Central america aims for Stronger growth
| Author | Alfred Schipke |
| Position | IMF Western Hemisphere Department |
| Pages | 172-173 |
Page 172
Times are better in Central America. After years of political turmoil, the region has made important economic advances against a backdrop of both improved political stability and favorable global economic conditions.
Real GDP has recovered (see table), inflation has remained under control despite the upsurge in oil prices, and exports have been strong. Still, poverty is persistent and widespread, and the small nations that make up Central America remain vulnerable to economic events outside their control. They need to improve productivity and strengthen government finances and the financial sector.
Top government officials in the region met in June and agreed that further economic reforms were needed. The aim of all the reforms is the reduction of poverty, Central America's biggest challenge. Average growth rates of the past decade have fallen short of records achieved in the 1960s and 1970s, and the region's growth performance is less favorable than that of the more dynamic emerging market economies in the world, especially those in Asia. Only three countries in the region (Costa Rica, the Dominican Republic, and Panama) have succeeded in raising GDP per capita above their levels in the late 1970s, and in only one, Costa Rica, are poverty levels substantially lower. Addressing issues of economic growth will be paramount if Central America is to lift people out of poverty and significantly raise living standards.
But as it seeks to maintain high growth, Central America must also act in areas where it remains economically vulnerable, an assessment that Central American ministers of finance, central bank governors, and financial superintendents concurred with at the recent Sixth Annual Regional Conference on Central America, Panama, and the Dominican Republic, held in Costa Rica. In a communiqué issued on June 29, following the conference, the officials said participants agreed that the region must take "advantage of good times to tackle the daunting tasks of entrenching stronger growth, reducing still-high levels of poverty, and decreasing vulnerabilities against adverse shocks."
Improving the growth performance in Central America will depend to a large degree on the countries' abilities to implement productivity-enhancing reforms. During 1960-2005, gains in output per worker almost...
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