Yesterday, I met with Carmen Diana Deere of UF’s Center for Latin American Studies to clear up the economic questions that I had about Guatemala.
One thing she said really resonated with my nature to fight social injustice: The dollar goes farther simply because their wages and standard of living are so much lower.
I talked to a woman who said her husband sold ice cream in the city every day for 12 hours and came home with an average of about 10 quetzals. That’s around $1.50 day. I make $7.75 an hour plus tips to sell ice cream at the most pretentious of all American ice cream stores–Cold Stone Creamery.
The lower wages aren’t a device to keep the poor man down, though. They’re the root of the government control of trade, value of currency and (sadly often) corruption.
Deere drew me the basic supply and demand graph to illustrate how a government can control the value of their currency.
At the intersection is the natural market value of currency, Guatemala, however, sometimes overvalues the currency so fewer quetzals can purchase the dollar–the currency that controls the value of trades. This makes imports cheaper for a nation that needs them, but it also makes it so local sellers can’t compare to the great American imports, even for staples like corn!
So a little crash course in economics made me realize why the Guatemalan Gringo’s statement bothered me (see last post). It’s definitely all true, but at the cost of social inequality for everyone. As a side note–he linked to GDP statistics yesterday and I linked to HDI (Human Development Index) statistics.
UPDATE: I apparently mistook the information I was given about Latin America and applied it to Guatemala. It’s been brought to my attention that Guatemala often has to do the opposite–undervalue the currency to control the number of remittances
Gator in Guatemala 
This is nonsense. The value of the Q is set by supply and demand and for several years the dollar surplus has been fed by remittances from Guatemalans in the US-this year about $4 Bn.
I’m grappling to understand a concept that I want to know more about. My blog is about my learning experience. I thought I understood the subject. Do you have any links that might improve my post and my understanding?
I have to agree with Carlisle Johnson. This is nonsense.
An ice cream vendor working for 12 hours in Guatemala is not going to take home Q10; let’s see the cheapest ice creams are about Q2 so that would mean this guy is barely selling 5 in all those 12 hours (or 10 if he gets 50% of its value). Either way, it just doesn’t jive.
Now this, “Guatemala, however, som[e]times overvalues the currency so fewer quetzals can purchase the dollar” is so wrong. It’s more like because of all the remesas (remittances) of dollars from Guatemalan living in the U.S. that has kept the dollar around 7.6 exchange rate for so many years. Quite the opposite happens, when there’s a surplus of dollars from remesas, the Guatemalan national bank needs to buy back some the surplus to keep the exchange rate stable or the Quetzal becomes too strong (fewer quetzales per dollar).
Here’s a quote from a recent article by Carlisle Johnson, published in the Revue Magazine:
“Tourists from the United States had no difficulty figuring out what things cost because the currency was on par with the U.S. dollar, 1:1, and remained so for almost 45 more years, truly one of the world’s strongest currencies.”
http://revuemag.com/2008/08/flashback-1937/
I guess I really missed the mark on this one. I think I tried to take on something I don’t really understand. The link is much appreciated. The remittances were not brought to my attention previously. As mentioned before, my blog is a learning experience, so I would appreciate if you took that into consideration.
The man who sold the ice cream, though, didn’t live in Zacapa. The 12 hours included him pushing his cart to and from the city from a small village. Then to the boss’ to pick up the ice cream. And then around the town. When he was done, a big share of the profits go to the man he works for. Maybe the family underestimated to me, but I’m not making up what I heard.
The minimum wage in Guatemala is Q45, so even if someone works for somebody else for less than that, I am not sure someone would do it for 1/4 the minimum wage.