MANAGUA – Reaffirming their pledge to confront the global economic crisisthrough unity, government leaders from Central America met in Managua last week to announce new steps toward regional integration and strengthening the Central American Integration System (SICA).
At the summit, concrete advances were announced in two key initiatives aimed at strengthening regional economic integration.
First, Nicaragua became the fourth and final Central American nation to sign a bilateral protocol for a regional free-trade agreement with Panama, the fastest growing economy on the isthmus. The free-trade agreement now needs to be ratified by the Nicaraguan National Assembly, after which it will enter into force immediately.
Secondly, Salvadoran President Tony Saca announced that on Jan. 22 the border between El Salvador and Guatemala will become the first in Central America to implement the Central American Customs Union, allowing all merchandise to pass freely between those two nations.
The free circulation of people and goods is considered an imperative element of Central American integration, and the hope is that other countries in the region – which are reportedly more than 95 percent ready to join the Customs Union – will soon complete their remaining work and follow the examples of El Salvador and Guatemala.
In his recent essay on the anticipated impact of the economic crisis on Central American economies, Pablo Rodas, head economist for the Central American Bank for Economic Integration (CABEI), urged the governments of Central America to accelerate efforts to complete the muchanticipated Customs Union, which he said will strengthen intraregional trade and offset the affects of the global downturn.
President Daniel Ortega, for his part, said that now, more than ever, there is “renewed hope that Central American unity is the only possibility to confront the challenges that the current world economic crisis poses for the people of Central America.”
Ortega, who last week assumed the six month honorary post of president pro tempore of SICA, was hailed by his Central American colleagues as an “integrationist.”
Ortega stressed the importance of assuming a unified, bootstrap approach to confronting the global economic crisis.
“We have to strengthen trade between us,” Ortega told the other Central American leaders during the conclusion of the Jan. 15 SICA summit in Managua. “We have a big market on a regional level, and to strengthen that market means taking a step in the right direction to confront the crisis by mobilizing our economies, our productive forces and creating employment. We need to confront the crisis with our own efforts.”
Ortega said that the economic crisis will be “a difficult moment – one that tests Central American integration.” But he insisted that the “spirit of unity in Central America is stronger every day.”
Unlike his previous address to SICA last December in Honduras, when Ortega raised eyebrows by muddling the issues of Central American integration with his ideological enthusiasm for the Venezuelan-inspired Bolivarian Alternative for the Americas (ALBA) (NT, Dec. 19), the Nicaraguan president was more careful to not turn his SICA leadership role into a recruitment platform for ALBA – a leftist cooperation accord that Costa Rica, El Salvador and Guatemala have said they’re not interested in joining.
Though Ortega didn’t mention ALBA by name, he did apparently allude to it by saying that Central American unity would provide an opportunity for dialogue with “other regional, Latin American forums.”
Honduran President Manuel Zelaya, who signed his country up for ALBA last year, echoed Ortega’s call for economic strength through unity. Zelaya said that economic globalization has had “its highs and lows” over the years, and that it was probably a mistake for most of Central America to denationalize its banks. But he said that the region can learn from such mistakes and improve integration efforts moving forward.
Yet before taking on the world, Central America first needs to strengthen its own footing, Zelaya stressed.
“For countries like ours, we need to strengthen ourselves internally – in food, energy, and financial security – to face the world of economic globalization,” the Honduran president said.
Rodas, the economist for the CABEI, agrees that Central American integration is a must to face new global challenges.
“The old yearning for integration is more urgent now than ever,” the bank economist stressed. “Not only because it will be strengthening regional unity, but because it will offer valuable help to confront a worldwide emergency.”
Economic Integration Advancing
The good news is that Central America’s economic integration is racing forward. The European Union, which this month will hold its sixth round of negotiations for an association agreement with Central America, noted that the region is moving ahead on integration faster than any other part of the world.
One of the biggest boosts to regional integration was the Central American Free Trade Agreement with the United States (CAFTA), which has helped intraregional trade grow by more than 40 percent in three years, according to the Secretary of Central American Integration (SIECA).
In 2005, before CAFTA entered into force, intraregional trade totaled $3.9 billion. Last year it was up to $5.5 billion, and that’s before Costa Rica entered into CAFTA this year.
So while the United States is still Central America’s leading trade partner, consuming $6.3 billion in Central American exports last year, intraregional trade is the fastest growing market. That means that Central America could surpass the United States to become its own leading trade partner within the next couple of years, according to an extrapolation of export numbers over the past five years.
The economic integration initiatives announced last week – the opening of the Guatemalan-Salvadoran border and Nicaragua’s signing of a free-trade agreement with Panama – will continue to bolster intraregional trade growth, experts say.
Tapping Panama’s Economy
Nicaragua’s Foreign Trade Minister Orlando Solórzano told The Nica Times this week the government calculates that Nicaraguan exports to Panama could increase by 20 percent in the first year alone.
Nicaraguan exports to Panama currently total around $10 million per year, making Panama Nicaragua’s 20th most important trade partner. Panama, however, reports that Nicaragua represents its 4th largest market for exports.
That trade gap could close once the free-trade pact enters into force. Solórzano explained that upon ratification by the National Assembly, the two countries will start to trade 87 percent of their products tax free, and within 10 years all products will be exchanged under the free-trade model.
In the short term, the free-trade agreement with Panama is expected to help Nicaragua’s beef, dairy and fisheries industries, Solórzano said.
“Immediately, all dairy products, fisheries and agro-industry will trade tax-free, and meat will be under a quota system of 1,500 tons tax-free with a 7 percent annual increase,” Solórzano said.
Items not included in the initial free-trade model will be phased in over the next decade, with a 10 percent annual tax decrease until all tariffs are eventually eliminated within 10 years.
The free-trade agreement will give Nicaragua increased access to one of Latin America’s fastest growing economies, which registered an 11 percent growth rate in 2007 and 9.5 percent last year.
CABEI economist Rodas is urging Central American countries to do just that. He said increasing exports to Panama is a good way to combat the crisis, “given that Panama’s economy has a sustained growth rate that is much superior to the rest of the region.”
The signing of the free-trade agreement with Panama also demonstrates the Nicaraguan government’s commitment to the free-trade model, despite some earlier concerns to the contrary.
Solórzano said that Nicaragua hopes to conclude free-trade talks with Canada this year, and lauded the results of the first year of free-trade with Taiwan. “It’s a great opportunity,” the minister said of trade with the Asian nation. “Last year our exports to Taiwan grew by 50-60 percent, more than our imports, and we hope they will grow even more this year.”
Solórzano said that by seeking new and expanded economic markets – in Central America and elsewhere – Nicaragua can “defend our economy in times of crisis.”