LatinFinance - September/October 2015 - 42

IMF/
WORLD
BANK
SPECIAL

Integration, infrastructure and education are critical to moving Central American
countries into higher income brackets, says Cabei's president. By Sara Rosner

Nick Rischbieth

Making the climb

entral America shares many qualities with its southern neighbors, a critical need
for better education, new infrastructure and corresponding investment, among them. However, the region's pursuit and relative success of integration makes it stand out - especially as
South America as a whole continues to reel from global troubles that include declining commodity prices and China's economic slowdown.
After the Central American Common Market, a free-trade zone, was established in 1960,
trade between the countries in the region flourished, eventually accounting for roughly
half of exports and imports by the early 1980s. Even now, this intra-regional trade in Central
America far outpaces the rest of Latin America, where China, the US and Europe are the
predominant partners.
Compared to the European Union, which conducts about 70% of all of its trade within its
borders, there is room to grow, Nick Rischbieth, executive president of the Central American
Bank for Economic Integration, tells LatinFinance in an exclusive interview. Infrastructure
development is imperative to fostering more trade within Central America, he says. Behind
all of these lofty objectives, however, is the need for better education to provide a more
sophisticated, capable workforce that can boost incomes. Panama, which boasts the region's
international financial center and Costa Rica, home to a relatively solid education system,
are examples of how the quality of human capital can lift national fortunes. This is an edited
transcript of Rischbieth's conversation with LatinFinance.
LF: What are the broad themes that have characterized Central America transformation in the past 50 years?
NR: We were founded around 1960, which coincides with the General Treaty for Central
American Integration. We actually commenced operations six months before the whole thing
started. That's when Central America starts to change. There's a number of decisions that
were made in the 60s. One was the creation of the Central American Common Market, the
idea of establishing a free-trade zone, of creating a general system of tariffs. We're all small
countries with small populations. The central idea is to try to create a customs union.
LF: What are the main themes that happened between the 60s and now?
NR: For us, obviously the most important theme is the integration of Central America as an
economic unit. Trade started to flourish in Central America from basically nothing in the
60s to a very substantial amount in the 1980s. Thereafter, we start having internal conflicts.

42 L ATINFINA NCE.COM - September/October 2015

Nicaragua, Guatemala and El Salvador all
had different internal conflicts. We did have
bloodshed and these revolutionary situations. Trade actually falls substantially by
more than 50%. After that, a peace process
starts around 1985, which culminates in
the re-launching of the Central America
integration system in the early 90s. This
relaunching actually leads to the current
situation. Whereby, currently about 25% to
35% of the trade to Central America is actually within itself.
This contrasts with the rest of Latin
America. Our main trading partner is the
US, but our second main training partner is
ourselves. Most South American countries,
their main trading partner is either Europe,
Asia or the US. The amazing fact is that
there's very little commercial trade within
South American countries. In Europe, they
started their integration process after Central America, but they did it much quicker.
Their trade is 70% and 80% between themselves. If you ask me about the main feature
of these last 50 years, it's the economic
integration of Central America. We've gone
from 0% to 26%. The challenge is trying to
increase that.
LF: What has been Cabei's role in this
development and integration?
NR: Reconstruction and development are
usually the main themes. We're the only development bank in the world that actually
has the name 'integration' written into it.
This is important from the context. In
terms of commercial openness with trade,
Central America has very open economies.
There's an index that has to do with trying
to measure that opening and in case of
Central America, it's close to 60%. South

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