Trade, Industrialization, and Integration in Twentieth-Century Central America

By Irma Tirado de Alonso | Go to book overview
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The social conditions existing at the start of the 1980s included extreme poverty, unequal income distribution, limited access to education and health services, and poor levels of nutrition. It is natural to conclude that the growing unemployment and inflation over this decade only reinforced and worsened these already appalling conditions.


One of the main conclusions that can be drawn from this analysis is that prospects for economic growth in the region do not look very good. The circumstances leading to this conclusion have been discussed throughout the chapter, beginning with the implementation of the ISI model (via the CACM), which led to a misallocation of resources away from the export sector. This, in turn, reduced the region's ability to import the capital goods necessary to maintain current levels of GDP. The loss of foreign exchange earnings also triggered a financial crisis whereby the amount and number of sources of funds available for investment rapidly dwindled. Trade and budget deficits resulted in massive capital flight as government intervention became imminent. Furthermore, in order to secure necessary loans from the IMF, governments in the region were obliged to offset budget deficits with reductions in expenditures and deficit-financing measures. This led directly to a reduction in the level of capital expenditures made on infrastructure, and to a reduction as well in the amount of funds available for private investment as governments competed with the private sector for domestic savings.

Recent figures on employment and wages also, suggest that social conditions deteriorated rapidly and that this phenomena was inextricably linked to the region's financial crisis. Without new investment, jobs cannot be created. Moreover, inasmuch as population growth exceeded employment growth in this decade, the cycle of poverty was inevitably reinforced, creating a serious obstacle to future growth. Although there was some improvement in the investment picture in the mid-1980s, budget deficits were on the rise again in the latter part of this decade and export earnings still remain lower than the 1980 figures. Some hard lessons were learned during this latest crisis. Unfortunately, another financial crisis may be looming in the not-too-distant future, and once again the region will be tested.

Merchandise exports are used here because they are significantly more important than service exports, except in the case of Panama.


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