Guatemala has had a strong traditional, subsistence economy since before the Spanish conquest in the early 1500s, producing corn, beans, chocolate, cotton, and a wide variety of fruits and vegetables. To these indigenous products, the Spaniards added wheat, sugar, livestock, and European fruits and vegetables. Guatemala exported small quantities of cacao, sugar, cotton, and other crops early in the colonial period, but in the 18th century the Spanish government put greater emphasis on exports. Since then, Guatemala has steadily increased its dependence on foreign markets. In the 19th century, first cochineal dye derived from insects and then coffee became the principal Guatemalan export. Coffee revenues paid for early development of the country’s cities, roads, and other facilities, and the elite class of coffee planters became powerful in government and the military. In the early 20th century bananas became an important secondary export, and large foreign-owned banana companies contributed greatly to the nation’s network of railroads, ports, and communications systems.

Guatemala is a developing country largely dependent upon traditional commercial crops as the basis of its market economy. Vigorous economic growth during the 1960s and '70s was followed by a severe economic downturn during the '80s. The government has attempted to revitalize the economy by fostering the diversification and expansion of nontraditional exports, and free trade zones have been established to encourage the expansion and decentralization of manufacturing. The collection of personal income taxes has improved significantly; the government, however, continues to rely upon revenue from other tax sources, such as customs duties, sales taxes, and excises on liquor and tobacco.

The agricultural sector accounts for about one-fourth of GDP, two-thirds of exports, and half of the labor force. Coffee, sugar, and bananas are the main products. Former President ARZU (1996-2000) worked to implement a program of economic liberalization and political modernization. The 1996 signing of the peace accords, which ended 36 years of civil war, removed a major obstacle to foreign investment. In 1998, Hurricane Mitch caused relatively little damage to Guatemala compared to its neighbors. Ongoing challenges include increasing government revenues, negotiating further assistance from international donors, and increasing the efficiency and openness of both government and private financial operations. Despite low international prices for Guatemala's main commodities, the economy grew by 3% in 2000 and is forecast to grow by 4% in 2001. Guatemala, along with Honduras and El Salvador, recently concluded a free trade agreement with Mexico and has moved to protect international property rights. However, the PORTILLO administration has undertaken a review of privatizations under the previous administration, thereby creating some uncertainty among investors.