Guatemala Faces Political Crisis in Wake of Tax Fraud Scandal

*This post will be updated regularly (updates at the bottom) as the crisis unfolds in Guatemala

Today, May 14, Alejandro Maldonado was named as Guatemala’s new vice president after Roxana Baldetti resigned on May 8 amid the revelation of a tax fraud scandal. Meanwhile, despite the vice president’s resignation, citizens have continued to call for the resignation of President Otto Pérez Molina and will move forward with a wave of national protests set for Saturday, May 16.

What’s going on in Guatemala?

The uncovering of a corruption scandal has set off massive protests in Guatemala. Photo by Prensa Comunitaria.

The uncovering of a corruption scandal has set off massive protests in Guatemala. Photo by Prensa Comunitaria.

The uncovering of a massive tax fraud ring in Guatemala has prompted widespread public outrage, steeping the country in what many are calling a “political crisis” as September’s general elections draw near.

On April 16, authorities arrested 22 people – including the current and former heads of Guatemala’s tax collection agency – in the culmination of an 8-month long investigation into a criminal network used to defraud the state.

The crime ring was dismantled by a joint investigation by Guatemala’s Public Prosecutor’s Office and the CICIG, and implicates officials in the highest levels of government. Although Vice President Roxana Baldetti was not directly linked to the fraud ring in the initial investigation, she was plunged into controversy when her private secretary, Juan Carlos Monzón Rojas, was identified as its leader. In the face of increasing public pressure, Baldetti submitted her resignation on May 8.

The criminal network has been called “La Linea,” (The Line), in reference to a certain cell phone number that businesses used to illegally negotiate the amount they were required to pay in customs taxes. Thanks to the network, businesses received a 25% “discount” on the fees when their property cleared customs; approximately 50% was paid to the state and the rest to the defrauders. Prosecutors estimate that Guatemala lost around Q940 million (US$120 million) in tax revenue to the scam, and the ongoing investigation has begun to reveal corruption that extends to the judicial branch.

Why are Guatemalans angry?

Guatemala is often cited as one of the most unequal countries in Latin America, and the recent scandal is just one illustration of the incredible divide between the country’s haves and have-nots. In the case of La Linea, for example, individuals at the top of the chain allegedly raked in millions of dollars per year while state institutions went underfunded, lacking important resources.

The scandal also set off a broader call for government reform. For the first time in Guatemala’s recent history, public condemnation of state corruption has come not solely from progressive voices, but from a truly diverse cross section of Guatemalan society, including the powerful private sector lobby group, CACIF. Many human rights groups feel that Baldetti’s resignation is not enough to address deep concerns about an administration that has overseen increased criminalization against activists, a recent dismantling of judicial independence, a record level of attacks against human rights defenders and a level of aggression against the press not witnessed in a decade.

Furthermore, the network uncovered by the CICIG reflects what is often referred to in Guatemala as a larger “pact of impunity” – an arrangement between powerful sectors to protect their interests, resources, political power and invulnerability to prosecution.

What’s next for Guatemala?

Alejandro Maldonado will be Guatemala's new vice president. Photo by Prensa Libre.

Alejandro Maldonado will be Guatemala’s new vice president. Photo by Prensa Libre.

In the wake of Baldetti’s resignation, President Pérez Molina was tasked with providing three vice presidential candidates to Guatemala’s Congress. The vote on the candidates was delayed due to a series of controversies, but today, former Constitutional Court Justice Alejandro Maldonado was named the new vice president.

Meanwhile, despite the vice president’s resignation, citizens have continued to express their discontent and will move forward with another wave of national protests set for Saturday, May 16.

The situation in Guatemala is changing daily, and many believe that it’s too early to predict what long-term effects the current crisis will have. There’s a threat that the Pérez Molina administration will try to use Baldetti as a scapegoat and return to politics as usual. But other alternatives also exist: the president himself could resign; new candidates from smaller parties may be able to insert themselves into the upcoming elections. It’s possible that the presidential election set for September could be affected, or even postponed.

In another possible, but unlikely scenario, Guatemala could convoke a “National Constituent Assembly” – a group of members of Congress named to initiate a process to draft a new Constitution. There are many groups that support this type of change, in order to address loopholes and create a document that better reflects the needs of the population. Guatemala could stand to gain or lose a lot depending on how the process unfolds.

In a country that has not seen such diverse and massive protests in a long time, there is hope that sustained public outcry could create a space for meaningful and long-term change.

Why should the US care?

The US is paying close attention to Guatemala as it considers a proposed $1 billion aid package for Central America aimed at addressing the region’s economic crisis and stemming the flow of Central American immigrants to the United States. The US funding package closely mirrors a parallel plan, called the “Alliance for Prosperity Plan for the Northern Triangle,” which was created by the region’s three presidents and the Inter-American Development Bank.

Earlier in April, GHRC and 74 other civil society organizations and groups from throughout the hemisphere sent a joint letter to the presidents of El Salvador, Guatemala, Honduras, Mexico and the US to express urgent concerns about the proposed Alliance for Prosperity Plan.

Given this context, the US will need both to understand the situation in Guatemala and to make sure that its own policies – which have in the past exacerbated repression and violence in the region – provide meaningful support.

What’s the latest?

The situation can be followed on Twitter via @GHRCUSA and independent media outlets @nomadagt and @PlazaPublicGT. The campaign calling for the resignation of Otto Pérez Molina can be followed on social media via #RenunciaYa and #RenunciaYaFase2.

UPDATE: May 16, 2015 – An estimated 60,000 people gather at the national palace in Guatemala City to denounce corruption and call for the resignation of top officials, including Otto Pérez Molina. In other regions of Guatemala, as well as in other countries, groups held simultaneous protests as part of the #RenunciaYa movement. Photos from the event are available here. Tags: #16M #RenunciaYaFase2

UPDATE: May 20, 2015 – At least 15 more people were arrested in a separate fraud and bribery probe into the Guatemalan Social Security Institute (IGSS), including the central bank governor and the head of the  IGSS (who also used to be Pérez Molina’s private secretary). The investigation was also conducted jointly by Guatemalan prosecutors and the CICIG. On the same day, a large protest of campesinos took place in Guatemala City as part of the ongoing #RenunciaYa movement.

UPDATE: May 21, 2015 – Mauricio Lopez Bonilla, Guatemala’s interior minister, stepped down. So far, he has not been linked to the La Linea corruption scandal.


One thought on “Guatemala Faces Political Crisis in Wake of Tax Fraud Scandal

  1. Pingback: Discovery of Judicial Corruption Network Makes Way for Overdue Reforms | Monitoring Guatemala

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