Guatemala political crisis may affect growth - central bank

GUATEMALA CITY (Reuters) - Guatemalan economic growth may slow if a political crisis sparked by a dispute between President Jimmy Morales and the head of a U.N. anti-corruption body persists, the head of the central bank said on Thursday.

Guatemala's President Jimmy Morales (C) poses for a picture as he attends a meeting with mayors in Guatemala City, Guatemala, August 29, 2017. REUTERS/Jose Cabezas

The Central American nation has been rattled by uncertainty since Morales on Sunday tried to eject Ivan Velasquez, head of Guatemala’s International Commission against Impunity (CICIG), in the face of resistance from Western powers.

The Friday before, Velasquez and the attorney general’s office requested Morales be stripped of presidential immunity so he could be investigated for suspected campaign finance irregularities during his successful 2015 tilt at the top job.

The country’s top court later blocked Morales from expelling Velasquez, a decision the president accepted. Nevertheless, the dispute continues to simmer, and street protests have been staged in support of both Morales and Velasquez.

The row has not had a negative effect on the economy so far, said Sergio Recinos, head of the central bank.

“But if it carries on for a long time, well, it’s going to have an impact,” he told Reuters in an interview.

Morales, a former comedian, was elected on the back of popular discontent with his predecessor Otto Perez, who was toppled in 2015 over a multi-million dollar graft scandal uncovered by the CICIG and attorney general Thelma Aldana.

Perez is now in prison standing trial.

Recinos said he had received phone calls this week from credit rating agencies and international investors mindful of what had happened in 2015 so they could question him on the crisis.

Saying the economy grew 4.1 percent in 2015, Recinos added that the Perez scandal did not immediately hit the economy.

“But in 2016 there was a slowdown (to 3.1 percent) and the (Perez) crisis must have had an effect,” he added.

The central bank now expects the Guatemalan economy to grow by between 3.0 and 3.4 percent this year.

The CICIG, which is already investigating a brother and son of Morales on suspicion of fraud, has been strongly backed by the United Nations, the European Union and the United States.

Editing by Dave Graham and Clarence Fernandez