5 - Central America and the Second World War

Summary

The outbreak of hostilities in Europe in September 1939 had a major impact on Central America not just during the war years, but also over the longer term. The immediate impact was felt through a loss of European markets for exports, particularly coffee, while the efforts to replace imports from Europe with imports from the United States were to some extent thwarted by the war-related priorities of US production and the shortage of shipping.

Central America's efforts to find alternative markets for its exports, aided to a very large degree by the cooperation achieved within the inter-American system, were quite successful. At the same time, capital inflows surged as capital was channelled towards Central America in an effort to meet the production targets and strategic requirements of the war effort. As a result, international reserves and the money supply boomed and, with imports scarce and rising steeply in price, Central America found itself in the middle of a sharp inflation in complete contrast to the falling prices of the 1930s.

The rise in the cost of living dug deep into the living standards of the urban middle and working classes. Their discontent provided a major challenge to caudillo rule, which was compounded by the rhetoric of the Allied war effort and the struggle against totalitarianism. Yet caudillismo survived the challenge in Honduras and Nicaragua, and even Costa Rica practised its own brand of continuismo. In El Salvador, Martínez fell in the face of urban discontent, but the political system he had erected survived intact; only in Guatemala was caudillismo defeated and even there it took a military revolt to provide substance to the middle-class challenge.