Central America

Country Assessment Studies were undertaken in El Salvador, Guatemala, Honduras and Nicaragua. The following is a summary of the findings.

May 2000
THE FOUR CENTRAL AMERICAN countries are similar in many respects. During the 1990s all four emerged from devades of civil strife. They are all low-income countries exporting primary commodities, mainly bananas, coffee, sugar and meat. In the 1990s several new exports have emerged, including clothing assembled in export processing zones, and a variety of non-traditional agricultural products, mostly for the United States market.

Up to the 1970s, a mainstay of their economic development had been the Central American Common Market (CACM). Regional integration had represented an important stimulus to the development of their manufacturing sectors during the 1960s and the 1970s. However, civil war and external debt problems led, during the 1980s, to a considerable weakening of regional integration.

During the 1990s all four countries have achieved a degree of social peace that had eluded them in previous decades. All of them now have democratically eleceted governments. They have made enormous progress towards macroeconommic stablility. At the same time, there has been a remarkable opening up of their economies to foreign trade and investment. Tarriffs have been lowered and preferential trading arrangements have been sought with several partners (the most important one being Mexico), by individual countries and by the group as a whole, within the framework of CACM.

All four governments hav ealso completely liberalised their FDI regimes and have introduced privatisation programmes in which foreign investors are already participating. FDI is already showing signs of picking up. Honduras has been able to attract large volumes of FDI in to its exporting processing zones, which now give employment to more than 120,000 workers. Public utilities in El Salvador and Guatemala have also attracted FDI.

For the first time in decades, economic growth has been positive in per capita terms. However, in spite of this enormous progress, the growth process is still not consolidated. In the first place, growth rates are still on the low side. Second, the backlog of unmet human development needs has not diminished. FDI is unlikely to be attracted in sufficient volumes until these countries have educated and healthy labour forces. The lack of financing for micro and small enterprise is hindering the full participation of these firms in the development process. To varying degress, governance, violence and unclear property rights are still unsolved problems.

In some countries, fiscal balance has been achieved, but at the cost of severe cutbacks in expenditures in health and education. Greater policy coherence needs to be achieved so that incentives favouring new export-oriented sectors are celarly perceived. It also means that people must be empowered to respond the new signals.

These countries would clearly benefit from revitalising the CACM. A recovery of the original vision, now within the framework of open regionalism, could be a powerful development tool and an important component of a strategy for speeding up economic growth and SHD.

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© United Nations 2001