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Central America Regional
Please note: All linked documents are in PDF format
| Objective |
SO Number |
FY 2004 |
FY 2005 |
FY 2006 |
| Regional Trade and Investment |
596-005 |
7,310 |
|
|
| Central America Regional Environment Program |
596-006 |
6,771 |
|
|
| Increaded Diversification of the Rural Economy |
596-009 |
1,720 |
|
|
| Economic Freedom |
596-022 |
|
11,430 |
7,008 |
| Investing in People |
596-023 |
4,950 |
5,901 |
5,839 |
| Meso-American Food Early Warning System |
596-024 |
|
1,000 |
1,000 |
| Total (in thousands of dollars) |
20,751 |
18,331 |
13,847 |
|
The Development Challenge: Central American countries have long sought improved competitive advantage by integrating their economies into a larger commercial block linked by free trade agreements with larger world markets. Upon entry into force of the U.S.-Central American Free Trade Agreement (CAFTA), a high trade priority of the Bush Administration's second term, the region, including the Dominican Republic, will enter into a historic trade union with the United States. Both Mexico and Panama also consider free trade with the United States and their Central American neighbors crucial to their development agendas. Through trade-led, diversified economic growth, the countries of the region are demonstrating their commitment to creating economic opportunities that better help to distribute wealth and raise the standard of living for all Central Americans. Rarely before have the opportunities for improved regional integration and development been as encouraging as they are now. It is also significant that the neighboring countries of Panama and Mexico have been incorporated in many of the Central American regional institutions. The elected leaders of the Central American, Mexican, and Panamanian governments share a common vision of the advantages of jointly addressing the problems that plague their societies. They also realize that opportunities created by removal of trade restrictions among themselves and with the United States can only be fully exploited by acting together to remove other artificial national barriers to trade and development.
Central America has a population of nearly 36.5 million people and an aggregate GDP of nearly $72 billion. The United States is Central America's biggest trading partner. The United States exported nearly $11 billion in goods to Central America in 2003, more than U.S. exports to Russia, India and Indonesia combined. Two-way trade was over $23 billion in 2003. This strong trading partnership helped to increase Central America's 2004 per capita income to $1,972. Central America (23%) and Mexico (25%) have similar ratios of exports to GDP although there is a ten-fold difference in the order of magnitude because of the size of the Mexican economy.
Unfortunately, Central America has some of the worst income inequality in the world. Nearly half the population lives below the poverty line, and nearly a quarter of the population lives on less than one dollar a day. Central American schools are under funded and produce the highest primary school repetition and lowest completion rates in Latin America. Approximately one-fourth of Central Americans are illiterate. With the exception of Costa Rica and Panama, the region still suffers an unacceptably high infant mortality rate (27 per 100 live births) and chronic malnutrition. These problems are further exacerbated by a population growth rate of 3%. Growth of organized crime and endemic corruption also seriously threaten to undermine gains in political, social and economic development. Although Mexico is a "middle income" country with a population of more than 100 million people, and a member of the Organization for Economic Cooperation and Development, the reality is that Mexico has 9.8 million people living on less than $1 a day and 35 million living on less than $2,000 a year.
Free trade and economic development are engines of growth, but they do not automatically resolve inequalities. Central America's economic growth rates, while showing signs of improvement recently, are still too low to support aggressive anti-poverty agendas. The benefits of economic growth are also not spread evenly among the population. Additional challenges include the possibility of initial loss of revenue and displacement of rural jobs upon entering CAFTA and the expiration of the Multi-Fiber Agreement. Other regional challenges include customs integration and harmonization of tax, fiscal, sanitary and phyto-sanitary (SPS), and environmental policies and standards, and management of the Meso-American Biological Corridor. Important issues that can be addressed from a regional perspective include containment of communicable diseases such as HIV/AIDS, creation of a food security early warning system, and the management and prevention of forest fires and pests.
To take advantage of CAFTA and other global trade opportunities, Central American and Mexican governments are improving their competitiveness by lowering transaction costs across borders; harmonizing regional commercial, tax, environmental, and labor laws and policies; and taking advantage of the region's rich natural resources by promoting niche (for example, green) market products that utilize third-party certifications. The region continues to recover from the 2000 coffee crisis. By transitioning coffee production to high quality and specialty markets in combination with rural agricultural diversification initiatives, the Central American and Mexican governments expect to provide viable economic alternatives for rural populations. Central America and Mexico's natural resource endowments and climate provide comparative advantages that the region should capitalize on to achieve growth.
Finally, given the region's proximity to United States, and the increasing flow of immigrants from Central America over U.S. borders, infectious diseases, particularly HIV/AIDS, are of particular concern. Data available concerning HIV/AIDS in Central America show a growing epidemic, with conservative estimates of more than 380,000 HIV cases. With the exception of Honduras and Belize, the countries in Central America are still categorized as "concentrated" epidemics - only certain sub-groups of the populations are particularly affected. Due to the nature of the epidemic, special efforts are being made to work with high prevalence groups to contain the spread of infection within these groups and mitigate the "bridging effect" to the general population. Other challenges include the need to strengthen and enhance local capacities; develop strategic information systems; and reduce stigma and discrimination to create a better enabling environment for prevention activities.
U.S. national interests in Central America include trade capacity building and regional economic integration; reduction of organized crime and narco-trafficking; strengthening of democratic institutions; and the containment of illegal migration. Due to geographic and cultural ties, labor migration and remittances ($5.645 billion in 2003) serve to further link U.S. and Central American interests. Building on a strong, historic partnership with the Central American countries - as evidenced by successful CAFTA negotiations - USAID works with Central American governments to further U.S. foreign policy interests and address issues of poverty, economic integration, social equity, and environmental conservation and management. USAID assistance operates on the premise that trade-led growth represents the best way for the Central American countries to generate the needed income to improve the lives of its people.
The USAID Program: USAID is requesting FY 2005 and FY 2006 funds for three strategic objectives for the Central American and Mexico Regional Program. These objectives are part of the regional strategy for Central America and Mexico and promote more open trade and investment policies, diversification of the rural economy, and improved watershed management; control and containment of the spread of HIV/AIDS; and establishment of national and regional networks to prevent disasters and improve vulnerability management.
Other Program Elements: USAID's Central America Regional program, jointly with the Economic Growth, Agriculture, and Trade (EGAT) Bureau, initiated the "CAFTA Commercial Law and Trade Assessment" project to identify and present the main constraints to trade and recommend priority areas for reform and institutional strengthening. The assessments focused on barriers to entry and growth of businesses, trade barriers, access to credit, public-private partnership, and implications for micro and small enterprises. The USAID bilateral programs in Honduras and Nicaragua have used the recommendations to guide their trade capacity building assistance. In Guatemala, as a follow-up to the assessment, a new secured transactions law is under design. The regional trade program has also worked with EGAT to increase the transparency and efficiency of Central American customs administration, regional harmonization of customs procedures, and related trade facilitation efforts.
Other Donors: USAID coordinates the Central American Regional program closely with other bilateral and multilateral donors. Principal bilateral donors in Central America and Mexico include Japan, Spain, Germany, Sweden, Switzerland, Canada, and the United Kingdom. Principal multilateral donors are: the Inter-American Development Bank (regional integration and major infrastructure investments under the Plan Puebla Panama project and the Central American electrical interconnection project); the Central American Bank for Economic Integration; the European Union (customs integration, democracy and natural resource management); the United Nations Joint Program on HIV/AIDS; the Global Fund to Fight AIDS, Tuberculosis and Malaria; and the United Nations Children's Fund (orphans, vulnerable children, and Afro-Central American populations). The World Bank is finalizing an $8 million donation to support a regional laboratory, surveillance activities, and prevention activities for mobile populations. International organizations, such as the International Labor Organization, along with other U.S. government agencies, are taking a regional approach to harmonizing and building the capacity of the region's labor ministries.
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