To avoid calamity from rising rates, the Guatemalan government has introduced new energy subsidies in order to maintain the existing retail price structure - a band-aid measure in response to a worsening economic ill. The subsidy is paid for with increased import duties, which will eventually accumulate to the point of inflicting serious damage on the domestic economy. Inescapably, the Guatemalan government like that of other nations faces a considerable period of increasing energy costs.

The Guatemalan government’s attempts to sidestep the recent surges in the price of petroleum are even more short-sighted. So far, instead of introducing new subsidies, as it has done in the past, the country has used its strategic petroleum reserves to offset the rising prices in the vain hope that they will soon fall to affordable levels. However, there are proposals in Guatemalan congress to eliminate the tax on diesel in order to maintain a lower retail price. If passed, Guatemala would lose roughly US$250 million in direly needed tax funds for social services. In any case, most projections indicate that the diesel prices will soon rise beyond the point that such measures will forestall price surges in transportation and manufacturing. The inefficacy of these sorts of straw-grasping is revealed by the profound instability of the energy market exemplified by Hurricane Katrina’s effects on the price and availability of oil in the United States, from whom Guatemala imports 52% of its petroleum. This self-deception about the future of energy is hardly unique to Guatemala, of course; it is also present, arguably in a more pathological form, in the Bush administration.

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