Reforms Spur Exports, but Little Investment in Bid for Stable Growth Emerging from a Decade of Decline, Six-Nation Region Sees Signs of Recovery, but Economic Outlook Is Mixed. CENTRAL AMERICAN ECONOMY Series: POINTS OF THE COMPASS. Part 24 of a Series. First of Two Articles Appearing Today
David Clark Scott, writer of The Christian Science Monitor, The Christian Science Monitor
IN Central America the 1980s have been dubbed "the lost decade." Civil wars. Soaring debt. Staggering hyper-inflation. Roller coaster oil prices. The combination created a period of unprecedented economic decline.
You can see the effect in the glazed eyes of Guatemalan street kids sniffing glue to drive away hunger. It is evident also in the 2 million refugees who abandoned families, homes, and traditions to find safety and work in El Norte ("the North," as the United States has come to be known).
Or you can see it in the statistics.
During eight years of the Reagan administration, the US pumped more military and economic aid on a per capita basis into Central America than to any area in the world except Israel and Egypt. But in this case war and growth did not mix.
Central America slid backward faster than the rest of Latin America, also caught in the debt crisis. The six nations' economic output fell from 4.1 percent of Latin America's total in the 1970s to 3.5 percent by the end of the 1980s. Per capita income in Central America tumbled 17.5 percent on average during the decade.
But there are signs that the region is beginning to emerge from the economic rubble. The '90s may yet be known as an era of recovery, a number of economists and other analysts say.
"I'm a little more sanguine about the '90s," says Marko Voljc, the World Bank's division chief for Central America. "The elements for improvement and greater pragmatism are in place in every country in the region."
Political stability, crucial to gaining foreign investment, is slowly returning, and in a more democratic environment. At the decade's start, Costa Rica was the only country in the region without a military dictatorship. Now, every nation boasts at least the rudiments of a democracy.
Less military spending allows more money for basic needs for the region's population, nearly half of which lives in poverty. With the war in Nicaragua and the cold war in Eastern Europe finished, Central America is no longer a flash point for East-West conflict. Prospects for peace in El Salvador, and to some extent in Guatemala, are growing. Gen. Manuel Antonio Noriega, Panama's ex-ruler, is "retired."
Export-oriented market reforms sweeping through Latin America are under way. Trade barriers are falling. Bloated government bureaucracies are being shrunk; state-owned enterprises privatized; inflation harnessed; currencies devalued to maintain competitive exchange rates. Nontraditional exports
Most such reforms have been at the insistence of international banking institutions that have begun lending again to Costa Rica, El Salvador, and Honduras.
"We've been encouraged by initial successes - particularly the growth in nontraditional exports," Mr. Voljc says.
Agriculture will remain the mainstay of Central American economies for the foreseeable future. But there is increasing diversification from the traditional tropical exports of coffee, bananas, cotton, sugar and beef. Costa Rica, Guatemala, and more recently El Salvador have succeeded in exporting flowers, "luxury" fruits, and vegetables.
Bank economists are also encouraged by regional trade liberalization trends. Trading among the region's six countries reached $652 million in 1989, up from a low in 1986, but still only half as much as the 1980 level, according to the Inter-American Development Bank. There are new moves to rebuild the Central American "common market" that collapsed in the late '70s and early '80s. …