Study explores challenges faced by Central America to achieve sustainable development

22 de July 2019


The Inter-American Development Bank (IDB) and INCAE's Latin American Center for Competitiveness and Sustainable Development (CLACDS) presented today in San José, Costa Rica the book El futuro de Centroamérica: retos para un desarrollo sostenible (The future of Central America: challenges for sustainable development). The book addresses recent circumstances in relation to trade policy, investment, the financial sector, migration, raw materials, and natural resources and proposes policies to deal with the resulting challenges.

Over the last five years, Central America, Panama and the Dominican Republic (CAPRD) have performed better than the rest of Latin America and the Caribbean, with an average growth of 4.4% between 2014 and 2018 (compared to 0. 7% for Latin America and the Caribbean and 3.6% worldwide). This is associated chiefly with the dynamic economy of the United States, their main trading partner, investor, and source of remittances.

In addition to this favorable situation, CAPRD countries have been pursuing a trade opening strategy for more than 10 years, which has resulted in increased exports and access to international markets for coffee, bananas, sugar, and textiles. Also, financial integration has been promoted with increased presence of banks from both inside and outside the region and higher external investment flows. Between 2014 and 2018 direct foreign investment accounted for 4.6% of GDP, mainly due to reinvestment of profits and new investments.

These policies were developed in a global environment with countries opening their borders to trade, financial flows and, in some regions, even people. In contrast, over the last few years a number of countries moved to more restrictive trade and immigration policies. As these policies take root in the region's partners, these factors will have a major impact on CAPRD countries. Thus, it is key for countries to take action in order to consolidate their achievements and to create opportunities to enhance economic growth and provide their populations with better conditions for the future.

The book recently published by IDB and CLACDS/INCAE aims to serve as a reference framework in order to evaluate actions for the region to face its challenges on the basis of evidence. In terms of trade policy, the implications for CAPRD countries resulting from change by their trading partners are analyzed. Trade alternatives and policy recommendations for greater intraregional integration are proposed. On the other hand, the role of foreign direct investment in the region is re-evaluated. FDI reached a historical maximum in 2007 by accounting for 6.2% of regional GDP. Finally, best practices to attract FDI and maximize its impact are put into perspective.

In relation to migration, changes in U.S. migration policy are considered as well as their potential impact on remittance flows, return of migrants, and deterrence of migration in the Northern Triangle. On the other hand, the recent process of financial integration and implementation of international regulatory compliance measures in the financial sector is evaluated and policies are proposed to strengthen financial stability in the region.

Another issue dealt with is the recent condition of world commodity markets and the potential effects on the economy of the region from changes in the international prices of its main exports, in addition to energy imports and their markets. Finally, the importance of natural capital for national wealth and human wellbeing is analyzed, and options are explored to build in natural capital in the region's development.

About BID
The Inter-American Development Bank is a major source of long-term financing for economic, social and institutional projects in Latin America and the Caribbean. In addition to loans, donations and credit guarantees, IDB carries out cutting-edge research projects to provide innovative, sustainable solutions to our region's most urgent issues. Created in 1959 to help accelerate progress in its developing member countries, IDB works continuously to improve lives. 

The Latin American Center for Competitiveness and Sustainable Development (CLACDS) is the main think tank and applied research center of INCAE Business School. It engages in promoting sustainable development in the region through applied research, capacity building, and dialogue. CLACDS pursues a methodology that brings together competitiveness, social progress, environmental performance, and governance.