A pessimist thinks things can’t get worse,
and optimist knows they can
Frankly, 2020 has been a year to forget. Of the many things that have negatively impacted societies around the world in the first half of this year, covid-19 is at the top of almost everyone’s list. Central America is no exception. Already dealing with decades of slow economic growth, rampant crime and corruption, and political gridlock, it was unfathomable, even by the most pessimistic, that things could get worse for the region. And then came covid-19.
Not being an expert on crime, corruption, or political gridlock (if experts on these topics even exist), I’ll stick to what I know, the economic part.
So where does Central America stand economically after covid-19? Turns out, on quicksand, and sinking fast unless something meaningful is done. And Central America is not even out of its lock down phases yet.
Central America is home to 50.7 million people. Tourism and remittances (mostly from the US) are important pillars of the economies of Central American countries. According to the Central American Bank for Economic Integration, tourism will likely decline by up to 30% and there will be a significant drop in remittances sent from the US, depending on the social distancing measures and economic recovery speed there. Guatemala, El Salvador, Nicaragua, and Honduras will suffer the greatest impact from the decline in remittances. The reduction in money coming from these economic sectors will in turn negatively impact commerce, transportation, hotels, restaurants, construction, the financial sector, entertainment services, among other economic activities. CABEI estimates that the debt-to-GDP ratios will rise between 4.7 and 7.6 percentage points in 2020 for the Central America region. The outlook is bleak.
Public policy responses so far include monetary transferences to vulnerable groups, loans under favorable conditions to firms and purchases of medical equipment. Monetary policy responses have focused on maintaining liquidity and credit flows, through cuts in policy rates, accompanied with temporary changes in bank regulations like lower reserve requirements, credit rating criteria, interest payment freeze and facilities for debt restructuring. How long can these measures be sustained? At some point, economic growth has to return and be part of the solution to this crisis. How is economic growth restarted?
This crisis is really an invitation to come up with creative and context appropriate economic growth ideas.
Agriculture still plays an important role in the Central American economy. It is time to think about agricultural biotechnology, and the constraints to economic growth that these technologies could loosen. The Central American agro-industrial sector could greatly contribute to economic growth by generating jobs and kickstarting domestic consumption. However, the sector needs appropriate policies that foster its development. Enacting rules that foster economic growth is cheaper and less resource intensive than development projects whose outcomes are uncertain.
If from here until December things go well, it will have been a terrible year. But things could always be worse. Let’s consider technology and start thinking outside the box. Central American economic recovery depends on it.