CHALLENGES AND PROSPECTS FOR CENTRAL AMERICA IN A GLOBAL TRADE CONTEXT
Juan Manuel Villasuso
Major changes have occurred in Central America over the last decade. Economic crises, stabilization programs, and structural transformations have characterized the region's recent evolution, along with some rather profound social and political mutations. At this point in time, however, new options and possibilities have opened up in terms of alternative approaches to development and novel schemes for participation in international markets. Some of these options seem very promising, others should be examined in more detail, and still others would probably have adverse effects in both the short and the long term. The purpose of this chapter is to analyze current events and policies in the region, identify and discuss the new options that have become available, and examine the impact of these options on economic growth, regional integration, and trade expansion.
For several decades Central American countries followed the Import Substitution Model (ISM), which generated growing rates of production, promoted economic activity, created a new social group (the manufacturing sector), and gave the state a protagonist role in providing social services and employment.
The Import Substitution Model, however, never reached beyond its first phase (easy substitution), both for political reasons and because of technical and administrative limitations. Practically no instruments were developed to conquer new markets, strengthen linkages in the production structure, or reduce tariffs so as to attain a more efficient allocation of resources and increase international competitiveness.
Rosenthal ( 1991) also mentioned the lack of leadership in promoting competition within the Central American Common Market (CACM), the