 CENTRAL AMERICA |
Making Strides Economic integration will help the region strengthen gains made in the past decade, but it urgently needs to invest heavily in infrastructure and attract more foreign investment. "Together we are stronger than separate," is the prevailing refrain driving Central America toward regional economic integration.
In 1960, the five nations forged Latin America's first intraregional trade agreement, the Central American Common Market (CACM), but it later fell victim to civil wars in El Salvador, Guatemala and Nicaragua. Now that the region is struggling with free market policies while trying to consolidate democratic governments-albeit still fragile in some parts-the five original CACM partners have renewed hopes for a sustained expansion of intraregional trade. "Well I would say that we are positive. We look to our future very positively, very affirmative that every political platform has a requires a sometimes to resist some opposition but that we have clear attributes. We know what needs to be done and we will do it. So I am confident and hopefully that we will succeed in our goal," explained the Minister of Foreign Affairs, Mr. Gabriel Orellana Rojas.
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There are many signs of this development. The CACM group recently signed trade agreements with the Dominican Republic and Chile. Nicaragua, El Salvador and Costa Rica now have free trade treaties in place with Mexico. El Salvador has signed agreements with Nicaragua and Guatemala, replacing each nation's separate customs offices along their borders with single, common offices to facilitate trade. And Honduras is expected to join this initiative soon. Panama, which never fully participated in the original 1960 trade pact, is currently negotiating a free trade agreement with the CACM, Mexico and Chile. Panama is committed to a possible free trade of the Americas agreement and hopes to become a permanent host for Latin American negotiations.
Central America desperately needs to attract foreign investment to create jobs and rebuild infrastructure. Its countries struggle with poor roads, ports and services. The region needs to spend an estimated $16.9 billion on improving telecommunications, transportation, energy generation and distribution, and water purification systems. Infrastructure investments are the top priority in Honduras and Nicaragua. They were both devastated by Hurricane Mitch in 1998, which caused $6 billion in damage, destroyed infrastructure that was already frail, and almost completely razed areas producing critical exports such as coffee and bananas. "Guatemala has an enormous potential to be able to compete amongst countries. It is a country with a lot of investment opportunities and it should not be viewed as a country with 11 million habitants but as the head of the Central American Region that can convert itself with very little effort into a region with enormous potential. At this moment it is possible that it is viewed with more risk than in other parts of the world. The Central American Region will be the measurement in which they incorporate the world economy and more than 35 million city dwellers and that probably is not going to be just consumers of the Central American products but also of the products that they produce on the worldwide level," underlined the president of CACIF, Luis Fernando Montenegro | 
Traditional Central American industries are suffering from increased global competition. Ecuadorian producers now sell bananas at one-fourth the Central American price, which has forced large North American food companies to reduce banana production in Central America. Dole and Chiquita Banana laid off workers and have not reconditioned land torn by Mitch. Coffee, the region's most important export, is under continuous threat from increased production and lower prices out of Brazil.
The region remains Latin America's poorest, with an average per capita GDP of little more than $1,000. Central America's 33 million inhabitants, accounting for 6.5% of Latin America's population, are among the least educated, with an average regional illiteracy rate approaching 25%.
Costa Rica, however, has long been an exception. Basic education and literacy rates there have always been ahead of its neighbors. Costa Rica enjoys 93% adult literacy, compared with about 73% in El Salvador and 55% in Guatemala. Costa Rica's per capita income is roughly double that of El Salvador and Guatemala, three times that of Honduras, and six times that of neighboring Nicaragua.
These enviable social indicators, plus a low crime rate, have made Costa Rica a magnet for foreign investment. Several large international companies have invested substantially in Costa Rica, including Intel, Procter and Gamble, and Abbot Laboratories. In contrast, El Salvador and Panama are finding it harder to attract international investment. Some Costa Ricans fear that economic integration may drag their country down to a lower common denominator, and worry that their relatively higher wages will leave them at a competitive disadvantage.
Central America, with its small domestic markets, cannot compete for foreign investment on equal terms with Mexico and the large South American economies. However, trade integration, financial stability and improving social indicators should allow the region to carve out small but lucrative niches in services, light industry and agriculture. |
