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Central America: set for growth along with Latin America.

Central America is poised for increased economic growth along with the rest of Latin America by the end of 2004, according to the World Bank.

Countries across Latin America are expected to post growth of 4.5% for the year as many of their economies expand at their fastest rate in at least six years. This compares to an economic growth rate of 1.1% for the region in 2003.

Increased capital flows to Latin America and stronger growth in the US, Europe, and Japan are helping pave the way for progress in Central America, which has more than 3-7 million inhabitants.

Comprising the countries of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, Central America has a gross domestic product (GDP) of US$68,021 million. Investment in high tech, telecommunications, and tourism helped bring annual foreign direct investment to US$600 million in 2004, up from US$454 million last year--with levels expected to remain the same or higher for the region in 2005 due to greater free trade.

With the expected ratification of the Central America Free Trade Agreement (CAFTA) in 2005, the fortunes of several Central American countries are expected to dramatically improve. The potential US$24 billion trade deal between the US and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic would eventually eliminate all tariffs on US imports, allow duty-free access to US markets for nearly all goods from participating countries, and require members to implement certain trade reforms--such as strengthening intellectual property protections.

CAFTA is expected to create 180,000 jobs over 10 years in El Salvador alone, which is counting on the treaty to help its economy diversify beyond agriculture and textiles, to embrace electronics assembly, call centers and financial services.

"If CAFTA is approved by the congresses of the United States and Central America, it will make a big difference for the region," says Marcio Cuevas, Minister of Economy for Guatemala. "All of the countries in Central America expect to attract investments. I am working together with my colleagues in the region on the integration process so we are ready when CAFTA takes effect."

Guatemala has the highest GDP in Central America at US$24.73 billion and the lowest foreign debt in the region. About 36% of the production of Central America was generated in Guatemala in 2003 by the country's more than 12 million inhabitants.

"Our goal for Guatemala's economy is to grow at 2.6%," says Minister Cuevas. "We expect to do this through some of our strongest industries, which include tourism, forestry, agro-industrial mining, apparel, and textiles."

Revenue from exports increased by 2.5% in the first eight months of the year to US$2.01 billion compared with the same period in 2003. Traditional products (coffee, sugar, bananas, cardamom) increased 3.1% to US$860 million.

Nicaragua's GDP grew by 2.3% in 2003, boosted by growth in arable agriculture--which increased by 1.5% after several years of decline.

Stronger U.S. demand for garment exports helped lift the country's manufacturing sector over the year, while the construction sector benefited from a large increase in public spending.

The economic momentum that has been gathered by the current government of Nicaragua is expected to receive a boost with the country's accession to the Heavily Indebted Poor Countries program of debt relief from the International Monetary Fund (IMF).

The IMF says it is optimistic about the economy of Costa Rica even though it is forecasting that growth will slow in 2004 to 3.5%, down from 5.6% in 2003.

The country is the second most popular Latin American destination for US tourists after Brazil. In the first five months of 2004, 556,412 tourists, from all parts of the world, flew into Costa Rica. This was 23.5% up on the same period in 2003.

Rapid economic growth has been the norm for Panama over the last two years. GDP growth in the second quarter of 2004 reached 6.8% year-on-year, virtually unchanged from the rapid pace of growth achieved in the first quarter of the year.

Panama's transport, telecommunications and Colon Free Zone (the world's second largest free trade zone) industries were all contributors to the country's success.

Economists expect GDP growth to be 5.4% for 2004, underpinned by strong world trade growth in addition to the stimulus provided by Panama's pre-electoral spending on public works projects.

"Central America as a whole is working very hard through the Central American Integration Process to eliminate (trade) barriers, harmonize procedures and eliminate borders," says Minister Cuevas. "While much of our strength is our geographic position, our people are also our strength: We have enough labor force available with a high ability and desire to learn."

Because the countries of Central America are making an enhanced effort to work together as a region with the goal of effectively competing in the global economy, the role of educational institutions is more important than ever before.

"Our mission is to effect the integration of Central America through positive leadership," says Roberto Artavia, Rector of INCAE, a world-renowned business school with campuses in Costa Rica and Nicaragua that is considered Latin America's best for its quality and creation of knowledge. "Our students are automatically networking in a regional sense as they attend classes with students from throughout the region. They grow into management positions knowing that they have effective counterparts throughout Central America."

INCAE was founded in 1964 by the business community, the governments of Central American nations, and the Harvard Business School. The non-profit, multinational, private, higher-education organization is devoted to teaching and research endeavors in the fields of business and applied economics aimed at training and instructing, from a worldwide prospective, individuals capable of successfully holding top management positions in Latin America.

The prestigious institution has played a major role in creating plans for reducing the cost of doing business cross-borders in Central America and has created regional agendas for numerous industry sectors including, tourism, textiles and energy distribution.

"Historically, the move toward integration has primarily been led by private sector interests hedging their positions in the region," says Artavia. "Now the region is creating a great deal of momentum in integration as the demand has also increased for lower costs of doing business across borders in Central America."
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Comment:Central America: set for growth along with Latin America.
Publication:Latin Trade
Article Type:Advertisement
Geographic Code:20CEN
Date:Nov 1, 2004
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