Wednesday 08 October 2008, San José, Costa
Rica
Q&A: Central American
"Exports, Production,
Employment" Hit by
Crisis
Daniel Zueras interviews
Eduardo Lizano, Costa
Rican economist
SAN JOSÉ (IPS) -
The financial crisis in
the United States and
Europe could cause a
fall in Central American
exports, tourism,
property investments and
remittances sent by
migrant workers to their
families, Costa Rican
economist Eduardo Lizano
says in this interview
with IPS.
Expectations of
short-term benefits from
the Free Trade Agreement
between the United
States, Central America
and the Dominican
Republican (CAFTA) may
not be fulfilled. "Many
of them will not
materialise, or will be
diminished" by the drop
in consumption in the
United States, which is
a
"political-psychological
problem," according to
Lizano, one of Costa
Rica's foremost
economists.
Lizano, born in San José
in 1934, was president
of the Central Bank for
two periods (1984-1990
and 1998-2002), has been
a consultant to several
international
organisations and is now
the honorary president
of the Central American
Academy, a
not-for-profit private
institution devoted to
social sciences research
and policy formulation.
IPS: How could the
region be affected by
the present financial
debacle?
EDUARDO LIZANO: The
financial crisis has
begun to hit us hard. We
don't fully know what
its effects will be,
because we don't know
whether it has hit
bottom yet. Everything
depends on how swift and
deep the crisis in the
United States will be.
Since the economies of
the United States and
the European Union are
growing more slowly,
they will buy less, and
import less, so we in
Central America are
going to export less.
With fewer exports,
there will be less
production, less
employment, and also
less investment. If the
financial crisis further
reduces the growth rates
in the United States and
the EU, then the real
impact will be even
greater.
Another aspect that will
affect us is that of
real estate investments.
Some Central American
countries have big
property developments on
their coasts, which were
basically being bought
by people from the
United States. A large
number of these projects
have been postponed, and
others are being
developed much more
slowly.
Then there is tourism,
which is an important
source of income for
Costa Rica and
Guatemala. If the crisis
means that people stop
travelling, tourism
flows will be reduced
and the impact on the
hotelier business will
spill over into the rest
of the economy.
In fourth and last
place, a very important
issue for the region,
especially for countries
like El Salvador, is
remittances from workers
in the United States.
Economies like that of
El Salvador have already
felt the effects of
growing unemployment in
the North, and
immigrants, many of whom
are undocumented, are
the first to feel the
impact, so they send
less money, or none at
all, to their families
back home.
IPS: Is the outlook
that grim?
EL: It's not
entirely bleak, because
the slowdown in the
world economy has
lowered the prices of
products imported by
Central America, like
oil and food. Our
economies import
virtually all of our
oil, which was costing
130 dollars a barrel and
is now down to 90
dollars.
This is bad news for
other Latin American
countries that export
oil (like Venezuela and
Ecuador) or food (lik
Brazil and Argentina).
They will feel this as a
negative impact. But
this aspect of the
crisis benefits us in
Central America.
IPS: What are the
negative implications of
the crisis for countries
that are parties to
CAFTA -- Costa Rica, the
Dominican Republic, El
Salvador, Guatemala,
Honduras and Nicaragua
-- whose main trading
partner is the United
States?
EL: There is, we
might say, a
political-psychological
problem. One of the main
reasons CAFTA was
approved was the hope
that positive results
would be achieved
relatively quickly. Now,
a significant proportion
of its expected benefits
will not be achieved,
because the chief hope
was that Central America
would receive increased
investment to produce
goods for export to the
United States.
With a considerably
lower level of
consumption in the
United States, those
investments will not be
made and the expected
benefits will not
materialise, or will be
diminished.
IPS: How do you think
Costa Rica's image is
affected by its
continued postponement
of the entry into force
of CAFTA (the deadline
has been deferred for a
second time, until Dec.
31), and how could this
affect its future trade
relations with its
partners?
EL: We are very ashamed
of what is happening.
Costa Rican President
Óscar Arias met recently
with the other Central
American presidents and
with U.S. President
George W. Bush, and had
to begin with an
apology.
Costa Rica is making a
very poor showing in
terms of its ability to
make decisions. It's
fine not to make
decisions of this
magnitude in haste, for
instance in one or two
weeks, but the country
has taken four years
over this one.
IPS: What is the main
threat looming over
Central America? Do you
think the region is
prepared for the crisis?
EL: This crisis is
not going to affect us
too much. Our countries
are not sufficiently
integrated into the
international financial
systems. We can lose
individual investors
without the local
economy being hurt. The
threat will be from the
real economy, if exports
suffer. That will depend
on how deeply and for
how long the United
States is in crisis.
Exports, production,
employment, those are
the things that will
affect us most.
IPS: But in recent
years, large
international banks have
entered the region. With
the shaking of the
financial system's
foundations that we have
seen, couldn't Central
American savers be
affected?
EL: Large banks have
made an entrance. One,
Scotiabank, is Canadian,
one is from the U.S.,
Citibank, and another,
HSBC, is British. Of the
three, Citibank has been
hit hard by the crisis
but the other two much
less so. If any one of
the three wobbles, as
has happened to other
North American banks, it
would be a whiplash of
the crisis that could,
indeed, affect us.
IPS: President Arias
said that after a
reduction in poverty in
Costa Rica, this year it
would grow again. Isn't
that worrying?
EL: Yes it is,
because for 15 years we
have had a poverty rate
in Costa Rica of around
20 percent, and last
year we managed to
reduce it by nearly
three percentage points.
It would be very
disturbing to reverse
our success and go back
to the previous
situation. It would be a
pity for that effort to
be wasted.
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