start here

start here

The Daily IKN email digest, get all daily posts sent to you next day (& no ads)


The IKN primer on the Guatemala elections this Sunday (from IKN 328, August 23rd)

This was a long feature in The IKN Weekly (where we do the real work) issue IKN328, from two weekends ago, on the upcoming Presidential and general elections in Guatemala set to happen this weekend September 6th. With the news this evening that President Otto Pérez Molina has lost his immunity from prosecution and has been ordered not to leave the country, the first part's coming closer to reality too.


Guatemala: Otto Pérez Molina may not survive his term after all
It was another tumultuous week in Guatemala politics. With the presidential elections now drawing near and current President Otto Pérez Molina trying everything he can to remain in office to make the transition smooth, three events rocked the fragile peace (with "everything he can" basically meaning lay low, do nothing, keep out of view).

1) President Pérez Molina's (ex) Vice President Roxana Baldetti was finally arrested for her role (I could put "alleged role" if you like, but there seems little point in playing niceties as she's guilty as hell) in the 'La Linea' tax corruption scandal (see Weeklies passim).

2) The big one: The CICIG anti-corruption investigation body published its findings on the President (9) (10) and accused him of being directly involved in the multi-million dollar corruption scandal. The killer sound bite was (translated) "There is no doubt that all references to "One" and "Two" correspond to the President of the Republic and to Roxana Baldetti", referring to recorded telephone conversations that use "one" and "two" as code words for the people who are to be paid off by companies in return for avoiding many millions of dollars in import duties and taxes. Even worse, CICIG has called for formal charges to be made against the President, so sure are they of the case.

3) Yesterday Saturday three of his government ministers (Education, Economy, Presidential Committee for "Competitivity") resigned (11), saying they felt betrayed by the President and left their posts feeling "deceived" and "sad". At the same time another "President Must Resign" rally formed with many thousands of people packing into Guatemala City's main square in front of the Presidential Palace (and yes, President Otto Pérez Molina is in residence).

From looking reasonably calm just a few weeks ago and weathering the storm of the first round of the La Linea scandal, it's now once again nip and tuck as to whether Otto Pérez Molina survives as President and gets to hand over power. Also, there are now serious calls for the whole Presidential election to be postponed (12) until CICIG gets to the bottom of the La Linea scandal. For one thing the scandal has gone way beyond the President and his party and affects all the main political parties now (for example, frontrunner Manuel Baldizón's campaign has been hit hard by accusations of corruption made against his Vice Presidential ticket running mate, Edgar Barquín). But any delay to the electoral process would mean above all that there would be nowhere left to hide for the President and would be very bad news indeed for him and the general country's stability.

A focus on the Guatemala Presidential election
With all that breaking last week, it's now once again a serious and direct influence on the Presidential election that's just two weeks away, September 6th (assuming of course the vote takes place, see above). It's worth noting that Guatemala isn't just choosing its next President on September 6th but is also voting for a new Vice-President, 158 members of Congress, 20 new members of the Central American parliament and mayors and town leaders for 338 municipalities. This is a big vote day.

Therefore I'd like to turn away from the current government's scandals just a little (because it's still a big effect here) and take a good look at how the campaign has developed, because there have been some very significant changes in the race. We can of course consider the human political factors of this election, but the real and practical reason for taking an interest on these pages dedicated to mining companies in Latin America is pure capitalism: We want to know whether there's the potential for a trade, with our main target being the heavily Guat-exposed Tahoe Resources ( (TAHO) as a potential prime target for any buy-low-sell-high action.

I proposed back then a call on a possible near-term trade/flip buy on TAHO, depending on how the election looked. I'm bringing the analysis forward by a week because there's now a clear picture emerging and it's something of a surprise, too.

The centerpiece of this article is this chart, put together from the last three voter intention surveys run by the Guatemalan pollster Borge & Asociados for the respected news and current affairs magazine "Contrapoder" (literal translation "against power", gist translation "counterweight to power"). To give an idea of the survey technicals, the latest survey taken in August and divulged to the public last week August 21st included:

·     Adult males and females resident in Guatemala
·     On electoral registered since 2011 minimum
·     Sample taken in proportion to voter densities around country
·     Head to head questioning, voter intention taken using simulated ballot paper/box
·     1,199 people interviewed
·     Margin of Error +/- 2.8%
·     Confidence level 95%
·     Dates survey taken August 7th to 13th

In short, the right way to do a survey and Borge & Asociados has a reasonable reputation for accuracy, much the way Contrapoder Magazine has a reputation for editorial balance. But you'll also note that the date of the survey closes before the latest round of scandals hit. Enough blahblah, here's the chart, notes below:

·     Manuel Baldizón of the LIDER party, one of the most established (and establishment) political parties in Guatemala, is still leading the polls but has seen his lead cut dramatically.

·     Jimmy Morales, running as an independent, has surged in the polls in the last two months from under 10% to over 20% and has moved into second place.

·     Sandra Torres, ex-wife of previous President Alvaro Colom and from the ostensible political left (though hardly a radical left wing, more straight centrist in reality) has also seen gains in voter intention, but not enough to stop Morales from surging past her. She's also considered part of the political establishment.

·     The "don't know/no answer/undecided" column has shrunk by nearly 12% in two months, with more people making up their minds which way to vote. And Baldizón hasn't enjoyed any of the new decisions.

·     The "other" column (made up of several minor candidates with little hope of winning) has also shrunk as people seem to be gravitating towards the main three candidates now.

·     The final bullet point (and one we'll come back to): As Guatemala requires 50% +1 vote for its President, it's now extremely unlikely that we'll get a winner in Round One and we're all set for a second round run-off between the top two voted candidates that's slated for November 8th. Two months between the two votes may turn out to be an eternity in Guatemala.

Now for some analysis and what you see in visual form (or go to Reuters here (13) for its take on the big electoral story) is the growing surprise that is Jimmy Morales. Morales (wiki page here (14) is best known as an actor and one half of a long-running comedy TV show duo in Guatemala called 'Moralejas', in which he stars along with his brother. They play a pair of cousins who get into scrapes and then out of them again, it's reasonable but simple stuff. Morales has also appeared as a TV presenter. He also has some form in politics already, as in 2011 he ran for the job of Mayor of the Mixco province in Guatemala and came third in the voting. But despite this background, supporters are quick to point out that he's no intellectual lightweight and left education with a stack of qualifications. He's also proved to be a formidable speaker and debater in this campaign.

Despite his apparent qualities, he's still come out of nowhere. In December 2014 Jimmy Morales didn't even figure on the electoral radar. He then started a very low cost campaign, mostly via Facebook and other social media plus some very limited publicity space in the "normal" outlets (street signs, newspaper ads) and to the surprise of many, was suddenly polling around 5%. The campaign started to pick up the attention of some media and also of those who were looking for a rallying point against the established parties and candidates of always (in other words, the corrupt band of two or three parties who pretend to be in opposition but in reality pass the power parcel between each other).

In short he's picked up support and momentum as the outsider candidate (for what it's worth, "el outsider" is a phrase often used in Spanish for exactly this type of political candidate) and has emerged from the pack as the one to challenge the established political class. And when last week's voter intention poll results came out it reportedly shook the political establishment hard; he's now being taken very seriously indeed. His message is strong on the main issue of this campaign, anti-corruption. Disaffected voters are congregating around him, often because they believe he couldn't possibly be any worse than the samo-samo options they'd have otherwise. And it's that part of the story, the "jail them all" message for the Guatemala corruption class politicos and people in power that we on the outside should most be concerned about.

As things stand, the most likely outcome on September 6th is to see Baldizón (impossible to be a more establishment politico) and Morales (impossible to be more of an outsider) go forward into a second round run-off, with the vote on November 8th. And what happens then is anyone's guess (at the moment pollsters have just two points between Baldizón and Morales in a head-to-head runoff) but as my original thesis of buying Tahoe Resources (TAHO) ( was on the back of a very likely Baldizón victory and a return to the normality (bad, corrupt, self-serving but normal) of Guatemalan politics, it's now impossible to make that call. Bottom line, I will not be buying TAHO before the Guatemala elections take place as it's just too difficult to make a confident call.

One more thing: Over the years (as you'll recall, boringly) I've avoided an investment in Tahoe Resources due to its prime weakness, the Achilles' Heel of being located in Guatemala. It's also why I sold my shares before the merger had completed, I simply don't want to be exposed to the country's off-scale political risk. That call has been totally vindicated by the stunning events of the past few months, but I'm also aware that on a micro-company basis, TAHO's a great mining company with an excellent asset in Escobal. What could really ruin it for the company is a black swan event that nobody sees coming and I'd vouch that if Jimmy Morales wins the Presidency and takes office (without being assassinated beforehand, as I do fear for his life now) the chances of such a black swan event would be much higher. I'd also say that Goldcorp timed the sale of its shares in TAHO to near perfection.

Bottom line: Guatemala will be a fascinating place to watch in the next few weeks, but it's definitely a case of "look but don't touch". Avoid exposure to the country.