Caribbean & Central America - January 2020

Plans for regional integration in Central America have been progressing, and representatives discussed further initiatives at a forum in El Salvador.

Following the summit, which took place from 4-5 December 2019, the Central American integration system (Sica) announced a new plan which aims to improve regional connectivity through infrastructure projects such as railways and motorways; integrate security systems and air travel regulations; and guarantee free movement of citizens. Entitled ‘Development Plan for Central America & the Dominican Republic’, the plan will be developed by Sica members Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Belize, and the Dominican Republic in 2020.

The region currently suffers a major infrastructure deficit which makes trade more difficult and expensive. Improvements would make Central American economies more competitive, according to Melvin Redondo, secretary general of the secretariat for Central American economic integration (Sieca) reducing logistical costs and attracting investment.

• Opening up air travel

One idea floated by Roberto Kriete, president of airline Avianca, which is headquartered in Colombia, is to develop regional aviation laws and a Central American aviation regulator in order to open up air travel and enable better business and tourism connections. Kriete pointed out that a regulatory framework already exists in the shape of the ‘CA4’ agreement, signed in June 2006, which allows citizens of Guatemala, El Salvador, Honduras, and Nicaragua to travel between those nations using an ID card rather than a passport.

Vinicio Cerezo, Sica general secretary and former president of Guatemala (1996-2001), emphasised that the regional market is the second most important for Central American economies after the US, and integration is key to driving economic growth in the region. One of the main aims for regional leaders is to boost intra-regional trade and given that average tariffs have traditionally been low (around 2% according to the United Nations Economic Commission for Latin America and the Caribbean [Eclac]), reducing non-tariff barriers, such as administrative issues and a lack of infrastructure, is the focus.

So far there has been some success, but issues have also arisen that call into question the viability of further integration. In June 2017, Guatemala and Honduras matched tariff rates, coming together in one unique customs territory. This reduced customs formalities for 80% of bi-national trade from around 10 hours to less than 15 minutes, according to Sieca. In 2018, El Salvador agreed to join the customs union, deepening integration. Further south, Panama and Costa Rica also reached an agreement for integrated binational control systems between the two nations, with US$75m in funding approved by the Inter-American Development Bank (IADB) in April 2018.

However, Nicaragua, where since April 2018 the government led by President Daniel Ortega has been carrying a crackdown on its opponents, presents a significant barrier to further integration. Ortega has more pressing issues at hand than regional integration, and his country straddles the width of the isthmus. Efforts may also be hampered by the impact of a raft of migration deals signed by Honduras, Guatemala, and El Salvador with the US last year which will see migrants detained at the US southern border sent back to these countries to seek asylum there first. This could have a destabilising effect on the region that pushes integration down the political agenda. However, further integration is supported by Eclac, the European Union as well as the Central American bank for economic integration (BCIE). The latter approved a US$1.5m donation to strengthen the ‘Northern Triangle’ customs union in March 2016 and US$550m in financing for a light railway system in Costa Rica, among other projects.

Much more investment will be needed in order to realise the dream of Central American integration, and a lot depends on the stability of national politics. In terms of global trends, the tide may be turning against integrationist projects, such as the European Union, at a time when economic and political nationalism appears to be on the rise.