A MACROECONOMIC ASSESSMENT OF CENTRAL AMERICA
Irma T. de Alonso
During the late 1970s and early 1980s many regions of the world experienced slow economic growth. In Central America, economic conditions were so severe that this ten year period has come to be known as Central America's lost decade. Along with the rest of the world, Central America suffered through double-digit rates of inflation and unemployment. At the same time, the region was also burdened with widespread social and political turmoil, not to mention the devastation left by several hurricanes and earthquakes. More specifically, the was civil unrest in Nicaragua, El Salvador, and Guatemala; political instability throughout the region; deteriorating terms of trade; continuous trade deficits; recurrent budget deficits; massive capital flight; increasing external indebtedness; and shortages in international foreign currency reserves. These events have profoundly influenced the region's economic policies over the last two decades.
The purpose of this chapter is to evaluate Central America's economic performance during the period 1980 through 1990. While the focus is on this specific decade, comparisons are made with the two previous decades in order to identify the patterns and trends that preceded the era of the so-called lost decade. The chapter also provides an economic forecast, for Central America as a whole. The following section is a discussion of output growth and transformations in various sectors of the regional economy over the last 30 years. The third section looks at investment trends over this same period while the fourth discusses government revenue and expenditure patterns. The fifth and sixth sections deal with balance of payments and foreign debt, respectively. The seventh section provides a current profile of unemployment, inflation and real wages. Finally, the eighth section closes the chapter with a brief summary and overview. All the statistics used here were provided by the Interamerican Development Bank.