MS Risk Blog

Guatemala on Brink of Crisis Amid Corruption Scandal

Posted on in Uncategorized title_rule


Guatemala’s government is thinning with a string of high-profile resignations and arrests of top officials following the revelation of a corruption scandal inside President Otto Perez Molina’s administration. Massive protests gathering thousands of Guatemalans have been organized via social media in order to demand the President’s resignation. This is the first time in Guatemala’s recent history that a broad cross section of society including students, politicians, the country’s powerful business lobby, indigenous peoples, and members of a historically passive middle class, joined together in a unified call for the removal of corrupt officials.

The initial scandal that sparked public anger involves a criminal network that has been called La Linea (The Line), in reference to a certain mobile phone number importers called to negotiate the amount they paid in customs taxes. Thanks to this network, businesses could receive an illegal discount on the required fees when their property cleared customs. About 50% of the balance was then paid to the state. The rest went to a network of defrauders that included corrupt officials and their collaborators.

On April 16, Guatemalan authorities arrested 22 people including the current and former heads of Guatemala’s tax collection agency. This 8-months investigation was the result of a joint effort between the International Commission against Impunity in Guatemala, a UN-backed institution charged with investigating and helping disband clandestine and parallel power structures linked to the state, and Guatemala’s Public Prosecutor’s Office. Prosecutors estimate that Guatemala lost at least $120 million in tax revenue just in the 8-months period to the scam. As the investigation continues to unfold, it has also revealed an inter-connected web of judicial corruption that’s been nicknamed the “Law Firm of Impunity”, resulting in investigations into judges and justices on Guatemala´s Supreme Court. Iduvina Hernandez, a political analyst and the executive director of the Association for the Study and Promotion of Security in Democracy said: “the parallel power structure that has been revealed through the CICIG’s investigations is derived precisely from the existence of a larger pact of impunity.» In the case of La Linea, top officials and individuals allegedly raked in millions in dollars per year while state institutions lacked important resources for education, medicine, and basic security.

Additionally, just a week later a second investigation by CICIG and the Public Prosecutor’s Office revealed another corruption scandal within Guatemala’s Social Security Institute. The institute had awarded a kidney dialysis contract to the company Drogueria Pisa in exchange for kickbacks to government officials, including IGSS employees as well as the head of the Guatemalan Central Bank. Pisa had no expertise providing the treatment, and 13 have died since. A total of 17 public officials have been arrested, but most notable has been the arrest of the president of the board of the IGSS, Juan de Dios Rodriguez who was a powerful former military man and who once served as President Perez Molina’s private secretary.

Such corruption scandals within the government and at different levels triggered massive movements of demonstrations and rocked President Perez Molina’s administration. Vice President Roxana Baldetti was the first to step down, handing in her resignation on May 8. Although she wasn’t implicated in the initial corruption investigation, she was plunged into controversy when her private secretary, Juan Carlos Monzón Rojas, was identified as the leader of the fraud ring. Shortly after her resignation, Baldetti was also placed under investigation. As investigations continue, high-level officials in a number of major executive branch offices have resigned or been fired.

Moreover, President Otto Pérez Molina has dismissed or asked for resignations from his chief of intelligence, the ministers of the environment and of energy and mines, and his interior minister, among others. Many of the ousted officials are members of Pérez Molina’s inner circle and are under investigation for various acts of alleged corruption.

However, these ministry shake-ups have not been enough to quell calls for the president’s resignation and demonstrations continue to fill Guatemala’s streets. The crisis is playing out ahead of presidential elections in September, with polls giving a large lead to Manuel Baldizón, a populist right-wing tycoon. This is the deepest political crisis of the post-war era in Guatemala. But it remains unclear whether it will eventually strengthen or dangerously undermine the country’s still-feeble democracy. On June 10, Guatemala’s Supreme Court accepted a petition to allow Congress to decide whether to revoke President Perez Molina’s immunity from prosecution for possible involvement in acts of corruption. President Perez Molina has stated that he will not resign in spite of the public movement against him. The situation in Guatemala is currently highly flexible and many scenarios could play out in the coming weeks.



Tagged as: