Front Matter

Front Matter

Author(s):
Markus Rodlauer, and Alfred Schipke
Published Date:
July 2005
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© 2005 International Monetary Fund

Production: IMF Multimedia Services Division

Typesetting: Alicia Etchebarne-Bourdin

Cataloging-in-Publication Data

Central America: global integration and regional cooperation/edited by Markus Rodlauer and Alfred Schipke—Washington, D.C.: International Monetary Fund, 2005.

  • p. cm.—(Occasional paper); 243

Includes bibliographical references.

ISBN 1-58906-446-1

  • 1. Central America—Economic integration. 2. Central America—Economic conditions—Statistics. 3. Free trade—Central America. 4. Foreign exchange rates—Central America. 5. Poverty—Central America. I. Rodlauer, Markus. II. Schipke, Alfred, 1959–III. Occasional paper (International Monetary Fund); no. 243.

HC141.C36 2005

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Contents

The following symbols have been used throughout this paper:

…to indicate that data are not available;

—to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

–between years or months (e.g., 2003–04 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

/ between years (e.g., 2003/04) to indicate a fiscal (financial) year.

“n.a.” means not applicable.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.

Foreword

Central America has come a long way since it emerged from the so-called lost decade of the 1980s. Peace and democracy have been firmly reestablished; governments have implemented important economic and social reforms; and, as a result, the region enjoyed relatively strong growth and improved macroeconomic stability in the 1990s.

Nevertheless, Central America still faces important economic, social, and political challenges. Poverty remains high in most countries, as institutional weaknesses have tended to undermine growth and governments’ ability to deliver on the high expectations associated with the peace process; and weak fiscal positions and financial sectors have left economies vulnerable to shocks and natural disasters to which the region is particularly exposed.

In the face of these challenges, recent years have seen a renewed effort at adjustment and reform across the region, geared toward boosting growth and reducing poverty in a lasting way. Central America is also becoming increasingly integrated, as a region and globally, and there is growing recognition, at home and abroad, that increased regional cooperation is key to each country’s success as it tries to compete successfully in the global economy.

This study looks at these challenges and how Central America is attempting to meet them, with particular emphasis on issues and challenges arising from the growing integration under way in the region. By focusing on the policy implications of increased trade and financial integration, the study should help policymakers make the best of Central America’s considerable potential and set the region on a path of sustainable rapid growth. The IMF stands ready to continue to assist the region in its efforts to meet these challenges.

Rodrigo de Rato

Managing Director

International Monetary Fund

Issues raised by Central America’s growing economic integration are at the center of this study coordinated by our team in the Western Hemisphere Department. A core theme is the need to intensify regional collaboration in a number of areas to maximize the benefits offered by globalization in terms of sustained growth, poverty reduction, and broader social progress. In particular, the study provides a framework for deepening cooperation in banking supervision and regulation, tax policy and administration, and economic statistics. It also notes that integration must be anchored in strong domestic economic policies, especially fiscal reforms to ensure sustainable public debt levels and structural reforms to raise productivity and competitiveness. The study is especially timely as the Free Trade Agreement with the United States (CAFTA-DR) will provide a new impetus for economic integration in the region and its ability to compete successfully in the global economy.

Anoop Singh

Director, Western Hemisphere Department

International Monetary Fund

Preface

This Occasional Paper is the product of a team effort led by Markus Rodlauer and Alfred Schipke, both staff members of the IMF’s Western Hemisphere Department. The team includes authors from a number of other departments in the IMF, as well as an outside co-author from the region.

The authors would like to express their deep appreciation for the valuable guidance provided by Olav Gronlie, who—as the head of the Central American Division—was instrumental in moving the project forward as part of the IMF’s increased emphasis on regional issues and those related to regional integration. They would like to thank and acknowledge the comments received from Agustín Carstens. Also, the authors are grateful to Tamim Bayoumi, Michael Keen, Anoop Singh, Teresa Ter-Minassian, and Philip Young for their comments and advice.

Particular thanks go to Susan McCuskey and Hildi Wicker Deady, who worked extremely hard to ensure the timely publication of this paper, and to Mauricio Bourdin for valuable research assistance. The authors would like to thank the authorities of the respective countries in Central America and the Dominican Republic, the Central American Monetary Council, and the participants of an internal IMF Workshop on Central America for helpful comments and suggestions. Marina Primorac of the External Relations Department coordinated the production of the publication.

The opinions expressed in this paper are solely those of its authors and do not necessarily reflect the views of the International Monetary Fund, its Executive Directors, or the authorities in the respective Central American countries and the Dominican Republic.

Abbreviations and Acronyms

ASCM

Agreement on Subsidies and Countervailing Measures

BIS

Bank for International Settlements

CABEI

Central American Bank for Economic Integration

CACM

Central American Common Market

CACS

Central American Council of Superintendents of Banks, Insurance, and Other Financial Institutions

CAFTA

Central American Free Trade Agreement

CAFTA-DR

Central American–Dominican Republic Free Trade Agreement

CAMC

Central American Monetary Council

CBERA

Caribbean Basin Economic Recovery Act

CBTPA

Caribbean Basin Trade Partnership Act

CBI

Caribbean Basin Initiative

CET

Common external tariff

CGE

Computable general equilibrium

CPI

Consumer price index

DQAF

Data Quality Assessment Framework

DSGE

Dynamic stochastic general equilibrium [model]

EMU

European Monetary Union

FDI

Foreign direct investment

FSAP

Financial Sector Assessment Program

FSSA

Financial System Stability Assessment

GDDS

General Data Dissemination System

GFS

Government Finance Statistics

GSP

Generalized System of Preferences

GTAP

Global Trade Analysis Project

HIPC

Heavily indebted poor countries

IDB

Inter-American Development Bank

IIP

International Investment Position

MFN

Most favored nation

MOU

Memorandum of understanding

NAFTA

North American Free Trade Agreement

OECD

Organization for Economic Cooperation and Development

PPI

Producer price index

PRGF

Poverty Reduction and Growth Facility

PRSP

Poverty Reduction Strategy Paper

ROSC

Report on the Observance of Standards and Codes

SIECA

Secretariat for Central American Economic Integration

SDDS

Special Data Dissemination System

SNA

System of National Accounts

UN

United Nations

VaR

Value-at-Risk

VAR

Vector autoregressive system

VAT

Value-added tax

WTO

World Trade Organization

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