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

By Irma Tirado de Alonso | Go to book overview

the economy. Moreover, the government is perceived as divided and unable to chart and implement a clear course towards a market economy. Consquently, civil unrest persists. The second problem, which is related to the first, is that the guarantees on property rights are still too weak.

At the macroeconomic level, the need for greater restraint in adjusting public sector waste has been underlined by international funding institutions. For example, the pay raise in the public sector in 1991 limited the adjustment of the real exchange rate--thus, in part, annulling the effects of nominal exchange rate corrections. Also in connection with wages, it is important to reassess the institutional arrangements that may give rise to an overly rigid cost- price-wage structure.

Public sector enterprises in Nicaragua operate very inefficiently. This has had an adverse impact on the overall competitiveness of the economy and limits the country's export potential.

Aside from the remaining climate of political and economic uncertainty, potential investors are probably adversely affected by the weak supervisory and regulatory capabilities of the Superintendency of Banks. Such weakness raises doubt regarding the soundness of the financial base on which private sector expansion has occurred.

Other problems relate to relatively high trade tariffs and quantitative restrictions on trade; the need for better budget and expenditure management; the importance of reforms in social services (where not enough emphasis is being placed on primary health services, education expenditures are biased against primary education, and malnutrition among children is still prevalent); and the need for an infrastructure investment policy that is adequately anchored on the calculus of social costs and benefits.


CONCLUSION: WHERE TO FROM HERE?

The previous sections have shown how the countries of Central America have been steering their economies along a new course in the early 1990s. However, they also have shown that the process of policy reform--stabilization and structural change--is far from complete and that there still are major policy-related problems to be resolved. In this context, several basic questions arise. Should the region continue its push toward economic liberalization? How does the international setting affect the basic economic orientation of the future? Finally, what is the importance of integration schemes and how should Central America pursue them?

There is no doubt in this writer's mind that the countries in the region should pursue vigorously the liberalization trend started in the 1980s. Addressing the problems mentioned in the previous section will require clearer and more resolute efforts at policy definition and implementation than have prevailed in the past. Reversing economic adjustment efforts would mean

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