Guatemala's economy is dominated by the private sector, which generates about 85% of GDP. Agriculture contributes 23% of GDP and accounts for 75% of exports. Most manufacturing is light assembly and food processing, geared to the domestic, U.S., and Central American markets. Over the past several years, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flowers have boomed, while more traditional exports such as sugar, bananas, and coffee continue to represent a large share of the export market.

The United States is the country's largest trading partner, providing 39.6% of Guatemala's imports and receiving 28.9% of its exports. The government 's involvement is small, with its business activities limited to public utilities--some of which have been privatized--ports and airports, and several development-oriented financial institutions.

Guatemala ratified the U.S.-Central America Free Trade Agreement, commonly known as CAFTA, on March 10, 2005. Priorities within CAFTA include eliminating customs tariffs on as many categories of goods as possible; opening services sectors; and creating clear and readily enforceable rules in areas such as investment, government procurement, intellectual property protection, customs procedures, electronic commerce, the use of sanitary and phyto-sanitary measures to protect public health, and resolution of business disputes. Import tariffs have already been lowered together with Guatemala's partners in the Central American Common Market, with most now under 15%.

Other priorities include increasing transparency and accountability in Guatemala's public finances, broadening the tax base, and completing implementation of financial sector reforms. These measures attempt to ensure that Guatemala can comply with the standards of the international Financial Action Task Force for detecting and preventing money laundering.

The United States, along with other donor countries--especially France, Italy, Spain, Germany, and Japan--and the international financial institutions, have increased development project financing since the signing of the peace accords. However, donor support remains contingent upon Guatemalan Government reforms and counterpart financing.

The distribution of income and wealth remains highly skewed. The wealthiest 10% of the population receives almost one-half of all income; the top 20% receives two-thirds of all income. As a result, about 80% of the population lives in poverty, and two-thirds of that number--or 7.6 million people--live in extreme poverty. Guatemala's social development indicators, such as infant mortality and illiteracy, are among the worst in the hemisphere. Chronic malnutrition among the rural poor worsened with the onset of the crisis in coffee prices, and the United States has provided disaster assistance and food aid in response.