The Greater Caribbean This Week…

In common with most of the Latin American and Caribbean region, Central America experienced a year of economic stagnation in 2002. GDP growth was barely sufficient to keep pace with population growth. Three of the five registered a fall in per capita income; the other two (Costa Rica and El Salvador) registering a marginal increase.

Costa Rica continues to be the best performing economy of the sub-region. With its diversified export economy and its successful thrust into eco-tourism, it was best placed to withstand the effects of the economic downturn in the US economy and in world tourism in 2002. Economic activity was sustained by increased exports and domestic investment and by government spending; the latter at the cost of a widening public sector deficit.

The total exports of goods and services of the other four fell by US$282 million or 2.5 percent. This fed through their economies in terms of investment, government spending, and growth.

The problem lies not only in the volume of export sales, but the terms of trade. Since 1995 the price of exports relative to the price of imports has fallen by 6.5 percent for Costa Rica, 20.8 percent for El Salvador, 18.2 percent for Guatemala, 1.2 percent for Honduras, and 29.5 percent for Nicaragua.

A large part of this is due to the collapse in world market prices for coffee, a major traditional export commodity of the sub-region.

However, remittances are a significant source of foreign exchange in Central America. In relation to exports, current transfers (mainly remittances) are 53 percent in El Salvador, 44 percent in Guatemala, 32 percent in Honduras and 41 percent in Nicaragua. Inflows from remittances are several times greater than foreign investment.

The total amount sent home by Central Americans living abroad increased in 2002. Like the island Caribbean, this would have helped to cushion the impact of the economic downturn on poor households.