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Alternative Perspectives on Central American Economic Recovery and Development
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THE REPORT OF THE INTERNATIONAL COMMISSION FOR CENTRAL AMERICAN RECOVERY AND DEVELOPMENT: POVERTY, CONFLICT, AND HOPE—A TURNING POINT IN CENTRAL AMERICA. (Durham, N.C.: Duke University Press, 1989. Pp. 131. $30.00 cloth, $10.95 paper.)
CENTRAL AMERICAN RECOVERY AND DEVELOPMENT; TASK FORCE REPORT TO THE INTERNATIONAL COMMISSION FOR CENTRAL AMERICAN RECOVERY AND DEVELOPMENT. Edited by ASCHERWILLIAM and HUBBARDANN. (Durham, N.C.: Duke University Press, 1989. Pp. 462. $77.50 cloth, $27.50 paper.)
THE POLITICAL ECONOMY OF CENTRAL AMERICA SINCE 1920. By BULMER-THOMASVICTOR. (New York: Cambridge University Press, 1987. Pp. 416. $49.50 cloth, $16.95 paper.)
Published online by Cambridge University Press: 12 October 2022
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Notes
1. In this essay, Central America is defined in the traditional way as comprising Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, although some of the books under review also examine Belize and Panama.
2. See, for example, Economic Commission for Latin America and the Caribbean, Changing Production Patterns with Social Equity (Santiago: ECLAC, 1990).
3. GDP growth in Guatemala averaged 3.7 percent a year (1.0 percent in per capita terms) for the three-year period 1987–1989. In Honduras, where relatively large-scale economic assistance offset the effects of poor economic policies, it was 3.5 percent (0.7 percent per capita). In El Salvador, GDP growth from 1983 through 1989 averaged only 1.6 percent (0.1 percent per capita). Nicaragua's GDP grew by 3.4 percent a year (no change in per capita terms) during 1980–1983 but then fell by 3.1 percent annually (−6.3 percent per capita) during 1984–1989. It should be noted, however, that per capita trends in Nicaragua are misleading because actual population growth has been less than the reported rate of 3.4 percent.
4. Poor data on income, wealth, and related variables in all countries except Costa Rica make it difficult to judge the accuracy of the widely held belief that income distribution became more unequal during the periods in which GDP declined in each country. In Costa Rica, real wages in the private sector fell more rapidly than GDP during the period of economic decline (1980–1982) but rose faster than GDP during the initial years of the recovery. Despite dropping slightly between 1986 and 1989, they remained 4 percent above their precrisis level. Open unemployment in Costa Rica, which had reached 9.4 percent in 1982, fell to 3.8 percent by 1989.
5. Ignoring their treaty obligations, the Central American countries did in fact take many unilateral actions during the 1980s, most recently by lowering their tariff protection individually and to different degrees, beginning with Costa Rica in 1987. Their attitude toward reviving the CACM in the 1990s remains equivocal, as discussed later in this essay.
6. The ICCARD Report, sometimes characterized as a Democratic alternative to the 1984 Kissinger Commission Report (Report of the National Bipartisan Commission on Central America), was prepared with less haste and greater involvement by Central Americans than the earlier report.
7. The structure of the proposed program bears some similarities to the Special Economic Cooperation Program for Central America, approved by the United Nations General Assembly in 1988.
8. The importance of economic growth for reducing poverty is highlighted in the World Bank's World Development Report 1990.
9. Jerome Levinson and Juan de Onís, The Alliance That Lost Its Way (Chicago: Quadrangle Books, 1970).
10. Eduardo Lizano, Desde el Banco Central (San José: Academia de Centroamérica, 1987). In this collection of speeches and essays, Lizano sets forth clearly for various Costa Rican audiences the case for “getting prices right” and for adopting a wide range of other structural economic reforms.
11. For example, Hamilton states that “the domestic market/ regional cooperation model places greater emphasis on structural reforms” than the export promotion model (p. 257). One wonders, then, why so much controversy develops over structural adjustment lending by the World Bank and other institutions. What constitutes “reform” is in the eyes of the beholder, and it would be better to say simply that the two strategies emphasize different packages of reforms. While Hamilton correctly states that both models require external financing, she underestimates the foreign-exchange costs of the inward-looking strategy.
12. It is not clear how randomly the interviewees were selected. Still, the number of responses seems large relative to the universe of medium- and large-scale firms, and the results can probably be regarded as having reasonable validity.
13. The term private sector usually refers (consciously or not) to the industrial-commercial-financial elite, and it is used in that sense here.
14. John Williamson, The Progress of Policy Reform in Latin America, Policy Analyses in International Economics no. 28 (Washington, D.C.: Institute for International Economics, 1990). In this book, “Washington” is defined as including “both the political Washington of Congress and senior members of the administration, and the technocratic Washington of the international financial institutions, the economic agencies of the US government, the Federal Reserve Board, and the think tanks” (p. 9). This slim but valuable volume includes a brief summary of efforts at policy reform in twenty-one Latin American and Caribbean countries, including all those in Central America.
15. Greater tolerance of labor-union activity in Costa Rica and Honduras helps explain why they avoided the degree of social and political turmoil suffered by their neighbors. Trends in the labor movement in the five countries are given extensive treatment in Bulmer-Thomas's The Political Economy of Central America since 1920.
16. ECLAC, Changing Production Patterns, 14. Still, the strategy advocated by ECLAC is clearly mixed, as it continues to envision a major role for regional economic integration.
17. For the full references to these documents and a more detailed discussion of alternative development strategies for Central America, see Clarence Zuvekas, Jr., “Central America's Foreign Trade and Balance of Payments: The Outlook for 1988–2000,” in The Future of the Central American Economies: Transition or Continuing Crisis, edited by Michael E. Conroy (Austin: University of Texas Press, forthcoming).
18. Although the hemispheric debt crisis of the 1980s is often dated from Mexico's troubles in August 1982, one could argue that a more appropriate starting date would be July 1981, when Costa Rica suspended servicing of its debts to commercial banks.
19. See Richard E. Feinberg, “Defunding Latin America: Reverse Transfers by the Multilateral Lending Agencies,” Third World Quarterly 11 (July 1989):71–84.
20. Bulmer-Thomas, who argues that a revival of the CACM can be compatible with export-led growth, recognizes that the two are incompatible under the circumstances described here. See his article, “Import Substitution v. Export Promotion in the Central American Common Market (CACM),” Journal of Economic Studies 6 (Nov. 1979): 194.
21. For a good technical discussion of the conditions under which the two strategies are compatible, see Bulmer-Thomas, Studies in the Economics of Central America, 105–20.
22. Most studies conclude that the contribution of the CACM to economic growth in the 1960s and 1970s was rather modest. For examples, see those cited in Bulmer-Thomas, “Import Substitution v. Export Promotion,” and Zuvekas, “Central America's Foreign Trade and Balance of Payments.” More optimistic estimates are cited by Cáceres and Irvin (in the Irvin and Holland volume), but the methodologies of these studies may be questioned.
23. See William R. Cline, “The Role of Economic Integration in Central American Development, ” paper prepared for the International Symposium on Central America and Capitalization of the Central American Bank for Economic Integration, Cartagena, Colombia, 28 Nov.-1 Dec. 1984; and William O. Loehr, Balance of Trade and Payments in Central America: Prospects for the CACM and Recommendations for ROCAP (Ojai, Calif.: Loehr and Associates, 1990).
24. All quotations from the Colburn collection are my translations.
25. Loehr, Balance of Trade and Payments in Central America, iii.
26. Even in the 1960s and 1970s, the CACM was more of a customs union than a true common market because factors of production were not mobile internationally. With each country now lowering tariffs unilaterally and to different degrees, the CACM might well evolve into a free-trade area.
27. For a discussion of the relationship between trade policy and employment, see Anne O. Krueger, Trade and Employment in Developing Countries, vol. 3, Synthesis and Conclusions (Chicago, Ill.: University of Chicago Press for the National Bureau of Economic Research, 1983).
28. It is widely recognized that relatively little of this growth is directly attributable to the benefits provided under the U.S. government's Caribbean Basin Initiative. But technical assistance and related activities associated with this policy have done much to help create an export mentality. See James W. Fox, “Is the Caribbean Basin Initiative Working?,” manuscript, 1989.
29. Gary S. Fields, “Employment, Income Distribution, and Economic Growth in Seven Small Open Economies,” Economic Journal 94 (Mar. 1984):74–83.
30. IFPRI Report 12, no. 1 (Jan. 1990):4. The International Food Policy Research Institute publishes this periodical in Washington, D.C.
31. U.S. imports of horticultural products from Mexico, Chile, and Colombia alone totaled nearly 1.8 billion dollars in 1989.
32. See Zuvekas, “Central America's Foreign Trade.” Bulmer-Thomas makes a similar statement in his Studies in the Economics of Central America, 41.
33. See John Newton et al., The Effectiveness and Economic Development Impact of Policy-Based Cash Transfer Programs: The Case of Costa Rica, AID Evaluation Special Study no. 57 (Washington, D.C.: U.S. AID, 1988).
34. This reviewer has made a similar point but believes that conditionality has had somewhat more impact in the region. See Zuvekas, “U.S. Economic Assistance to the Caribbean Basin Countries in the 1980s: The Revival of Program Lending, ” manuscript, 1989. As Central American (and East-West) political tensions began to ease in the late 1980s, U.S. policymakers started to pay relatively more attention to economic objectives.
35. The ICCARD background paper on assistance flows was prepared by Colin I. Bradford, Jr. (in the Ascher and Hubbard volume). His calculations are presented in an annex. Bradford's GDP target is 6.0 or 6.5 percent, depending on the country (higher than the ICCARD target), but his estimates of net annual flows are somewhat lower than the ICCARD recommendations because of optimistic assumptions for incremental capital-output ratios.
36. For a good discussion of the different kinds of debt problems facing individual Central American countries, see Richard Feinberg's essay in the Archer and Hubbard collection and that of Rómulo Caballeros in the Irvin and Holland volume. The essay by Juan Fuentes and Lars Pira in the García volume is less interesting.
37. Latin American Adjustment: How Much Has Happened?, edited by John Williamson (Washington, D.C.: Institute for International Economics, 1990).
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