Latin Finance - November/December 2010 - 70

central america

New Hopes for Integration
by Sean Mattson hile parts of LatAm commemorate two centuries of freedom from Spanish colonial rule this year, the region’s forgotten corner is quietly realizing that old-fashioned independence does not work so well in a globalized market. In Central America, 2010 is still shy of a bicentennial but marks the 50-year anniversary of a five-country club created to bring economic integration. It is hardly a reason to crack open champagne. The milestone serves more of a reminder that the region has little to show for two generations of mostly talk about unification. That may finally be changing. Skepticism still reigns at the prospect of Central America becoming an openborder market of 40 million people under a single currency. Two recent events, however, suggest it is slowly moving in that direction. The first is near-completion of an electrical interconnection grid that promises to attract hundreds of millions of dollars in investment and substantially lower energy costs, says the InterAmerican Development Bank, which provided half of the financing for the project. The Electrical Interconnection System for Central American Countries (SIEPAC) is a $500 million, 1,800-kilometer transmission line with a 300 megawatt capacity. The grid could begin operating next year. The second is that Panama has decided to join the Secretariat of Central American Economic Integration (SIECA). This promises to link less developed-parts of Central America to an economically booming hub of international finance and trade.

Crime and political rifts continue to block progress towards unity in Central America. Strides towards forging critical mass have been made, but full integration is lagging.

The Panama Canal expansion is one of few Central American projects with momentum that includes some of the poorest, most violent and most politically challenged countries in LatAm to become the region’s version of the European Union. Contrasts between the skyscraperstudded bay of Panama City and the mishmash Nicaraguan capital of Managua are a stark reminder of the regional wealth divide. Central American businesses battle bureaucracy to establish themselves in neighboring countries while organized crime crosses borders almost unhindered. Natural disasters add to urgent social problems that distract policymakers from regional policymaking. Murder rates in northern Central America are among the highest in the region, according to the UN. “We are optimistic but aware that either the political will is there to make important decisions or the [integration] process may stall,” says Ennio Rodríguez, coordinator of the IDB’s Mesoamerica Project, which oversees integration tasks like SIEPAC. Crime and climate change are among the IDB’s main concerns in Central America, he adds. Trade obstacles between the original five members have been nearly eliminated, but overland logistics is stuck in decades past. International lenders and private sector representatives say cross-border political tension and bureaucracy hinder investment and capital flow. Last year’s coup in Honduras left a black eye. When the army marched then-

Capital Flow Block

But it will take much more for a group

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November/December 2010

Latin Finance - November/December 2010

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