in Guatemala that the migrants’ families can administer, so the only choice is to channel deposits into the system’s banks or into the accounts of criminal capital.

A crucified country

Is it possible to change people’s consciousness in the First World so we can speak together globally about trade and migration—which could become the most conflictive problems in this century—and about writing off the foreign debt, which has in fact been paid several times over through interest payments? Contrary to what Arzú said immediately after Hurricane Mitch, the foreign debt is also an important problem for Guatemala. Meanwhile, only a few small groups of peasant farmers can make a living by exporting nontraditional agricultural crops, and the textile maquilas will surely increase in number with the Puebla-Panama Plan. But this future requires further investigation beyond the limits of this discussion.

Until structural changes are made in the investment decisions of Guatemalans who can invest and investments are made in better technology, training and dignified salaries that allow for improvements in health and education; until we aim for a better quality of life for families—many of them Mayan—living in impoverishment, Guatemala will remain crucified by power, by the economy and by the racist discrimination that people refuse to admit. The needed dialogue, when it comes, cannot evade these structural questions, which are crucial if reconciliation is to be based on solid ground.

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