aide-memorie of the banco de guatemala 2006banguat.gob.gt/en/docs/aide_memoire_2006.pdfhéctor...

AIDE-MEMORIE Of the

BANCO DE GUATEMALA 2006

i

AIDE-MEMORIE

OF THE

BANCO DE GUATEMALA

2006

iv

MONETARY BOARD

María Antonieta Del Cid Navas de Bonilla President

Julio Roberto Suárez Guerra

Vice-president

TITLE MEMBERS

Hugo Eduardo Beteta Méndez-Ruiz Max Erwin Quirín Schoder Minister of Public Finance Elected by Business, Industry and

Agricultural Associations

Marcio Ronaldo Cuevas Quezada Julio Vielman Pineda Minister of Commerce Elected by the Presidents of the

Administration Councils or Boards of Directors of National Private Banks

Bernardo Jesús López Figueroa Urías Amitaí Guzmán García Minister of Agriculture, Animal Husbandry Elected by the Superior Council of the And Food Universidad de San Carlos de Guatemala Arturo Eduardo Meyer Maldonado Elected by the Congress of the Republic

DEPUTY MEMBERS

Ramiro Ordóñez Jonama Sergio de la Torre Gimeno Elected by the Congress of the Republic Elected by Business Associations

of Commerce, Industry and Agriculture

Edgar Augusto Portillo Recinos Gabriel Biguria Ortega Elected by the Superior Council of the Elected by Presidents of Administration Universidad de San Carlos de Guatemala Councils or Board of Directors of the

National Private Banks Nota: Titular and Deputy Members that were executing their functions to December 31st, 2006.

v

PERMANENT ADVISORS

Carlos Rafael García Oscar Roberto Monterroso Sazo General Manager Director of Economy Sergio Francisco Recinos Rivera Leonel Hipólito Moreno Mérida Financial Manager Legal Manager Johny Rubelcy Gramajo Marroquín Director Department of Economic Studies Willy Waldemar Zapata Sagastume Superintendent of Banks Armando Felipe García Salas Alvarado Secretary Monetary Board Nota: Autoridades y Funcionarios Superiores que se encontraban ejerciendo sus funciones al 31 de diciembre de 2006.

vi

BANCO DE GUATEMALA

AUTHORITIES

María Antonieta Del Cid Navas de Bonilla Julio Roberto Suárez Guerra President Vice-president Carlos Rafael García Oscar Roberto Monterroso Sazo General Manager Director of Economy Sergio Francisco Recinos Rivera Manuel Augusto Alonzo Araujo Financial Manager Administrative Manager Leonel Hipólito Moreno Mérida Legal Manager

SUPERIOR OFFICERS Johny Rubelcy Gramajo Marroquín Sergio Rolando González Rodríguez Director Sub-director Department of Economic Studies Department of Banking and Financial

Analysis Otto René López Fernández Luis Felipe Granados Ambrosy Sub-director Advisor II Departament of Economic Studies Department of Banking and Financial

Analysis Carlos Eduardo Castillo Maldonado Juan Carlos Castañeda Fuentes Sub-director Director Department of Economic Studies Department of Economic Investiga tion Mario Alfredo Salguero Samayoa Sergio Javier López Toledo Sub-director Sub-director Department of Economic Statistics Department of Economic Investiga tion Fernando Wladimir Danilo Estrada Pérez Enrique Antonio Amurrio Comparini Sub-director Director Department of Economic Statistics Department of Communication and

Institutional Relations

vii

Rómulo Oswaldo Divas Muñoz Edgar Rolando Lemus Ramírez Director Director Department of Monetary Stabilization Operations International Department Jorge Vinicio Cáceres Dávila Jorge Aníbal Del Cid Aguilar Sub-director Subdirector Department of Monetary Stabilization Operations Departmento International

Héctor Adelso Del Cid Solórzano Mynor Humberto Saravia Sánchez Director Director Accounting Department Department of Diverse Services and Supplies Byron Leopoldo Sagastume Hernández Mario Roberto León Ardón Sub-director Subdirector Accounting Department Department of Diverse Services and Supplies

Salvador Orlando Carrillo Grajeda Romeo Eduardo Campos Sánchez Director Director Department of Human Resources Organizational Development Erick Prado Carvajal José René Lorente Méndez Sub-director Sub-director Department of Human Resources Organizational Development

Armando Felipe García Salas Alvarado Ariel Rodas Calderón Secretary Director Monetary Board Information Department

Aníbal García Ortiz Byron Saúl Girón Mayén Sub-secretary Sub-director Monetary Board Information Department

José Fernando Ramírez Velásquez Gerardo Noél Orozco Godínez Sub-director Advisor III Department of Monetary Issue Juristic Advisory

Bernardino González Leiva César Augusto Martínez Alarcón Internal Auditing Advisor III Juristic Advisory Erwin Roberto Camposeco Córdova Fernando Villagrán Guerra Internal Sub-auditing Advisor II Juristic Advisory Note: Authorities and Superior Officials que se encontraban ejerciendo sus funciones al 31 de diciembre de 2006.

viii

I N D E X

Page CHAPTER I

NATURE AND ADMINISTRATIVE STRUCTURE OF THE BANCO DE GUATEMALA

ORGANIC STRUCTURE

1. Monetary Board 8

2. Presidency 10

3. Administration 11

EXECUTION COMMITTEE

CHAPTER II

OPERATIONS AND ACCOUNTS OF THE BANCO DE GUATEMALA

1. Term deposits 16

1.1 In quetzales 16

1.2 In US dollars 16

2. Portfolio Bonds in the Banco de Guatemala 17

3. Treasury bonds received to cover net deficiencies 18

4. International monetary reserves and foreign currency transactions 18

4.1 International monetary reserves 18

4.2 Administration of international monetary reserves 19

4.3 Circulation of credit letters 26

4.4 Issue of drafts and payment orders 27

4.5 Participation in the exchange market 28

5. Credit portfolio 29

ix

6. Obligations abroad 30

7. Deposits of the non-financial public sector 31

8. Financial agent of the state 32

8.1 Operations with Guatemalan Treasury Bonds 32

8.2 Administration of amortization funds 33

8.3 Trusts and funds guarantee 34

9. Fund for the Savings Protection 35

10. Trustee Fund of Banking Capitalization 37

11. Payment System 38

11.1 Modernization of the payment system 38

11.1.1 Banking Clearing House 38

11.1.2 Real Time Gross Settlement System -LBTR- 39

11.2 Institutional cooperation for the modernization of the payment system 43

12. Paper money and coins issued and amortized 44

13. Contribution of Guatemala to international financial organizations 45

14. Balance sheets 46

14.1 General balance 46

14.2 Results status 47

x

CHAPTER III

TRANSPARENCY AND RENDERING OF ACCOUNTS

1. Transparency and rendering of accounts 50

1.1 Appearance of the President of the Banco de Guatemala before the Congress

of the Republic 50

1.2 Publication of information 50

2. Communication strategy 51

2.1 Numismatic Museum of Guatemala 53

CHAPTER IV

OTHER ACTIVITIES OF THECENTRAL BANK

1. Participation in international meetings 56

2. Economic Statistics improvement 57

2.1 Economic surveys 57

2.2 Update of the DINEL 58

2.3 Advances in the implementation of the National Accounts System

1993 -SCN93- 58

2.4 Advances in the implementation of the Fifth Manual of the IMF Payment

Balance 58

2.5 Advances in the implementation of the Monetary and Financial

Statistics Manual of the IMF 60

2.6 Implementation of the System of Quarterly National Accounts 61

2.7 Survey of Inflation Expectations of the Private Analysts Panel -EEI- 61

2.8 Survey of Business Opinion -EOE- 61

3. System of Prognosis and Analysis of the Monetary Policy –SPAPM- 62

4. Academic events 62

4.1 "Doctor Manuel Noriega Morales" contest 62

4.2 Economic periods 63

4.3 Higher degree Program 64

4.4 Participation in the Research network of the Latin American Central Banks 65

4.5 Publishing of Research Papers of the Central Bank in specialized magazines 65

xi

CHAPTER V

MAIN RESULTS OF THE EXECUTION OF THE

MONETARY, FOREIGN EXCHANGE RATE

AND CREDIT POLICY IN 2006

68

ANNEXES

1. Statement of Assets, liabilities and condensed wealth of the Fund for

Savings Protection 74

2. Balance sheets of the Banco de Guatemala 75

3. Main resolutions issued by the Monetary Board 87

Aide Memorie of the Banco de Guatemala 2006

1

CHAPTER I

NATURE AND ADMINISTRATIVE STRUCTURE OF THE BANCO DE

GUATEMALA

Charles IV-Colonial Era During his reign he authorized the creation of the¼ of real coins, popularly called cuartillos, which were minted in Guatemala in 1793 for the first time.


2

BANCO DE GUATEMALA

Nature

Article 2 of the Organic Law of the Banco de Guatemala stipulates that the

institution, as the Central Bank of the Republic, is a decentralized, autonomous entity, a

juristic personality, with a private estate, with the full capacity to acquire rights and to

assume responsibilities, with indefinite duration and with domicile in the territorial division

of Guatemala.

Fundamental objective

According to article 3 of the mentioned law, the Banco de Guatemala has as its

fundamental objective to contribute in the creation and maintenance of the most favorable

conditions for the organized development of the national economy; therefore, it will

provide the monetary, foreign exchange rate and credit conditions that promote the stability

in the general level of prices.

Functions

The Central Bank has, among other functions determined by its organic law, has the

following:

a) To be the only issuer of the national currency; b) To try to maintain an adequate liquidity rate of the banking system, by using the

instruments established in its organic law; c) To pursue the good operation of the payment system; d) To receive in deposit the banking legal reserve and the legal deposits referred to in

said law; e) To administer the international monetary reserves, according with the guidelines

established by the Monetary Board; and, f) To carry out the other functions compatible with its nature as a Central Bank,

assigned by legal mandate.


3

ADMINISTRATIVE STRUCTURE

Clause h) of article 26 of the mentioned law establishes that the Monetary Board has

the responsibility of approving or modifying the administrative structure of the Banco de

Guatemala, proposed by the General Manager. Based on said decision, the Monetary

Board, on the one hand, approved the Income and Expenditure Budget of the Banco de

Guatemala for 2006 and, on the other hand, modified said administrative structure.

Said modification was mainly due to the need to strengthen the management areas

of the institution, in order to make their operation smoother, following the principles of the

organization and specialization that are suggested by modern administrative techniques and

concentrated, on the one hand, in relocating the International Relations Section and the

General Archive Section, which depended on the International Department and the

Accounting Department, respectively, and on the other hand, modify the name of the

Administrative Secretariat and Printing Section for the Administrative Secretariat Section.

This modification is part of the action plan for the organizational re-dimensionalizing that

the Banco de Guatemala has been applying.

Regarding the International Relations section, since the functions of this section

have relations with financial and monetary international organisms, it was considered

convenient to transfer it from the financial area to the commerce area, as a staff unit from

Commerce Management, named Unit of International Relations

In the case of the General Archive Section, its transfer was due to its main role,

which is to be custodian and facilitate an orderly set of documents and information to

support the banks operations, requires observing the main internal controls that establish

that the archival process must be made independently from the offices that generate

documents and information. In that sense, said section was transferred from the financial

area to the administrative, as a unit of the Administrative Secretariat form the Supplies and

Diverse Services Department.

It is worth highlighting that the administrative structure of the Banco de Guatemala

is headed by the General Management and made up of the Economic, Financial,

Administrative and Juristic areas, each one of which is under the charge of the Manager.

Also each area is made up of departments, which as the same time are divided into sections.


4

Following is a presentation of the organizational chart in which the administrative

structure from the Banco de Guatemala is included


5

ADMINISTRATIVE STRUCTURE

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Departamentos Secciones


6

On the other hand, the Monetary Board, in resolution JM-156-2006, issued on

December 20, 2006, approved the Income and Expenditure Budget of the Banco de

Guatemala for 2007 and modified the administrative structure of the institution, current as

of January 1, 2007.


7

INSTITUTIONAL STRATEGIC PLAN

OF THE BANCO DE GUATEMALA

The Institutional Strategic Plan is a joint effort of the General Manager’s office and

officers of the Banco de Guatemala, which consists of the determination of the strategic

objectives that allow orienting its management, through the establishment of middle and

long-term actions, so that the institution can exercise the decreed in the organic law and

fulfill its fundamental objective.

In that sense, is its administration policy of the Central Bank to give follow up to the

execution of the referred plan, as well as evaluate the results that have been reached, with

the purpose of adapting the changes in the environment, to review the validity of its long-

term objectives and the consistency of the strategies that have been contemplated, which

allows taking into consideration the implications that said changes represent for the

fulfillment of the mentioned strategic plan.

Below are the relevant elements of the Institutional Strategic Plan 2003-2007.

MISSION

To promote the stability in the general level of prices.

VISION

The Banco de Guatemala will continue being a well known, reliable institution, carrying

out only the functions that correspond to a central bank, which contributes in promoting the

stability of the general level of prices, through the full exercise of its autonomy, transparent

management, organizational quality and availability of resources.


8

INSTITUTIONAL VALUES

• Ethical • Transparency • Identification and commitment • Loyalty • Responsibility

• Efficiency • Leadership • Quality • Empathy • Respect

STRATEGIC OBJECTIVES

1. To advance in the adoption process of a scheme of explicit inflation goals.

2. To permanently strength the institution’s financial management capacity for the

efficient execution of the Monetary, Foreign Exchange Rate and Credit Policy,

that contributes in promoting the stability in the general rate of prices.

3. To implement an integrated system of statistical information.

4. To continue with the modernization process of the payment system.

5. To strengthen the transparency culture.

6. To administrate the risks that the institutional management faces.

7. To streamline the administrative structure of the Banco de Guatemala in order to

strengthen its operation and improve its institutional efficiency.

8. To strengthen the administrative management capacity of the Central Bank.

9. To continue adopting the best practices that will allow strengthening institutional

management.

10. To integrally strengthen the administration of computer application technology in

the Banco de Guatemala.

11. To promote numismatic culture.

It is precise to point out, that based on the Institutional Strategic Plan 2003-2007, the

offices of the Banco de Guatemala formulate and execute the respective operative work

plans, including the projects and strategic actions that are required for its fulfillment.


9

ORGANIC STRUCTURE 1. Monetary Board

The Monetary Board, according with articles 132 of the Political Constitution of the

Republic and 13 of the Organic Law of the Banco de Guatemala, is integrated by the

following members:

a) The President, who is also the president of the Banco de Guatemala;

b) The Ministers of the Ministerio of Finanzas Públicas, Ministerio of Economía and

Ministerio de Agricultura, Ganadería y Alimentación; [Equivalents to the

Departments of Treasury, Commerce and Agriculture.]

c) A member elected by the Congress of the Republic;

d) A member elected by the business associations of commerce, industry and

agriculture;

e) A member elected by the presidents of the administration councils or Boards of

Directors of the national private banks; and,

f) A member elected by the Superior Council of the Universidad de San Carlos de

Guatemala.

According to artic le 26 of the Organic Law of the Banco de Guatemala, the

Monetary Board has the following responsibilities:

a) To determine and evaluate the monetary, foreign exchange rate and credit policy of

the country, including the programmed goals, taking into account the national and

international economic environment;

b) To watch for the liquidity and solvency of the national banking system;

c) To regulate the aspects regarding the banking legal reserve and legal deposits,

according to the Organic Law of the Banco de Guatemala;

d) To regulate the banking clearing house or any other instrument or mechanism that

pursues the same goals;

e) To authorize, at the proposal of the General Director, the investment policy of the

international monetary reserves;

f) To establish the necessary reserves to strengthen the Bank’s estate;


10

g) To approve the Income and Expense Budget of the Banco de Guatemala and

Superintendence of Banks;

h) To approve or modify the administrative structure of the Banco de Guatemala,

proposed by the General Manager;

i) To appoint and remove the General Manager and other important authorities and

officers of the Bank;

j) To annually approve the Bank’s balance sheets;

k) To annually approve the Aide-memorie of the Central Bank for publication;

l) To issue the regulations that correspond to it, according with its organic law and

other corresponding laws;

m) To approve the decisions, norms or legal instruments subjected by the

Superintendence of Banks or, in its case, the Banco de Guatemala; and,

n) To perform the other responsibilities and faculties that corresponds to it, according

to the Organic Law of the Banco de Guatemala, the Monetary Law and other

applicable legal decisions.

According to this article, the responsibilities of the Monetary Board must be

exercised without damaging reaching the fundamental objective of the Central Bank.

2. Presidency

The president and vice-president of the Monetary Board are also the president and

vice-president of the Banco de Guatemala. They are appointed by the President of the

Republic for a four-year period. The president’s responsibilities, as established in article 30

of the mentioned law, are the following:

a) To propose the Monetary, Foreign Exchange Rate and credit policy, including the

programmed goals, as well as the measures and actions that help the effective

execution to the Monetary Board;

b) To take care of the relationships with authorities and organisms of the State,

particularly with the Executive Branch and to ensure the coordination of the

economic, financial and fiscal policies of the State with the monetary, foreign

exchange rate and credit policy, in order to achieve the fundamental objective of the


11

Banco de Guatemala; for which it will assist the general and specific cabinet

meetings to which he is summoned;

c) To approve the monetary policy report referred to in article 61 of the Organic Law

of the Banco de Guatemala1;

d) To watch for the correct execution of the monetary, foreign exchange and credit

policy determined by the Monetary Board;

e) To exercise the main legal representation of the Banco de Guatemala, judicially and

extra-judicially;

f) To delegate his representation to the Vice-president;

g) To grant mandates in the name of the Central Bank, to represent it and to act in the

administrative and jurisdictional environment, as a result of the actions and

decisions adopted by the Monetary Board;

h) To authorize, with his signature, jointly with the signature of the General Manager

of the Banco de Guatemala, the money issued by the Central Bank;

i) To lead and motivate the advertising of the execution of the Monetary Board,

according to the established in article 63 of the Organic Law of the Banco de

Guatemala3;

j) Resolve the issues that were not exclusively subject to a decision of the Monetary

Board; and,

k) Exercise the other attributions that legally correspond.

According to this article, the responsibilities of the President of the Monetary Board

and of the Banco de Guatemala should be carried out without damaging reaching the

fundamental objective of the Central Bank.

1 “ARTICLE 61. Publication of the report of the monetary policy. The Banco de Guatemala , every six months, will publish a

report of the monetary policy that contains an explanation of the operations made to reach the fundamental objective of the Bank”. 3 “ARTICLE 63. Publication of the actions taken by the Monetary Board. With the objective of keeping adequate publication of

the actions taken by the Monetary Board, the President must make the publications available of circumstantial summaries of said actions when they have implications on the monetary, foreign exchange rate and credit policy or they affect the general liquidity conditions in the country’s economy. The summary must include the arguments in favor and against the resolved. The publication will protect the confidentiality aspects that due to its nature could affect the normal development of the markets.s”.


12

3. Administration

The administration of the Banco de Guatemala is under the responsibility of the

General Manager, who is responsible before the President of the institution and before the

Monetary Board, of the correct and efficient operation of the Bank and has, as established

in article 34 of the referred organic law, the following responsibilities:

a) Prepare matters that must be submitted before the Monetary Board and in

coordination with the President decide the order in which they will be placed in the

sessions;

b) Permanently watch institutions and their branches, the observance of laws and

applicable regulations, and the fulfillment of resolutions from the Monetary Board;

c) Order the publication of the monetary policy referred to in article 61 of the Organic

Law of the Banco de Guatemala;

d) Propose the naming of superior officials to the Monetary Board;

e) Name and remove other officials and employees of the Bank;

f) Watch that the administration of international monetary reserves is made according

to the guidelines dictated by the Monetary Board;

g) Prepare the project of Income and Expenditure Budget of the Banco de Guatemala

and ensure its correct application;

h) Hire professional services considered necessary for the correct operation of the

Central Bank;

i) Authorize the publication of the Income and Expenditure Budget of the Banco de

Guatemala in the official daily newspaper;

j) Autorizar con su firma los estados financieros del Banco Central;

k) Authorize with a signature, jointly with the President of the Banco de Guatemala,

the bills issued by the Central Bank;

l) Authorize documents and values issued by the Central Bank with a signature, and;

m) Exercise other attributions corresponding according to the law, the regulations and

other applicable decisions issued by the Monetary Board.


13

According to this article, responsibilities of the General Manager should be exercised

without damaging reaching the fundamental objective of the Central Bank.

EXECUTION COMMITTEE

One of the aspects that should be highlighted is regarding the operation of the

Execution Committe4e, through which the Central Bank executes the monetary, foreign

exchange rate and credit policy determined annually by the Monetary Board. Said

Committee, according to the mentioned law and as decided in resolution JM-192-2002 of

the Monetary Board on June 1st, 2002, is integrated by the President of the Banco de

Guatemala, who at the same time coordinates the same, the Vice-president, the General

Manager and directors of the Economic and Financial areas. As well as, the Director of the

Legal department and directors of the international, economic studies and monetary

stabilization operations departments are technical advisors of said committee.

The Execution Committee, according with article 40 of the Organic Law of the

Banco de Guatemala, has the following responsibilities:

a) To use the instruments of monetary policy as approved by the Monetary Board;

b) To inform the Monetary Board in the next meeting, through its coordinator, about

the execution of the monetary, exchange and credit policy that it adopted; and,

c) To carry out the other responsibilities assigned by the Monetary Board in order to

execute the monetary, exchange and credit policy.

To develop the considered in clause c) transcribed, the Monetary Board, in resolution

JM-193-2002 dated June 1st, 2002, assigned to the Execution Committee the following

additional responsibilities:

d) To define the amounts and other financial conditions, as well the moment, for the

reception of term deposits and for the issue, placement or acquisition of monetary

stabilization bonds or other securities issued by the Central Bank;

4 The aspects related with the integration, duties, meetings and responsibilities of the Execution Committee are contained in articles 39 to 42 of the

Organic Law of the Banco de Guatemala.


14

e) To define the amounts and other financial conditions, as well as the moment, for the

negotiation, in the secondary securities market, of security titles issued by entities of

the public sector; and,

f) To define the amounts, as well as the moment, for the purchase and sale of foreign

currency by the Banco de Guatemala.

The responsibilities of the Execution Committee should be carried out without

hindering reaching the fundamental objective of the Central Bank.


15

CHAPTER II

OPERATIONS AND ACCOUNTS OF THE

BANCO DE GUATEMALA

Fernando VII – Colonial Era Last Spanish monarch during the colony, the Currency Clearing House of Guatemala minted coins of all values dated 1808, 1809 and 1818, with the order of not changing the father’s bust, but to place the name FERDINAND VII.


16

OPERATIONS AND ACCOUNTS OF THE BANCO DE GUATEMALA

1. Term Deposits

1.1 Expressed in quetzales

As part of the monetary stabilization operations that the Banco de

Guatemala carries out in the execution of the monetary, foreign exchange rate and credit

policy, in 2006, it continued receiving term deposits through the different fund-raising

mechanisms. In that regard, at the end of said year, the balance of said deposits was of

Q15,619.0 million, amount lower by Q1,916.3 million than the one registered at the end of

2005. The fund-raisings carried out through the different mechanisms were of Q151,159.4

million, while the maturities were of Q153,075.7 million, as shown in the following table:

1.2 Expressed in dollars from the United States of America

To December 31st, 2006, the balance of the term deposits in dollars of the

United States of America that the system’s banks registered in the Banco de Guatemala as

legal banking reserve was of US$7.7 million, higher in US$0.8 million than the registered

at the end of 2005.

On the other hand, the Monetary Board in resolution JM-99-2004 dated September

8th, 2004, authorized the Banco de Guatemala to receive term deposits in dollars of the

United States of America, through the bid mechanism in stock exchange, through the

MECHANISM BALANCEL 31/12/2005 RAISINGS MATURITIES BALANCE

31/12/2006 ABSOLUTE VARIATION

TOTAL 17,535.3 151,159.4 153,075.7 15,619.0 -1,916.3

Biddings 8,787.2 3,527.8 5,627.8 6,687.2 -2,100.0 MEBD ¹/ And stock exchanges 2,561.0 129,409.9 128,914.4 3,056.5 495.5 Window 5,629.2 17,943.1 18,324.7 5,247.6 -381.6 Remunerated banking legal reserve 557.9 278.6 208.8 627.7 69.8

1/ Electronic Banking Money Table.

(Millions of quetzales)

TABLE 1

BANCO DE GUATEMALA MOVEMENT OF TERM DEPOSITS

YEAR 2006


17

system of competitive offers regarding the interest rate. In that regard, on December 31,

2006 the referred mechanism did not present any balance at all, due to the fact that in said

year there was no fund-raising, but only a maturity of the balance that was current when

operations closed the previous year for US$1.3 million. As to the term deposit balance in

US dollars made at the window, with public entities, to December 31, 2006, these were

located at US$26.0 million.

In summary, at the end of 2006, the total balance of the term deposits in dollars of

the United States of America was of US$33.7 million, higher by US$25.5 million than that

observed to December 31st, 2005, as shown in the following table:

2. Bonds in portfolio of the Banco de Guatemala

The balance of portfolio bonds of the Banco de Guatemala, by the end of 2006, was

of Q4.2 million, completely integrated by banking bonds with guarantee of mortgage

booklets acquired by the Central Bank before 1990. Said balance is lower in Q1.0 million

(19.23%) regarding the one observed at the end of 2005, reduction that mainly corresponds

to programmed amortization of capital.

3. Treasury bonds received to cover net deficiencies

In fulfillment of the established in clause b) of article 9 of the Organic Law of the

Banco de Guatemala, the State, through the Ministerio de Finanzas Públicas, on August

MECHANISM BALANCE 31/12/2005 FUND-RAISINGS MATURITIES BALANCE

31/12/2006 ABSOLUTE VARIATION

TOTAL 8.2 84.9 59.4 33.7 25.5

Biddings n 1.3 0.0 1.3 0.0 -1.3 Window 0.0 78.1 52.1 26.0 26.0 Remunerated Legal Banking reserve 6.9 6.8 6.0 7.7 0.8

(Millions of US dollars)

TABLE 2

BANCO DE GUATEMALA MOVEMENTS OF TERM DEPOSITS IN US DOLLARS

YEAR 2006


18

28th, 2006 issue in favor of the Banco de Guatemala Representative Certificates of the

Treasury Bonds of the Republic of Guatemala of Q1,159.5 million, to cover the net

deficiency of the Central Bank that corresponds to the fiscal year 2004, to a term of 30

years and an annual interest rate of 3.94%, so to December 31, 2006, the balance of the

referred titles under the Central Bank rose to Q2, 123.2 million.

4. International Monetary Reserves and transactions in foreign currency

4.1 International Monetary Reserves

The level of the absolute international monetary reserves of the Banco de

Guatemala, at the end of 2006, was of US$4,061.1 million, higher in US$278.4 million

regarding the one observed at the end of 2005. On the other hand, the balance of the

obligations in foreign currency up to one-year term was reduced by US$0.3 million

regarding the previous year, which obligations were cancelled completely. Due to the

indicated, the balance of the net international monetary reserves, to December 31st, 2006,

was of US$4,601.1 million, higher by US$278.7 million than the one registered on the

same date of 2005.

4.2 Administration of the international monetary reserves

2005 2006

I. Absolute Reserves 3,782.7 4,061.1 278.4 7.4

II. Obligations up to a year term 0.3 0.0 -0.3 -100.0

III. Net reserves 3,782.4 4,061.1 278.7 7.4

RELATIVE ABSOLUTE

YEARS 2005 - 2006 (Millions of US dollars)

TABLE 3

BANCO DE GUATEMALA INTERNATIONAL MONETARY RESERVES

ABSOLUTE AND NET

CONCEPT VARIATION


19

The Monetary Board, in resolution JM-29-2004 dated April 1st, 2004, modified by

resolution JM-135-2004 dated November 10th, 2004, JM-16-2006 dated February 1, 2006

and JM 68-2006 dated July 5, 2006, authorized the investment policy of the international

monetary reserves of the Banco de Guatemala, so that said reserves are invested according

to liquidity security and profitability criteria and established the distribution mechanism of

the same, for the effect creating, the Liquidity and Portfolio tranches.

Main Modifications of Policy Inve stment of the

International Monetary Reserves of the Banco de Guatemala

In 2006, in resolutions JM-16-2006 and JM-68-2006, indicated, the Monetary Board modified the Investment Policy of the International Monetary Reserves of the Banco de Guatemala, contained in resolution JM-29-2004.

In that sense, in resolution JM-16-2006 various modifications were introduced, describing the main ones as follows:

• They established the referred policy as an objective, maximizing the average returns expected in the long term, subject to the fact that in no calendar year the total returns would be less than one percent (1%), including the risk budget, with a 99% trust level, all, in congruent with the liquidity, security and profitability criteria that the central Bank must take care of to keep and invest the international monetary reserves.

• Authorize the risk budget of 50 basic points (0.50%) every year, to keep the investment portfolios of the Banco de Guatemala active, in congruence with the mentioned criteria in the above paragraph.

• Add the future contracts as eligible instruments to keep and invest the international monetary reserves of the Banco de Guatemala, exclusively on government bonds and Euro-dollars, and the forward contracts, only to cover the exchange risk of operations from the monetary market in foreign currency different from the United States of America.

• Determined that the benchmark for the sub-tranche of the Settlement Management of the Liquidity Tranche and for the Portfolio Tranche to be the “US Treasuries 1-3 years” (G1O2), published by Merrill Lynch, to substitute the previous benchmark “US Treasury Notes & Bonds 0-1 Year” (G0QA), also published by Merrill Lynch. They also determined that the sub-tranche of Work Capital from the Liquidity Tranche will be evaluated based on the interest rate from the federal funds effective in the United States of America.

• They fixed the modified duration for the sub-tranche of the Liquidity Tranche and for the Portfolio Tranche between a range of +/- 0.50 years, around the duration of the benchmark.

• They established that for the determination of the sizes of the tranches and for the distribution of the susceptible reserves to be invested between the Settlement Tranche and the Portfolio Tranche, apply the authorized criteria for the distribution of the international monetary reserves. On their part, in resolution JM-68-2006 the Monetary Board reformed clause a) from number 3 of Annex 1 of

resolution JM-16-2006, that contains the criteria for the distribution of the international monetary reserves of the Banco de Guatemala, adding the following paragraph: If in the course of each month they observe that the amount of the sub.tranche of Work Capital is located below the minimum, they must remove investments from the portfolio constituted with resources from the sub-tranche of the Settlement Management for the amount necessary to restitute the resources of the sub-tranche of work capital, so that these be within the established limits.

The Settlement tranche is directly administered by the Banco de Guatemala

and its main purpose is to provide coverage to potential exits of reserves in a one year

period. This tranche is made up of two sub-tranches known as Work Capital and

Settlement Administration, which have as their objective: first, to cover potential exits of

reserves in a one month period and, second, to give coverage to the foreign currency


20

obligations estimated for up to a twelve month period. The investments that constitute the

Settlement Tranche, per sub-tranche, to December 31st, 2006, are shown below:

On their part, the Portfolio Tranche is administered by the financial institutions of

recognized international prestige5, specialized in portfolio management, for which effect

the Monetary Board has authorized the General Management of the Banco de Guatemala to

hire the services of the institutions of this nature. Said tranche is constituted by the

difference between the amounts of the susceptible liquid reserves to be invested and the

resources assigned to the Settlement Tranche.

The distribution of the resources of the Portfolio Tranche, to December 31, 2006, is

shown as follows:

5 In 2006 the Banco de Guatemala subscribed new investment administration contracts per instructions presented particularly by the

Monetary Board.

SUBTRANCHES AMOUNT

WORK CAPTIAL 47.2

Deposits at sight in the Federal Reserve Bank of New York 47.2

SETTLEMENT MANAGEMENT 627.6

Banco de Guatemala 627.6 a/

TOTAL 674.8

a/ Refers to the accounting value of the portfolio. According to resolution JM-16-2006 as of March 1, 2006, this portfolio Forms part of the Portfolio Tranche.

AL 31 DE DICIEMBRE DE 2006 (Millions of US dollars)

TABLE 4

BANCO DE GUATEMALA INTERNATIONAL MONETARY RESERVES

LIQUIDITY TRANCHE


21

The funds that constitute the investment portfolios of the Tranche Portfolio and of

the sub-tranche for Settlement Management for the Settlement Tranche are under the

custody of the State Street Bank and Trust Company, entity that was contracted at the

beginning of 2005 to render technical services of global custody to the Banco de

Guatemala.

According to clause e) of article 4 of the Organic Law of the Banco de Guatemala

and in the referred investment policy of the international monetary reserves, the General

Direction of the institution, during 2006, the international monetary reserves of the Banco

de Guatemala were invested in repurchase agreements; in deposits immediately

demandable and term deposits in international financial institutions and in first-order

foreign banks; gold deposits in entities specialized in this type of investments; in bills,

notes and treasury bonds; in securities issued or guaranteed by international organizations,

financial institutions or foreign governments of recognized solvency; in securities issued or

guaranteed by governmental agencies with sovereign guarantee; and, in other long-term

instruments.

Regarding the liquidity and security of the investments, both criteria are evidenced

in the qualification of the instruments in which the international monetary reserves of the

ADMINISTRATOR AMOUNT STRUCTURE

UBS Global Asset Management (UK) Ltd. 1,031.4 32.6 Allianz Global Investors Advisory GmbH 921.4 29.1 JPMorgan Asset Management (UK) Ltd. 679.4 21.5 World Bank (RAMP) 529.7 16.8

TOTAL 3,161.9 a/ 100.0

a/ Refers to the accounting value of the portfolio.

(Millions of US dollars and percentages )

INTERNATIONAL MONETARY RESERVES

TABLE 5

BANCO DE GUATEMALA

PORTFOLIO TRANCHE TO DECEMBER 31, 2006


22

Banco de Guatemala are invested. For that reason, for the short-term securities the

qualifications allowed are those not lower than A -1, of Standard & Poor’s; and, P-1 de

Moody’s Investors Service; whereas the qualifications allowed for the long-term securities

are those not lower than AA-, of Standard & Poor’s; and, Aa3, of Moody’s Investors

Service6.

As to the average net profitability of the international monetary reserves investment,

considering the market value of the investment portfolio of the Banco de Guatemala

abroad, during 2006 was of 4.44% annually for the Settlement Tranche and of 4.67%

annually for the Portfolio tranche. It is worth indicating that during January and February,

the investment portfolio of the Settlement Tranche kept the composition that it had prior to

the implementation of the modifications to the Investment Policy of the International

Monetary Reserves of the Banco de Guatemala approved in resolution JM-16-2006 of the

Monetary Board dated February 1, 2006. The referred implementation was made on March

1, 2006, date in which they set, on the one hand, the initial positioning of the portfolio

constituted with resources from the sub-tranche of the Settlement Management of the

Settlement Tranche of the new benchmark approved by the Monetary Board for said sub-

tranche, and on the other hand, the determination of the constitutive resources of the sub-

tranche of Work Capital within the limits established by said Board. In that sense, as of

March, the investment of constitutive resources of the Work Capital sub-tranche are

evaluated based on the current federal funds interest rate of the United States of America,

as long as the profitability of the investments of the Settlement Management sub-tranche

resources, investment portfolio that previously made up the Portfolio tranche, are evaluated

based on the approved benchmark by the Monetary Board for said sub-tranche. Therefore,

the corresponding rendering of the Settlement Tranche is calculated as the weighted

average of the yield obtained by the two sub-tranches that make it up.

6 The referred grading in the short term define that the ability of the issued to fulfill the financial commitment is “Extremely strong”;

in other words, that the same correspond to instruments of high credit quality and to a high re-payment ability, on behalf of the issuer. As to qualifications for long term., they define that the ability of the issuer to fulfill the financial commitment as “Extremely Strong” or “very strong”; in other words, that the same correspond to instruments of the same high quality credit and a low one ov very low expectation of investment risk.


23

The following tables show the invested amounts and the profitability obtained in the

Settlement Tranche and in their sub-tranches named Work Capital and Settlement

Management, during 2006.

AMOUNT ANNUAL MONTH OF YIELD

YIELD RATE

January 1/ 0.6 4.22% February 1/ 1.1 4.44% March 1.0 2.00% April 2.0 3.91% May 1.5 2.52% June 1.4 2.57% July 3.8 8.19% August 3.4 7.71% September 3.9 6.34% October 2.9 4.67% November 3.7 6.23% December 0.5 0.85%

TOTAL 25.8 4.44%

1/ Corresponds to previous Settlement Tranche profitability.



TABLE 6

BANCO DE GUATEMALA

YIELD FOR THE SETTLEMENT TRANCHE YEAR 2006


24

YIELD ANNUAL MONTH YIELD

AMOUNT RATE

January February March 94.4 0.4 4.56% April 123.1 0.5 4.85% May 158.0 0.7 4.86% June 93.9 0.4 4.97% July 101.8 0.4 5.21% August 90.1 0.4 5.25% September 141.7 0.6 5.26% October 113.7 0.5 5.28% November 103.3 0.4 5.30% December 98.1 0.4 5.27%

TOTAL 4.7 5.08%

AVERAGE AMOUNT INVESTED



TABLE 6-A

BANCO DE GUATEMALA

YIELD FOR THE WORK CAPTIAL SUB-TRANCHE

YEAR 2006 OF THE SETTLEMENT TRANCHE

YIELD RATE MONTH OF ANNUAL

AMOUNT YIELD

January February March 520.7 0.7 1.54% April 522.2 1.5 3.67% May 546.0 0.8 1.85% June 564.4 1.0 2.17% July 456.8 3.4 8.86% August 384.7 3.0 8.29% September 627.6 3.2 6.59% October 630.0 2.4 4.56% November 633.2 3.2 6.39% December 633.3 0.1 0.16%

TOTAL 19.3 4.36%

1/ Value of the investment portfolio markets at the end of each month.

AMOUNT 1/



TABLE 6-B

BANCO DE GUATEMALA

YIELD FOR THE SETTLEMENT MANAGEMENT THE SUB-TRANCHE

YEAR 2006 OF THE SETTLEMENT TRANCHE


25

As to the portfolio Tranche, in the following table are the market values of the

investment portfolios at the end of each month, as well as the profitability obtained for hte

same during 2006.

To December 31, 2006 the distribution of the absolute international monetary

reserves was the following:

ANNUAL MONTH YIELD

RATE

January 3,608.7 10.5 3.48% February 3,619.1 10.4 3.82% March 2/ 3,321.4 10.2 3.70% April 3,331.7 10.3 4.14% May 3,338.1 6.4 2.45% June 3,344.4 6.3 2.42% July 3,368.3 23.9 8.84% August 3,391.3 23.0 8.47% September 3,168.0 16.3 6.66% October 3,180.4 12.4 4.80% November 3,196.8 16.4 6.63% December 3,198.1 1.3 0.55%

TOTAL 147.4 4.67%

1/ Value of markets of investment portfolios at the end of each month. .

2/ As of this month, does not include portfolio of Settlement Management Sub-Tranche due to the fact

it fulfills the decided in Monetary Board resolution JM-16-2006, this portfolio went on to make part of the Settlement Tranche.

YEAR 2006


TABLE 7

BANCO DE GUATEMALA

YIELD OF THE PORTFOLIO TRANCHE

YIELD

AMOUNT


AMOUNT 1/


26

4.3 Movement of credit letters

To assist the import operations carried out in 2006 by the public sector and by the

Banco de Guatemala, documentary credits were issued for a total of US$15.3 million and

settlements of US$2.8 million were carried out. As a result of the indicated operations, at

the end of 2006 the balance of the current credit le tters was of US$13.5 million, higher by

US$12.5 million regarding the registered on December 31st, 2005.

The following table shows the circulation of the credit letters:

I. Investments of Settlement Tranche 674.8

II. Investments in Portfolio Tranche 3,161.9

III. Operative Reserve 1/ 5.3

IV. Other assets 2/ 219.1

TOTAL 4,061.1

1/ In the following institutions:

Citibank, NA, New York; Banco Internacional de Costa Rica, Miami; Dresdner Bank, AG, Frankfurt; Banca Commerciale Italiana, Milan; The Bank of New York, New York; Bank of Nova Scotia, Toronto; UBS, AG, Zürich; Societé Generalé, Paris; Bank of Tokyo Mitsubishi Ltd., Tokyo; Lloyds TSB Bank plc, London; y, Wachovia Bank, NA, New York. 2/ Includes the main contributions to international financial institutions, gold, monetary,

Special drawing rights, numerary, compensation agreements and reciprocal credits and special resource programs.

TO DECEMBER 31, 2006 (Millions of US dollars)

TABLE 8

BANCO DE GUATEMALA ABSOLUTE INTERNATIONAL MONETARY RESERVES


27

4.4 Issue of Drafts and Payment orders

During 2006 the Banco de Guatemala carried out fund transfers and payments to

institutions from abroad for the amount of US$2,497.8 million, higher by US$756.3 million

than that from the previous year. For that reason, it issue written drafts, as well as payment

orders through the SWIFT7 system. Through said transactions the obligations acquired by

the public sector and Banco de Guatemala, the foreign currency operations with the

banking system and the movement of the international monetary reserves was taken care of.

The following table illustrates the referred movement of drafts and payment orders:

7 Acronym for Society for Worldwide Interbank Financial Telecommunication , entity that provides electronic communications

services to financial institutions around the world. .

Current to 12-31-2005 10 1.0

(+) Credit letters issued 57 15.3

(-) Settled Credit letters 14 2.8

Current to 12-31-2006 53 13.5

LETTERS

QUANTITY MILLIONS OF OF CREDIT US DOLLARS CONCEPT

TABLE 9

BANCO DE GUATEMALA MOVEMENT OF CREDIT LETTERS

YEAR 2006


28

4.5 Participation in the exchange market

The exchange regimen that exists in Guatemala is flexible and the monetary, foreign

exchange rate and credit policy approved by the Monetary Board has been specifying it

since 2001. In said regimen, the exchange rate is determined by the interaction between the

supply and demand of foreign currency in the economy, which is consistent with a

monetary scheme of explicit inflation goals. The Banco de Guatemala participates in the

exchange market only to moderate the volatility of the exchange rate, without modifying its

trend, or to acquire the foreign currency required by the Central Bank, central government

and other entities of the public sector in order to cover their obligations in foreign currency.

In 2006 the behavior of the nominal exchange rate registered some periods of

volatility; therefore, the Banco de Guatemala, according with the lineaments of Monetary,

Exchange and Credit policy, participated in the exchange market purchasing foreign

currency for US$130.5 million, through the Foreign Currency Electronic Trading System -

SINEDI- [Acronym in Spanish.], in order to reduce the volatility of said variable.

On the other hand, with the purpose of counting on a reference exchange rate that better

reflects the exchange market, the Monetary board, through resolution JM-126-1006, dated

October 25, 2006, declared to modify the methodology of the calculation of the reference

exchange rate of the quetzal regarding the US dollar, which is based on the calculation of a

reference exchange rate for purchase and a reference exchange rate for foreign currency

sale, for a methodology based on the calculation for an only reference exchange rate that, is

not only representative for the exchange market, but has the advantage of being calculated

MILLIONS OF CONCEPT US DOLLARS

2005 2006 2005 2006

TOTAL 7,739 7,958 219 1,741.5 2,497.8 756.3

I. Drafts 1,502 1,184 -318 26.8 93.4 66.6

II. Payment Orders 6,237 6,774 537 1,714.7 2,404.4 689.7

YEARS 2005 - 2006

QUATNITY OF OPERATIONS

ABSOLUTE VARIATION

ABSOLUTE VARIATION

TABLE 10 BANCO DE GUATEMALA

ISSUE OF DRAFTS AND PAYMENT ORDERS


29

and published opportunely8.

5. Credit portfolio

With regard to the credit operations of the Banco de Guatemala, during 2006 the

institution did not receive any request in that regard and there were no amortizations

registered regarding the advances for financial restructuring granted in previous years to

various banking entities of the system. Consequently, the balance of the credit portfolio to

December 31st, 2006 was of Q457.1 million, which, while deducing the reserve for credit

assets assessment of Q165.8 million, and was placed at Q291.3 million.

With regard to the contingent credit lines granted by the Banco de Guatemala in

2001 to three banking institutions that were administratively intervened in that year9, the

balance of said funding remained invariable during 2006 (Q1,597.8 million), due that there

was no amortization to said credits, since they are under judicial charge. It is important to

mention that on this portfolio, the Central Bank has a reserve for credit assets assessment

equivalent to one hundred percent of its balance.

For that reason, on December 31st, 2006, the balance of the gross credit portfolio

balance with internal resources of the Banco de Guatemala was of Q2,054.9 million, while

the net credit portfolio was of Q291.3 million. Therefore, it is important to mention that the

difference of Q1,763.6 million registered between both sectors corresponds to the total

amount of assessment reserves that were constituted on the same date of the referred gross

portfolio.

8 It is worth indicating that the referred resolution also contains the methodology approved by the Monetary board for the calculation

of the reference exchange rate of the quetzal, regarding foreign currency that is no the US dollar. 9 Banco Empresarial, S. A., according to resolution JM-82-2001; Banco Metropolitano, S. A., according to resolution JM-112-2001;

and, Banco Promotor, S. A., according to resolution JM-113-2001. It is worth indicating that these entities currently are under bankruptcy process in the competent jurisdictional branches.


30

6. Obligations abroad

To December 31st, 2006, the balance of the obligations with institutions abroad was

reduced in US$0.3 million, derived of the cancellation of term deposits constituted in the

Banco de Guatemala.

CONCEPT

TOTAL GROSS CREDIT PORTFOLIO 2,054.9 a/

I. Advances for financial restructuring 457.1

Banco Empresarial, S. A. 53.4 Banco Metropolitano, S. A. 182.3 Banco Promotor, S. A. 221.0 Financiera Agro Comercial, S. A. 0.4

II. Lines of credit contingency 1,597.8

Banco Empresarial, S. A. 456.8 Banco Metropolitano, S. A. 612.9 Banco Promotor, S. A. 528.1

III. Reserves for valuation of assets 1,763.6

On advances for financial restructuring 165.8 On contingent credit lines 1,597.8

TOTAL NET CREDIT PORTFOLIO (I+II-III) 291.3

a/ Due balance.


TABLE 11

BANCO DE GUATEMALA BALANCE OF THE CREDIT PORTFOLIO

YEAR 2006

BALANCE TO 12/31/2006


31

7. Deposits from the non-financial public sector

The deposits from the non-financial public sector in the Banco de Guatemala are

integrated by the resources that the central government and the rest of the public sector

keep in the Central Bank. In this context, to December 31st, 2006, the total of deposits that

the central government has in the Banco de Guatemala was of Q7,551.4 million, higher by

Q420.6 million (5.9%) regarding the amount registered on the same date of 2005. It is

important to indicate that said increase mainly obeys the greater income coming from

foreign disbursements. In that sense, they highlight the disbursements for loans granted by

the Central American Economic Integration Bank-BCIE [For its acronym in Spanish.] – for

Q1, 513.5 million to partially finance the “Multi-sector Program for Investment

Strengthening”; of the loans granted by the International Reconstruction and Development

Bank –BIRF [For its acronym in Spanish.] – for Q1, 140.6 million (the first, for the

equivalent to Q761.5 million called “First Loan for Development and Ample Base Growth

Policies” and, the second for Q379.1 million called “Adjustment to the Financial Sector”);

and, the loan granted by the Inter-American Development Bank –BID [For its acronym in

Spanish.] – for the equivalent to Q455.8 million to finance the program named “Program

for Quality in Social Expense Improvement.”

Regarding the level of deposits for the rest of the non-financial public sector in the

Banco de Guatemala, to December 31, 2006, this is over Q146.7 million, amount lower by

Q82.2 million (35.9%) to the registered on December 31, 2005. Said decrease is explained,

BANCO DE GUATEMALA OBLIGATIONS ABROAD

YEARS 2005 - 2006 (Millions of US dollars)

VARIATION

CONCEPT 2005 2006 ABSOLUTE

TOTAL 0.3 0.0 -0.3 -100.0

Obligations abroad 0.3 0.0 -0.3 -100.0

FOCEM 0.3 0.0 -0.3 -100.0

TABLE 12

RELATIVE


32

by the reduction of deposits of the Instituto Guatemalteco de Seguridad Social [Guatemalan

Social Security Institution.], of the Empresa Portuaria Quetzal [Quetzal Port Business] and

other decentralized entities, for Q37.5 million, Q35.6 million and Q9.1 million, in that

order.

Due to the above, the deposits from the non-financial sector in the Banco de

Guatemala at the end of 2006, was at Q7, 698.1 million, amount higher by Q338.2 million

(4.6%) regarding the registered balance in 2005.

8. Financial Agent for the State

During 2006 the Banco de Guatemala, according to the agreed in article 53 of the

organic law, made diverse operations that are of its competency in their quality of financial

agent for the State, which are described as follows:

8.1 Operations with Treasury Bonds from the Republic of Guatemala

To December 31, 2006, according to the order account of the accounting registries

of the Banco de Guatemala, the balance of the treasury bonds in circulation expressed in

quetzales are located at Q15,980.0 million. Said balance is greater by Q5,557.4 million

(53.3%) to the registered to December 31, 2005, as a net result of the placements through

the bidding mechanisms and of bidding for Q5,978.0 million; to deliver to the Banco de

2005 2006 ABSOLUTE

DEPOSITS FROM THE NON-FINANCIAL PUBLIC SECTOR 7,359.7 7,698.1 338.4 4.6

I. Central Government 7,130.8 7,551.4 420.6 5.9

II. Rest of the Public Sector 228.9 146.7 -82.2 -35.9

CONCEPT

VARIATION

TABLE 13

DEPOSITS FROM THE NON-FINANCIAL PUBLIC SECTOR IN THE BANCO DE GUATEMALA YEARS 2005 - 2006


RELATIVE


33

Guatemala for Q1,159.5 million in treasury bonds to cover its net deficiency corresponding

to the 2004 fiscal year; and for amortizations for Q1,580.1 million.

On the other hand, the balance of the treasury bonds expressed in US dollars, to

December 31, 2006, was at US$1,648.9 million, amount lower by US$228.0 million to the

registered on the same date of the previous year, as a result of the amortizations made

during 2006.

8.2 Administration of amortization funds

The amortization funds constituted by the public sector to assist the service of the

bonded debt of the central government and municipalities, to December 31st, 2006, were of

Q753.7 million, of which Q753.6 million correspond to the central government and Q0.1

million to the Municipalities of Guatemala and Quetzaltenango.

It is important to indicate that the balance of the amortization fund of the central

government, to December 31st, 2005 and the supply carried out in 2006 allowed

opportunely taking care of the bonded debt service.

2005 BALANCE BALANCE

I. TREASURY BONDS IN QUETZALES 10,422.6 7,137.5 1,580.1 15,980.0 5,557.4 53.3

From the Republic of Guatemala 10,422.6 7,137.5 a/ 1,580.1 15,980.0 5,557.4 53.3

II. BONDS FROM THE US TREASURY 1,876.9 0.0 228.0 1,648.9 -228.0 -12.1 Fiscal year 1997 194.0 0.0 0.0 194.0 0.0 0.0 Fiscal year 1998 37.5 0.0 0.0 37.5 0.0 0.0 Of the Republic of Guatemala 1,027.4 0.0 175.6 851.8 -175.6 -17.1 Of the Republic of Guatemala -Bonds Peace- 618.0 0.0 52.4 565.6 -52.4 -8.5 a/ Include Q1,159.5 million of treasury bonds granted to the Banco de Guatemala to cover the net defficiency of the accounting year 2004.

RELATIVE ABSOLUTE CONCEPT 2006

NEGOTIATED AMORTIZED VARIATION ON

TABLE 14

OPERATIONS WITH TREASURY BONDS FROM THE REPUBLIC OF GUATEMALA YEARS 2005 - 2006

(Millions)


34

8.3 Trusts and guarantee funds under administration

The State, through the Ministerio de Finanzas Públicas [Roughly equivalent to the

Department of the Treasury of the United States of America] has constituted trusts and

created guarantee funds which resources are administered by the Central Bank. Said trusts

and funds have as their objective to promote activities that, within the governmental

policies, have been considered important for the economic, financial and social

development of the country.

To December 31st, 2006, the balance of the referred trusts and of the mentioned

guarantee funds are Q945.6 million, higher in Q14.8 million than the one registered the

previous year (Q930.8 million). Said net variation is mainly due to the registered increase

in the trust patrimony: “Fiduciary Banking Capitalization Funds” and to the decrease in

patrimony of the registered “Trust for the National Peace Fund.”

TOTAL

Balance to December 31, 2005 604.9 604.8 0.1

(+) Provisioning 5,736.2 5,736.2 0.0

(-) Payment 5,587.4 5,587.4 0.0

Capital 3,374.4 3,374.4 0.0

Interests and services 2,213.0 2,213.0 0.0

Balance to December 31, 2006 753.7 753.6 0.1

FUNDS

CUADRO 15

BANCO DE GUATEMALA AMORTIZATION FUNDS OF THE BONDED PUBLIC DEBT

OF THE CENTRAL GOVERNMENT AND OF THE MUNICIPALITIES YEAR 2006


CONCEPT MUNICIPALITIES CENTRAL GOVERNMENT


35

9. Savings Protection Fund

The Savings Protection Fund regulated in Decree Number 19-2002 of the congress

of the Republic, Law of Banks and Financial Groups, was created with the objective of

guaranteeing the account holder in the banking system the recovery of their deposits up to

an amount of Q20.0 thousand or its equivalent in foreign currency, per individual or juristic

person. The resources of this fund are administrated by the Banco de Guatemala and its

regulated deposits were approved by the Monetary Board in resolution JM-187-2002,

modified in resolution JM-54-2006.

According to the forecast in article 86 of the Law of Banks and Financial Groups,

the financing sources for the Savings Protection Fund are the following:

a) The quotas that are compulsory for national banks and branches of foreign banks to

pay, according with article 88 of the referred law;

b) The yield of the investments of their resources, fines and interest;

CONCEPT 2005 2006

TOTAL 930,766.8 945,551.6 14,784.8 1.6

I. TRUSTS 930,700.7 945,509.3 14,808.6 1.6

Nacional Peace Trust Fund 560,704.8 180,261.7 -380,443.1 -67.9 Improvement for Small Coffee Producers 77,319.3 77,832.5 513.2 0.7

National Science and Technology Administration Fund -FONACYT- [For its acronym in Spanish] 31.5 30.9 -0.6 -1.9

Extraordinary Fund for Specific Reconstruction 10,379.7 10,373.0 -6.7 -0.1

Community Development Program for Peace –DECOPAZ [For its acronym in Spanish-]

27.4 27.4 0.0 0.0

Global Program for Micro and Small Businesses

85,218.6 88,983.8 3,765.2 4.4

Fiduciary Fund for Banking Capitalization 1/ 197,019.4 588,000.0 390,980.6 198.4

II. GUARANTEE FUNDS 33.8 10.0 -23.8 -70.4

Guarantee Funds for Housing 33.8 10.0 -23.8 -70.4

III. OTHER FUNDS 32.3 32.3 0.0 0.0 Fund for the Reactivation of the Industrial Sector 32.3 32.3 0.0 0.0 1 / Information incorporated as of this publication.

RELATIVE ABSOLUTE

TABLE 16 BANCO DE GUATEMALA

TRUSTS AND GUARANTEE FUNDS TO DECEMBER 31, 2005 AND 2006

(Thousands of quetzales)

BALANCE VARIATION


36

c) The cash that is obtained from the settlement process of the corresponding bank,

regarding the subrogation of rights referred in article 91 of the same law;

d) The cash obtained from the sale of assets adjudicated to said fund, regarding the

settlement process of the corresponding bank, with regard to the subrogation of

rights referred in article 91;

e) The contributions of the state to cover deficiencies of the fund or to enlarge its

coverage; and,

f) Other sources that increase its resources.

The resources for the Savings Protection Fund are not subject to seizure; they are not

reimbursable and can only be applied for the finalities foreseen in the Law of Banks and

Financial Groups.

During 2006, the Banco de Guatemala in its quality of administrator of resources for

the Savings Protection Fund, based on the established in resolution JM-1203006 of the

Monetary Board, through which the monetary authority resolved immediately suspending

the operations of the Banco del Café, Sociedad Anónima, according to the declared in

article 75 of the Law of Banks and Financial Groups; and, at the request of the Assets and

Liabilities Exclusion Board for the Banco del Café, S. A., made a contribution of Q1, 600.0

million to the Administration Trust Fund and Excluded Assets of the Banco del Café, S. A.,

constituted in the National Financial Corporation, with the purpose of making the coverage

for account holders of the suspended banking institution effective. Mainly derived from the

contribution of said contribution, the patrimony for the Savings Protection Fund, to

December 31st, 2006 (Annex 1), was of Q79.9 million, lower by Q1,440.2 million to the

registered the previous year (Q1,520.1 million).

The mentioned balance of Q79.9 million is the net result of the income registered due to

quotas contributed b the banks of the system for Q241.8 million; of contributions by the

state for Q568.2 million, in cash; Q540.2 million of contributions of the State in Peace

bonds; of the transfer of funds generated in the fulfillment of the declared by decrees 315

and 4-2002 of the Congress of the Republic, destined to the Savings Protection Fund, for

Q31.4 million; and, Q300.8 million that correspond to the results to be applied minus the

variation registered in the exchange account differentials for Q2.5 million and the


37

mentioned contribution of Q1,600.0 million made to the Administration and Excluded

Assets Trust Fund made for the Banco del Café, S. A.

10. Trustee Fund of the Banking Capitalization

The Banking Capitalization Trustee Fund -FCB- [Acronym in Spanish.] was created

through decree number 74-2002 of the Congress of the Republic of Guatemala, in order to

financially support the sanitation and strengthening process of the national banking system

within the context of banking fusion, acquisition of assets and asset and liability exclusion

processes, carried out based on the Law of Banks and Financial Groups.

According to the referred decree, the resources of the FCB are administered through

a trust constituted in the Banco de Guatemala, which acts as trustee of the same. The trustor

is the state of Guatemala through the Ministerio de Finanzas Públicas [Roughly equivalent

to the Department of the Treasury of the United States of America.] figuring as trustees the

banks that are interested and that are eligible for the financing and the State of Guatemala.

The superior organ of the trust is the Technical Committee integrated by two

representatives of the Ministerio de Finanzas Públicas [Roughly equivalent to the

Department of the Treasury of the United States of America.] and two representatives of

the Central Bank, which has as part of its attributions, to issue the regulatory decisions for

its operation, as well as those from the trust, which were approved in the Ministerial

Agreement number 51-2004 of the Ministerio de Finanzas Públicas [Roughly equivalent to

the Department of the Treasury of the United States of America.] In said agreement the

following normative was approved:

a) Regulation of the Technical Committee of the Fiduciary Trust Fund for Banking

Capitalization;

b) Regulation of Bank Eligibility to be funded by the Fiduciary Trust Fund for

Banking Capitalization;

c) Regulation of Financial Assistance to Banks of the System (modified according to

Ministerial Agreement number 48-2006);

d) Regulation for the sale of Assets of the Fiduciary Trust Fund for Banking

Capitalization; and,


38

e) Investment policy of resources of the Fiduciary Trust Fund for Banking

Capitalization.

11. Payment system

11.1 Modernization of the payment system

The Banco de Guatemala, based on the Matrix of the Modernization of the Payment

System, approved in resolution JM-140-2004, which contains the strengthening of the

normative framework of the payment system, the implementation of a modern payment

system and the institutional cooperation for the modernization of the payment systems; in

order to continue in the modernization process of the national payment system, during

2006 oriented its actions, toward controlling the settlements of the operations of the

Banking Clearing House as the entity in charge) and to the monitoring of the operations of

the Gross Settlement System in Real Time, actions that, in general terms, are summarized

below.

11.1.1 Banking Clearing House

Article 70 of the Organic Law of the Banco de Guatemala stipulates that the

banking legal reserve, as well as the funds deposited by the banks in the Banco de

Guatemala, will serve as a base for the checks clearing system through a clearing house.

The Regulation of the Banking Clearing House was approved by the Monetary Board in

resolution JM-51-2003.

During 2006, the total of checks in national and foreign currency received by the

Banking Clearing House, under the administration of the Guatemalan Banking Association

- ABG [For its acronym in Spanish.]-, was of 29.9 million for a value of Q440,643.4

million, higher in Q17,462.3 million to the registered in 2005; and, of 0.3 million , for a

total amount of US$4,292.4 million, higher by US$1,318.9 million to the registered in

2005 respectively.


39

11.1.2 Gross Settlement System in Real Time –LBTR [Acronym in Spanish.]

The Monetary Board in resolution JM-166-2005, approved the Regulation for the

Gross Settlement System in Real Time -LBTR-. Also, according to the forecast in articles

8 and 9 of the referred regulation, the General Manager of the Banco de Guatemala issued

resolutions GG-01-2006 and GG-02-2006, through which he fixed the operation, customer

service and service rendering schedules for the LBTR system, as well as the services

commission that the Banco de Guatemala applies to the participants for said system. On

the other hand, through resolution GG-03-2006 approved the manuals of norms and

procedures that must be observed by the participants of the Gross Settlement System in

Real Time.

The LBTR system began operating on January 27, 2006, available to the

participants (banking entities, financial stock companies and entities from the public sector)

through the gross electronic settlement of their operations in national currency and in US

dollars in real time. As of the referred date, the net multilateral result10 of the Banking

Clearing House is settled in the LBTR system, in schedules pre-established by the Banco de

Guatemala. The operations that the participants can make in the referred system are: funds

10 Is the sum of the values of all the checks in favor of each participating bank minus the sum of the value of all the checks in its

charge, operated or presented in the clearing house.

CONCEPT 2005 2006

Checks received 29.8 30.2 0.4

In National Currency 29.6 29.9 0.3 In Foreign Currency 0.2 0.3 0.1

Value in quetzales 423,181.1 440,643.4 17,462.3 Value in dollars 2,973.5 4,292.4 1,318.9

SOURCE: Main Clearer, Imágenes Computarizadas de Guatemala -ICG-.

TABLE 17

OPERATIONS FOR THE BANKING CLEARING HOUSE

VARIATION

ABSOLUTE

YEARS 2005 - 2006 (Millions)


40

transfer; payment instructions, investment payments of values titles issued by the

government of the Republic and Term Deposits constituted in the Banco de Guatemala;

instructions for retiring numerary; settlement of results for bilateral and multilateral

clearing; operations for public sector accounts; settlement of operations under the modes of

payment upon delivery and payment upon payment; commissions payments for services

rendered in the system; consultations and generation of files; and, make up and generation

of reports and statistical information.

To December 31, 2006, 25 banking entities, 3 financial stock companies; and, the

Bolsa de Valores Nacional, S. A. [National Stock Exchange.] were registered to participate

in the LBTR system. In the case of the Bolsa de Valores Nacional, S. A. [National Stock

Exchange.], as of December 11 of that year it was constituted as a direct participant of the

LBTR system and, as such, settles the bids awarded in the bidding of Term Certificates of

Deposit –CDPs- [For its acronym in Spanish.] of the Banco de Guatemala.

Through the LBTR system, the banks of the system, financial stock companies and

the Bolsa de Valores Nacional, S. A. [National Stock Exchange.], as direct participants, and

public entities and other economic agents as indirect participants, settle their operations as

gross and in real time, in national currency as well as in US dollars. Said system allows

reducing time, the settlement of payments between economic agents, as well as the

strengthening of the security of operations with the use of electronic means and

sophisticated mechanisms for computer security.

To make and settle operations referenced, the LBTR system interacts with internal

systems in the Banco de Guatemala that affect the deposit accounts constituted in the

Central Bank. In that sense, the Banco de Guatemala develops the interfaces of the internal

systems that interact with the LBTR system: Financial and Accounting Information System

–SICOF [For its acronym in Spanish]-, Integrated System of Values Titles –SITV [For its

acronym in Spanish]-, Till System and Till Verification System. Additionally, the design

of the operation of the LBTR system is ready to use two communications networks, a local

one (BANCARED) and an international one (SWIFT).

To December 2006, the LBTR system is found connected with the Electronic

Money Banking Table, administered by the Guatemalan Banking Association and with the

Foreign Currency Electronic System, administered by the Bolsa de Valores Nacional, S. A.


41

[National Stock Exchange.], due to the fact that in both there are operations related to the

financial system.

The following table presents the information regarding the quantity and amount of

the operations in quetzales settled in the LBTR system, form the beginning of the

operations of the same, up to December 31, 2006.

It is worth indicating that of 39,345 operations, 29,503 (for an amount of

Q245,306.1 million) correspond to those made directly by the participants; 48.0%

correspond to payment of diverse services and taxes, 33.4% to transfers between

participants, 9.7% to direct investments made in the Banco de Guatemala by the

participants and 8.9% to cash withdrawals, whereas the remaining 9,842 operations made

by the Banco de Guatemala at the request of the participants (for an amount of Q85,621.6

million); 49.1% correspond to debit operations and 50.9% correspond to credit operations

originated in the net multilateral settlement of the Banking Clearing House.

I. Operations made by the participants 29,503 245,306.1

II. Operations made by the Banco de Guatemala, in charge of the participants 9,842 85,621.6

TOTAL 39,345 330,927.7

SOURCE: LBTR System.

TABLE 18

BANCO DE GUATEMALA OPERATIONS IN THE GROSS SETTLEMENT SYSTEM IN REAL TIME

YEAR 2006

CONCEPT

AMOUNT OF OPERATIONS

AMOUNT IN MILLIONS OF QUETZALES


42

The following is a graph that contains relative information on quantity and amount

of operations in US dollars settled in the LBTR system, from the beginning of its

operations, to December 31, 2006.

Of the 8,033 operations, 1,987 (for US$1,958.1 million) correspond to those made

directly by the participant s; 43.8% correspond to internal transfers between participants and

56.2% a transfers with credit toward deposit accounts abroad, whereas the remaining 6,046

operations made by the Banco de Guatemala at the request of the participant s (for

US$2,003.3 million); 44.8% correspond to debit operations and 55.2% to credit operations

originated in net multilateral settlement from the Banking Clearing House.

On the other hand, according to the agreed in article 16 of the Gross Settlement in

Real Time System Regulation, the Banco de Guatemala, as administrator of the referred

system, derived from the suspended operations of the Banco del Café S. A., decided by the

Monetary Board in resolution JM-120-2006 dated October 19, 2006, proceeded to exclude

the referred banking institution as a participant of the abovementioned system, action taken

as of October 20, 2006. In the same manner, according to the decided in clause j) of article

I. Operations made by the participants 1,987 1,958.1

II. Operations made by the Banco de Guatemala, at the request of the participants 6,046 2,003.3

TOTAL 8,033 3,961.4

SOURCE: LBTR System.

AMOUNT IN MILLIONS OF US

DOLLARS

TABLE 19

BANCO DE GUATEMALA OPERATIONS IN THE GROSS SETTLEMENT SYSTEM IN REAL TIME

YEAR 2006

CONCEPT AMOUNT OF OPERATIONS


43

24 of the Regulation for the Banking Clearing House, the General Manager of the

institution, on October 20, 2006, told the rest of the participants of the referred clearing

house, of the operations suspension that the Banco del Café, Sociedad Anónima was

subject to.

11.2 Institutional cooperation for the modernization of the payment system

The Banco de Guatemala, during 2006 took the necessary steps to become a

participant of the Automated Clearing House, ACH, mechanism that is in the process of

implementation on behalf of the Guatemalan Banking Association. The referred Clearing

House has as its objective to settle electronic payments made through direct credit and

direct debit, among others, through a corporate account or a personal one. Within the

operation design of said Automated Clearing House, it is established that the net

multilateral result of the settlement process will be settled in the LBT R system.

Regionally, the Banco de Guatemala has been participating in the modernization

and harmonization project of the regional payment system promoted by the Central

American Monetary Council, specifically in the design of the Inter-Connection Payment

System –SIP [For its acronym in Spanish]-, which hopes to facilitate the registry and

settlement of payment instructions between the financial entities of the Central American

countries and the Dominican Republic, through the central banks of the region.

Congruent with the advances of the Payment System Modernization, on August 28,

2006 the Banco de Guatemala in the exercise of its full power, signed the “Treaty on

Payment Systems for the Settlement of Values in Central America and the Dominican

Republic”, which is a regional instrument that was approved by the Central American

Monetary Council to all its Member States, whose objective is to give juristic security, the

development and strengthening of the payment system and of the settlement of values of

systemic importance for the region, as well as strengthen the competency of the central

banks on the payment systems of the member States. The referred treaty incorporates more

relevant international standards on the payment system, adjusting them to some particulars

of the member countries of the Central American Monetary Council, constituting them as

an important harmonization factor, with sights toward development and financial

integration for Central America and the Dominican Republic.


44

12. Paper money and coins issued and amortized

According with clause a) of article 4 of its organic law, only the Banco de

Guatemala can issue money in the national territory. In this context, in 2006 the Central

Bank issued paper money and coins for an amount of Q818.3 million. Of said amount,

Q790.0 million corresponds to paper money and Q28.3 million to coins. On the other hand,

the Central Bank amortized paper money for Q912.6 million and did not amortize coins.

13. Contributions of Guatemala to international financial organizations

According to the corresponding international agreements signed by the Government

of the Republic of Guatemala, the Central Bank, in 2006, in fulfillment of the agreed in

resolution JM-442-99, made a contribution of US$0.4 million to the Corporación

ISSUED AMORTIZED

818,298.5 912,600.0

790,000.0 912,600.0

1.00 0.0 0.0 0.50 0.0 100.0 5.00 30,000.0 51,500.0

10.00 40,000.0 68,000.0 20.00 170,000.0 128,000.0 50.00 500,000.0 275,000.0

100.00 50,000.0 390,000.0

28,298.5 0.0

0.01 140.0 0.0 0.05 1,000.0 0.0 0.10 350.5 0.0 0.25 26,800.0 0.0 0.50 0.0 0.0 1.00 8.0 0.0

METALLIC COIN

TOTAL

PAPER MONEY

YEAR 2006 (Thousands de quetzales)

DENOMINATION

TABLE 20

BANCO DE GUATEMALA

PAPER MONEY AND COINS ISSUED AND AMORTIZED


45

Interamericana de Inversiones -CII-, [Inter-American Investment Corporation.] which

corresponds to the payment of the seventh quota of the participation of Guatemala in the

First General Increase of Resources of said corporation.

Derived from the above, to December 31st, 2006 the balance of the contributions in

national and foreign currency to international financial organizations was of Q329.0 million

and US$116.8 million, respectively.

14. Financial Statements

14.1 General Balance

To December 31, 2006, the assets of the Banco de Guatemala rose to Q57,183.4

million, amount that is integrated to the balance of the following accounts: Foreign

Securities Investments, for Q29,172.9 million; Estate Restorations for Uncollected Credit to

the State, for Q18,333.3 million; Contributions to International Financial Organizations, for

Q3,385.9 million; Treasury Bonds from the Republic of Guatemala Received to cover Net

BANCO DE GUATEMALA

CONTRIBUTIONS TO INTERNATIONAL FINANCIAL ORGANIZATIONS YEAR 2006 (Millions)

BALANCE TO Balance to ORGANISM 12/31/2005 12/31/2006 VARIATION

Q. US$ Q. US$ Maintenance of Fluctuation Q. US$ Q. US$ the MIN value in M/E

Inter-American Development Bank 28.5 24.1 0.0 0.0 0.0 0.0 28.5 24.1 0.0 0.0 International Monetary Fund 230.7 69.7 0.0 0.0 12.1 a/ 3.7 b/ 242.8 73.4 12.1 3.7 Central American Economic Integration Bank 46.0 9.0 0.0 0.0 0.0 0.0 46.0 9.0 0.0 0.0 International Reconstruction And Development Bank 11.2 1.2 0.0 0.0 0.0 0.0 11.2 1.2 0.0 0.0 International Development Association 0.5 0.1 0.0 0.0 0.0 0.0 0.5 0.1 0.0 0.0 Inter-American Investment Corporation 0.0 3.5 0.0 0.4 0.0 0.0 0.0 3.9 0.0 0.4 International Financial Corporation 0.0 1.1 0.0 0.0 0.0 0.0 0.0 1.1 0.0 0.0

Others 1/ 0.0 4.0 0.0 0.0 0.0 0.0 0.0 4.0 0.0 0.0

TOTALS 316.9 112.7 0.0 0.4 12.1 3.7 329.0 116.8 12.1 4.1

1/ Refers to the Central American Fund for Monetary Stabilization. a/ Corresponds to those value maintenance adjustments due to variation in the Exchange rate of Special Drawing Rights regarding the US dollar and the quetzal . b/ Corresponds to SDR fluctuation regarding the US dollar.

TABLE 21

CONTRIBUTIONS ADJUSTMENTS ABSOLUTE


46

Deficiencies, for Q2,123.2 million; Other Assets, for Q1,592.5 million; Monetary Gold, for

Q1,065.7 million; Foreign Numerary, for Q478.5 million; Treasury Bonds from the

Republic of Guatemala Acquired from the Saving Protection Fund according to resolution

JM-123-2006, for Q456.5 million; Domestic Credit, for Q291.3 million; and, the sum of the

balances of other asset accounts, for Q283.6 million. As to Liable, these were at Q54,146.0

million, amount that is integrated by the balance of the following accounts: Titles of the

Central Bank, for Q16,138.2 million; National Numerary, for Q15,772.0 million; Monetary

Deposits, for Q9,175.1 million; General Government Deposits, for Q7,915.2 million;

Obligations with the International Financial Organisms, for Q2,776.9 million; Near

monetary Liable, for Q1,217.3 million; and, Other Liable, for Q1,151.3 million. Therefore,

the estate of the institution to date was at Q3,037.4 million (Annex 2).

It is important to indicate that of the Q18,333.3 million, registered in the Estate

Restorations for Uncollected Credit to the State, Q16,834.2 million, correspond to the cost

of the monetary, foreign exchange rate and credit policy in which the Central Bank incurred

during the 1989-2001 period; and Q1,499.1 million correspond to the net deficiencies in the

2002 and 2005 fiscal year for Q905.3 million and for Q593.8 million, respectively

On the other hand, the balance of Q2,123.2 million registered in the Treasury Bonds

account of the Republic of Guatemala Received to cover Net Deficiencies, is integrated by

the net deficiencies of the 2003 and of the 2004 fiscal year for Q963.7 million and for

Q1,159.5 million, respectively, which were restituted by the State, through the delivery of

Treasury Bonds to the Republic of Guatemala, expressed in quetzales.

As to the balance of Q456.5 million, registered in the Treasury Bonds account of the

Republic of Guatemala Acquired from the Savings Protection Fund, according to resolution

JM-123-2006, corresponds to Treasury Bonds (Peace Bonds), acquired directly from said

fund.

14.2 Results status

During the period from January 1st to December 31st, 2006, the Results Status of the

Banco de Guatemala shows that the sector of financial products was of Q1,435.9 million,

while the financial expenditures were of Q181.3 million; whereas, the financial result was

of Q1,254.6 million. While deducing from this amount Q345.8 million that correspond to

administrative expenses, a positive result in operation of Q379.5 million was shown. On the


47

other hand, the rectification of the rectification of results for previous fiscal years shows an

operational result of Q879.1 million. On the other hand, the inspection quota of the Banks

Superintendence rose to Q93.1 million and the cost of the monetary, foreign exchange rate

and credit policy of Q1,179.3 million; therefore, the Banco de Guatemala at the end of the

referred fiscal year registered a net deficiency of Q393.3 million.


48

CHAPTER III

TRANSPARENCY AND ACCOUNT RENDERING

Agustín de Iturbide – Independence and Central American Federation Era He proposed the annexation of Guatemala to Mexico, which was ratified by the Go vernmental Board headed by Gabino Gainza in 1822. For the commemoration of the annexation the 1 real gold coin was minted.


49

1. Transparency and Account Rendering

1.1 Appearance of the President of the Banco de Guatemala before the Congress of the Republic

In fulfillment of the stipulated in article 60 of the Organic Law of the Banco de

Guatemala, in January and July, 2006, the President of the institution appeared before the

Congress of the Republic: in January, to render a detailed report regarding the acts and

policies of the Central Bank in 2005, as well as to explain the objectives and policies

foreseen for 20065; and, in July, to render account regarding the execution of the monetary,

foreign exchange rate and credit policy in the current fiscal year.

1.2 Publication of information The main reports and publications of the Banco de Guatemala during 2006 were the following:

REPORT OR PUBLICATION MONTH OF PUBLICATION

Detailed report of the execution of the Monetary Board

regarding the issue of resolution JM-185-2005, determining

the Monetary, Foreign Exchange Rate and Credit policy for

2006.

January

Incomes and Expenditures Budget of the Banco de Guatemala

that correspond to 2006

January

Aide-memorie of the Banco de Guatemala 2005 March

Reports of monetary, foreign exchange rate and credit policy,

which contains explanations of the operations carried out to

reach the fundamental objective of the Central Bank

• Report to March

• Report to June

April

July

Study of the National Economy 2005 June


50

Balance sheets in an analytical way to December 31st, 2005,

verified by an independent auditor

June

Evaluation of the execution of the monetary, exchange and

credit policy to November 2006

December

Proposal of monetary, exchange and credit policy for 2007. December

Monetary, foreign exchange rate and credit policy for 2007

determined by the Monetary Board

December

OTHER REP ORTS AND PUBLICATIONS

PERIODICITY

Statistics, indicators and macroeconomic information of the real, external, monetary, financial and fiscal sectors of the economy.

Daily, weekly and

monthly

Acts of the Execution Committee of the Banco de Guatemala.

Weekly

General Statement of the Banco de Guatemala.

Monthly

Summary of the arguments that the Monetary Board takes into account in the determination of the level of the leading interest rate.

Monthly

Publication on the management of the international monetary reserves of the Banco de Guatemala.

Quarterly

2. Communication strategy

The Banco de Guatemala, as per the guidelines of the Institutional Strategic Plan,

continued with the Communication Strategy in order to facilitate the development, transfer

and use of information, taking into account the importance of said strategy in the

conduction of the monetary, foreign exchange rate and credit policy.


51

Based on the referred strategy, the Banco de Guatemala implemented the following

programs:

PROGRAM

OBJECTIVE MEANS

Macroeconomic Signs Orient the economic agents for decision making.

Press releases, bulletins and press conferences.

Direct Marketing Develop approaches with the Central Bank with important audiences to its management.

Dialogue, interviews, informative meetings and forum participation.

Training and Publication Promote and strengthen the knowledge of the population in economic matters, as well as create a clear understanding of the Central Bank’s operations.

Central Bank Magazine, Monetary Notes, BANGUAT leaflets, Economic Teaching Books and theme publications.

Information/Communication Offer clear and timely information that supports the mission of the institution.

Information of macroeconomic variables on the Internet and other communications means.

Prevention and Crisis Administration.

Orient the communications aspects at the time of unexpected events to which the Central Bank may be exposed.

Contingency Plans.

Image and Institutional Identity.

Develop activities oriented to promoting the exchange of experiences, the strengthening of the institutional values and general knowledge of the Central Bank.

Library network and academia activities.

2.1 Numismatic Museum of Guatemala

With the purpose of contributing to the cultural development of the country and,

particularly, the numismatic discipline information, on July 11, 2006 the Numismatic


52

Museum of Guatemala was inaugurated. The Museum constitutes the manner in which the

institution gives importance and offers deserved recognition to the large history of paper

money and coins that have been issued or that have circulated in the country, especially the

work made by the Real Casa de la Moneda (Royal Coin House) authorized by the Spanish

crown in 1731. In the Museum, there is a permanent exhibition that includes more than

1,400 pieces, made up of paper money (bills), coins, minting instruments, machinery,

equipment and other significant values to national history.


53

CHAPTER IV

OTHER ACTIVITIES OF THE CENTRAL BANK

General Rafael Carrera – Era of the Republic The coin production with his bust began in 1859, the pieces have the same value as those used in the colonial and federation eras.


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OTHER ACTIVITIES OF THE CENTRAL BANK

1. Participation in international meetings

The Banco de Guatemala participated in April and September 2006 in the joint

meetings of the International Monetary Fund -IMF- and World Bank -WB-. Among the

main topics that were discussed is the behavior of the world economy and international

financial markets, their perspectives, risks and economic policy measures; as well as the

implementation of a medium term strategy and the reforms of the quotas regimen and

representation of the member countries of the IMF. They also discussed the advances in

the implementation of the program to reach the Millennium Development Goals and

examined the relative strategy for good corporate government and the combating of

corruption proposed by the WB.

The Banco de Guatemala, in its quality of alternate Governor of the Inter-American

Development Bank -IDB-, participated in the annual assembly meeting of governors of the

mentioned international organism, celebrated in April 2006. Among the topics discussed;

they included the focus on integrated financing for disaster risk management and the

governance of public management. Additionally, at regional level, in February, in June and

in November 2006m they participated in meetings with the Central American Monetary

Council –CAMC-, in which, among other topics, the following were discussed:

transparency and credibility of the monetary policy; the advances in the strengthening and

harmonization of the Payment Systems of Central America and the Dominican Republic;

and, the harmonization of the public debt markets.

In May 2006, the Banco de Guatemala participated in the meetings of the

Governing Board of the Center for Latin American Monetary Studies- CEMLA- [Acronym

in Spanish.], of the Governors of the Central Banks of the American Continent and

Governors of the Central Banks of Latin America and Spain. In said meetings the topics of

explicit inflation goals and bank interventions, economic perspectives and international

financing companies, link between foreign debt and international reserves in the region

were discussed, as well as the situation of the banking system and the evo lution of banking

credit in Latin America.

Last, in April and September of 2006, the Banco de Guatemala participated in the

meetings of the Intergovernmental Group of the Twenty-four for International Monetary


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Issues and Development -G-24-. In these meetings they mainly discussed the following

topics: a) perspectives of world economy; b) foreign commerce; c) the Millennium

Development Goals; d) clean energy, climate change and development; e) the medium term

strategy of the IMF; f) the voice and representation of developing countries; and, g) support

of low income countries.

2. Economic Statistics Improvements

In the framework of the statistical strengthening process that tends toward the

adoption of the Fourth Manual of the United Nations National Accounts (System of

National Accounts 1993 -SCN93-) and to the selection of a recent base year, in 2006 the

National Program for Improving Economic Statistics -PRONAME- continued, which was

developed jointly by the Banco de Guatemala and the Instituto Nacional de Estadística -

INE-, which foresees the execution of specific programs that include the economic surveys

and updating of the DINEL National Directory of Businesses and Locations. On the other

hand, advances were carried out in the implementation processes of the Quarterly National

Accounts Systems and the advances made in the Fifth Manual of the Payment Balance and

the Monetary and Financial Statistics Manual, 2000 edition, both from the IMF.

2.1 Economic Surveys

In order to obtain economic-accounting information per branch of economic activity

and per institutional sector of the variables that constitute the accounts foreseen by the

SCN93, in 2006 the Fourth Continuous Economic Survey was carried out in order to

compile information that corresponds to 2005. For that reason, according to the

corresponding sample analysis, found 1,198 companies that integrate the DINEL were

interviewed. They also carried out quarterly surveys for the commercial, industrial and

services activities, necessary for the eva luation of the behavior of the economic activity,

having surveyed an average of 522 businesses in 2006.

Also in 2006, a Second Survey of the External Sector was made, with a sample of

1,035 businesses and institutions that have relations with the exterior, the information

obtained will be used in the implementation process of the Fifth Manual of the Payment

Balance of the IMF.


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2.2 Updating of the DINEL

In 2006, the updating of the DINEL continued; for said effect information was

obtained from businesses located in 69 municipiums of the urban area, that correspond to

the territorial divisions of Escuintla, Suchitepéquez, Retalhuleu, Huehuetenango, San

Marcos, Totonicapán, Sololá, Chimaltenango and Sacatepéquez. In that sense, 49,983

businesses were surveyed, located in 547 cartographic sectors.

2.3 Advances in the implementation of the System of National Accounts

1993 -SCN93-

In July 2006, the Banco de Guatemala concluded the process of implementing the

SCN93 and changed the base year of the national accounts (2001), which had begun in

1997. As a result of said process, in August and September the Monetary Board heard the

results of said process for the 2001-2004 period, for the regular prices as well as the

constant prices.

It is worth adding that, the information available for said period disaggregates the

measure of the GDP for the following focuses: a) of production; b) of expense; and, c) of

income. Said focuses obtain information form the balance sheets for supply and use for

226 products and of the measure of the production accounts and generation of income for

130 economic activities that are consolidated in the Supply and Utilization Graph -COU-

[For its acronym in Spanish.] They also count on the Cross Classification Graph for

Industries and Institutional Sectors-CCIS [For its acronym in Spanish.]-, with the Economic

Integrated Accounts -CEI [For its acronym in Spanish.]- and with the Funds Flow Chart-

CFF [For its acronym in Spanish.]-, information that together makes up the central

framework of the SCN93.

In October 2006, in resolution JM-103-2006 from the Monetary Board, they

approved the Publication Strategy of the results of the implementation process for the

SCN93 and the change of the base year for national accounts (2001). In the mentioned

resolution the Banco de Guatemala was instructed so that, as of January 2007, they use the

SCN93 and the new base year for the measure of the national accounts of the country and

so they coordinate the Public Sector in order that the results be used officially in the course

of the first quarter of 2007, with which the country will be adopting a standardized

methodology, according to better international practices.


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In that sense, from October to December the Banco de Guatemala held a publication

program of results, which consisted of presenting the public and private economic agents,

as well as the international organisms, the methodological aspects of the implementation

process of the SCN93 and the change of the base year for the national accounts 2001.

2.4 Advances in the implementation if the Fifth Manual of the Payment

Balance of the IMF

The Banco de Guatemala, regarding the statistical treatment of the external sector is

found implementing the Fifth Manual of the Payment Balance of the IMF. In that sense,

during 2006 they continued with concrete actions. First, between June and September

2006, the Central Bank continued with the program of business and institutional surveys

(Second Survey of the External Sector -ENCSE2- [For its acronym in Spanish]), with the

objective of gathering economic and financial data corresponding to 2005, regarding: a)

direct foreign investment businesses; b) foreign and national international transportation

businesses; c) donations to institutions received from abroad; d) international organisms

that operate in the country; and, e) other services businesses. Second, in the context of

making the registry of exchange statistics adequate, prepared a project of the creation of

new forms regarding statistical income and expenditure of foreign currency and to the daily

movement of foreign currency, which, after consulting with representatives of the

institutional market of foreign currency, will be subject to the approval of the Monetary

Board in 2007. Also, new sources of information were investigated that complement teh

business and institutional surveys and the forms for income and expenditure of foreign

currency.

2.5 Advances in the implementation of the Manual of Monetary and

Financial Statistics of the IMF

In 2006, they continued advancing in the implementation of the Manual of

Monetary and Financial Statistics -MEMF- [Acronym in Spanish.], edition 2000 of the

IMF, whose methodological framework of this manual incorporates the best international

practices in matters of compilation and publication of the monetary statistics from the


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central banks. In that sense, in September 2006, the IMF included Guatemala within the

group of 60 countries that have standardized information according tot eh MEMF and that,

therefore, are able to form part of the Supplement of Financial and Monetary Statistics, of

the International Financial Statistics –EFI [Acronym in Spanish.]-.

It is convenient that the referred manual contemplate, among other aspects, that the

monetary and financial statistics of the country fulfill two basic requirements. The first,

regarding that the same identify the institutional sectors that act in financial intermediation

(suppliers and demand of funds), aspect that in the environment of the referred manual is

called “sectorization”. The second requirement is related to the fact that the mentioned

statistics must include all agents in its compilation that participate either directly or

indirectly in the financial intermediation process, which in manual terms is called

“coverage”.

As to the coverage of the monetary and financial statistics, it is worth indicating that

it is made up of two big groups; the first, integrated by deposit stock companies, understood

as all financial institutions that have the ability to make money, like the central bank, the

banks, financial stock companies, and off shore entities and savings and credit

cooperatives; and, the second group is made up of other financial stock companies, like

insurance and bonds companies, general deposit warehouses, stock exchanges, credit card

issuing entities, among others. In that context, it is convenient to indicate that statistical

information gathered according to the MEMF is now available for the totality of institutions

that make up the deposit stock companies. Also, they are analyzing accounting information

received from other financial stock companies supervised by the Superintendence of Banks,

with the purpose of gathering standardized information that allows the construction of more

ample monetary aggregates.

2.6 Implementation of the Quarterly National Accounts

As part of the improvement process of the national economic statistics and within

the conceptual framework of the SCN93, in 2006 the implementation of the System of

Quarterly National Accounts advanced, including the analysis and selection of value

indicators, volume and prices for the different economic activities, with the objective of


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making estimations for the Gross Domestic Product –GDP-, every quarter, for production

as well as expenditure, at common prices and at constant prices, for the 2001-2005 period.

2.7 Survey of Inflation Expectations of the Private Analysts Panel–EEI

In the Monetary, Foreign Exchange Rate and Credit Policy for 2006 included the

forecast of the EEI as an indicative variable. In that context, the referred survey is made

monthly, with the objective of knowing opinion of national and international analysts

knowledgeable of operative procedures of the monetary policy, regarding the expected

evolution of prices in the economy.

In said survey, the opinion of the mentioned panel regarding the growth

expectations of the Gross Domestic Product -GDP- and the confidence rate in the economic

activity was also obtained.

2.8 Survey of Business Opinion –EOE [Acronym in Spanish.]

Since 1981 the Banco de Guatemala carries out a survey to industrial companies

every six months in order to evaluate the development of said activity. The EOE obtains

qualitative information regarding the variations in the production volume, sales volume in

the domestic and foreign markets, stock of finalized products, price of the national and

imported raw materials, salaries, investment in machinery, occupation rate and use of the

installed capacity.

In the mentioned context, in 2006 two business opinion surveys were carried out

addressed to about 400 industrial institutions located in the territorial division of

Guatemala12. The first survey was carried out in February and March, evaluating the

development of the industrial activity in 2005 and the expectations for the first semester of

2006. The second survey was carried out between July and August, evaluating the

development of the industrial activity during the first semester of 2006 and the expectations

for the second semester of that same year.

12 The stat istical framework of the survey is made up by DINEL, made by the Banco de Guatemala and the INE, between July 2000

and June 2001.


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3. Forecast System and Analysis of the Monetary Policy -SPAPM-

Since March 2005, with the advise of the IMF regarding the Explicit Inflation Goals

Scheme, and as part of the series of operative and analysis reforms that the Banco de

Guatemala is carrying out in the transition period of the monetary policy towards that

scheme, the implementation of the System of Prognosis and Analysis of the Monetary

Policy -SPAPM- was started, which consists of a group of technical tools 13 used to prepare

the forecast of the economic variables that are relevant for the Central Bank, mainly

inflation and economic growth forecast, in order to support the decisions of the monetary

policy.

It is worth adding that in 2006 there were four runnings of the MMS (result fo the

relative model for the inflation forecast in the mid-term) and, to support the referred

decisions of the monetary policy, the forecast made by said runnings were presented to the

Monetary Board on February 22, May 24, August 23 and Nove mber 22 of the mentioned

year, according to the established by the SPAPM programming.

4. Academic events

As to the academic activities regarding economic themes, the Banco de Guatemala

centered its interest regarding the monetary, foreign exchange rate and credit policy.

Particularly, the following activities are highlighted:

4.1 “Doctor Manuel Noriega Morales” Contest

As of 1989, the Banco de Guatemala has been promoting the Permanent

Investigation Contest on Topics of Interest for the Central Bank “Doctor Manuel Noriega

Morales”, which main purpose is to stimulate and promote scientific investigation in areas

regarding the competency ambit, especially in monetary, exchange rate, credit, banking,

administrative and juristic fields.

According to the bases of the contest, in 2006 first place was for “Evaluation of

Regulations of Interest Rates in a Small and Open Economic Model”, presented by a

13 Semi-structural Macroeconomic Model, econometric models, relevant information derived from expert analysts, economic indicators and data

base, among other tools.


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Colombian professional. Second place and third place were declared deserted.

Notwithstanding, taking into account the quality as well as the scientific merit of

investigations, the judges agreed to grant honorable mention to two papers: the first,

“Credit Risk: An Analysis from Colombian Firms” and the second, “The Product Gap from

Diverse Sources of Information”. It is worth indicating that both investigation papers were

made by Colombian professionals.

4.2 Economic Periods

Since 1992, the Banco de Guatemala organizes, cycles of economic periods, which

objective is to analyze and discuss current economical and financial topics of interest for

the country and for the central bank. This event is especially addressed to researchers,

professionals and academics involved in economical and financial areas. The Banco de

Guatemala invites distinguished internationally renowned academics, officers from

international organizations, public officials and persons from the financial sector, who, not

only share their experience in the economic and financial fields, develop important

conferences regarding topics of worldwide interest, in this manner contributing to increase

the amount of experience and knowledge of professionals, students and persons interested

that participate in said event.

Accordingly, on June 22nd and 23rd, 2006 the XV Cycle of Economic Periods14 was

held. At that time, the central themes were “Explicit Inflation Goals and Corporate

Government. The regimen of explicit inflation goals was analyzed with an analytical and

operative framework for the monetary policy; whereas, that additionally, basis and

principles were approached that direct the healthy practices of a corporate government,

with special emphasis on the role of public and private sectors, as well as the

implementation and importance for the Central Bank. For the development of the indicated

topic, they count on the participation of experts and investigators of international trajectory.

14 The presentations of this event can be seen on the Internet page of the Banco de Guatemala (www.banguat.gob.gt ).


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4.3 Higher Studies Program

Since 1989 the Banco de Guatemala has been offering the Higher Studies Program,

which objective is to provide solid academic training on economical and financial topics of

interest for the Central Bank, in response to the need of specialization in this kind of topics

and to help in the professional development of the Banco de Guatemala, of employees of

the Latin American central banks and professionals in economic sciences and in other

related professions, graduated from the different universities of the country.

In 2006 they developed the referred Higher Studies Program under the following: a)

“Qualitative Methods”, whose purpose is to delve in the analysis tools, particularly those of

numeric nature; b) “Updating”, so that the personnel of the institution that have received

high quality training update their knowledge and receive analytical tools of recent

development and of higher application potential in institutional tasks; and, c) “English

Language”, that follows the objective of improving the knowledge of this language on

behalf of the institution’s personnel.

4.4 Participation in the Research network of the Latin Ame rican Central Banks

From November 22nd to 24th, 2006 the XI Meeting of the Research Network of the

Latin American Central Banks was held in the city of Buenos Aires, Argentina, organized

by the Centro de Estudios Monetarios Latinoamericanos-CEMLA- and by the Central Bank

of Argentina. Said event has as its fundamental objective to provide a link that facilitates

the exchange of ideas among researchers of the region’s central banks that are interested in

the analysis of topics associated with the macroeconomic, monetary, banking and financial

sectors.

The Banco de Guatemala participated in said meeting with the research paper

“Comparative analysis of the Banking Risk Indicators in Guatemala: case of an intervened

bank, in retrospect”, prepared by professionals from the Department of Economic

Research.


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4.5 Publication of Research Papers from the Central Bank in specialized magazines

For a few years, personnel from the Banco de Guatemala have participated in

different international forums, with research that mainly covers topics related with the

monetary policy, finances and financial economy. Some of the works presented in said

forums are selected for publishing in different magazines edited by the organizing

institutions. In 2006 the Monetary Magazine from CEMLA, published “Measuring the

banking risk in Guatemala: a focus of options”, made by officers from the Department of

Economic Investigation.


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CHAPTER V

MAIN RESULTS OF THE EXECUTION OF THE

MONETARY, FOREIGN EXCHANGE RATE AND CREDIT POLICY IN 2006

Miguel García Granados – Era of the Republic President of Guatemala 1871-1873, minted coins with the current coat of arms, created during his time in office, as well as the national flag.


65

MAIN RESULTS OF THE EXECUTION OF THE MONETARY, FOREIGN EXCHANGE RATE AND CREDIT POLICY IN 200615

The Monetary Board in resolution JM-185-2005 dated December 27th, 2005,

determined the Monetary, Foreign Exchange Rate and Credit Policy for 2006, which was

executed by the Banco de Guatemala through the Execution Committee. Said policy was

designed to continue with the adoption process of a complete scheme of explicit inflation

goals and oriented to consolidate the stability in the general level of prices. In that context,

the monetary authority established an inflation goal of 6% (+/- 1 percentual point ) for

December 2007.

The implementation of the monetary policy in 2006, as indicated, has been

consistent with the efforts of advancing in the adoption of an integral scheme of explicit

inflation goals, based on the election of the inflation goal as the nominal anchor of the

economy and is consolidated with the implementation of a flexible exchange rate regimen,

with the use of instruments of indirect monetary control (monetary stabilization operations,

privileging the decisions of the market), as well as the improvement of the transparency of

the operations of the Central Bank, which will allow to continue consolidating the stability

and confidence in the main macroeconomic and financial variables.

During 2006, the monetary policy was carried out, in the external order, before the

high volatility in the international oil price during the January to august period and of the

deceleration of said price in the last quarter and, on the other hand, of the dynamism of the

global economy, particularly by the evolution of the economic growth of the United States

of America of 3.3% (country that represents 20.1% of the world economy and is the main

commercial partner of Guatemala), as well as the dynamic behavior of the People’s

Republic of China, whose growth rate was of 10.7% (10.4% in 2005). In the domestic

order, the performance of the monetary policy was favored by the support of the fiscal

policy, through the maintenance of a level of deposits in the Banco de Guatemala over the

programmed; by the demonetizing behavior of the rest of the public sector reflected in the

increase of term deposits in the Banco de Guatemala; and, by the positive economic growth

15 An ampler version on the topic can be seen in the document “Evaluation of the Monetary, Foreign Exchange Rate, and Credit Policy

to November 2006”, which is found on the Website of the Banco de Guatemala .


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expectations of the economic agents, derived from global economic behavior, as well as the

forecast levels of public and private investment.

It is worth indicating that maintaining fiscal discipline was fundamental to

consolidating macroeconomic stability, as well as creating an environment of certainty and

trust, in which the economic agents will take adequate decisions in matters of consumption,

savings and investment, factors that were fundamental to promoting growth and orderly

development in the national economy in 2006.

Said certainty and trust in economic-financial matters on behalf of economic agents

was reflected in the suspension of operations of the Banco del Café, S. A., which was based

on the established in the Law of Banks and Financial Groups, that constitutes a legal, agile

and flexible legal framework, adequate to international standards, that favor risk

administration and the orderly exit of the system for those banks that present problems that

set the operation of the country’s financial system at risk. It is worth pointing out that the

exchange market as well as the money market evolved normally. Regarding the exchange

market, it remained stable, which was reflected in the behavior of the volume transactions

and, therefore, in the nominal exchange rate. Also, the banking credit to the privates sector

as well as the bank fund-raising remained dynamic.

On the other hand, it is worth indicating that the management of the monetary

policy in 2006 within a scheme of inflation targeting cooperated in moderating the

inflationary expectations of the economic agents. In that sense, the monetary authority with

the purpose of placating the inflationary expectations of the economic agents adn of

sending a message of certainty on the commitment of the Central Bank to continue

watching for the stability in the general level of prices, adjusted the leading interest rate of

the monetary policy at three different times (25 basic points at each time) of 4.25% to

5.00%. Also, in order to increase the effectiveness of the monetary policy, according to the

guidelines of the Monetary Board, adopted actions toward improving the operative

procedures so as to advance on the development of inflation targeting.

In the described context, according to the Consumer Price Index made by the INE

during 2006 the inflationary rhythm presented lower levels to those registered in 2005 and

began a deceleration process as of May when it was at 7.62% to December 31, 2006

at5.79%, percentage that is located within the goal for the end of the year established in the


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Monetary, Foreign Exchange Rate and Credit Policy for 2006 (6.0% +/- 1 percentual point).

The referred percentage is lower by 2.78 percentual points to the observed in December

2005 (8.57%), which it associates, on the one hand, to the fact that the prices derived from

oil in Guatemala registered increases in lower proportion in the first semester of the year

regarding the evolution of the same in the second semester of 2005, as well as the reduction

in the referred prices during the second semester of 2006, particularly as of the second

week of August and, on the other hand, to the delay effect coming from the increases in the

leading interest rate of the monetary policy in 2005 and in 2006.

In that order of ideas, to December 2006, mainly due to the deceleration in the

international price of oil and in the inflation of the main commercial partners, as well as the

appreciation of the nominal exchange rate, the relative weight of total imported inflation in

the inflationary rhythm (1.06 percentual points) was lower to the observed in December

2005 (2.21 percentual points). In that sense, of total imported inflation to December 2006,

0.45 percentual points correspond to direct imported inflation and 0.62 percentual points to

indirect imported inflation16.

In summary, the main macroeconomic results of the country in 2006 are the

following: inflation was at 5.79% (8.57% in 2005); the net international monetary reserves

were at US$ 4,061.1 million, amount higher to the level registered December 31, 2005

(US$3,782.4 million), which represented a coverage of 4.4 months of goods importations;

the weighted average asset and liable rates of the banking system continued to show stable

behavior, when at 12.88% (12.67% in 2005) and 4.84% (4.62% in 2005), respectively.

Also, preliminary numbers for 2006 indicate that the deficit in current account for the

payments balance regarding the GDP was at 4.4% (4.4% in 2005); that the government’s

fiscal deficit regarding the GDP was at 1.7% (1.5% in 2005); that the tributary load rose to

10.5% (9.6% in 2005) and, that the GDP in real terms grew 4.6% (3.2% in 2005). The

weighted average nominal exchange rate of the institutional market of foreign currency for

the end of the year depreciated 0.2% when going from Q7.61 per US$1.00 on December

31, 2005 to Q7.62 per US$1.00 on December 31, 2006.

16 Refers to the increase in prices of those goods and services that in their cost structure do not incorporate the derived from petroleum,

but are affected indirectly by the increase in transportation, electricity and other expenses.

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