San José, Costa Rica, since 1956

C.A. Leaders Urge Regional Integration

SAN PEDRO SULA, Honduras – Insisting that Central American integration is the best way to brace the region for the approaching economic “storm” caused by the world financial crisis, Nicaraguan President Daniel Ortega this week called on his Central American colleagues to unite and free themselves from an economic model that has “bound us by our hands and feet.”

Speaking at last week’s presidential summit of the Central American Integration System (SICA) in the industrial capital of Honduras, Ortega and other Central American presidents noted that the region needs to circle its wagons in defensive anticipation of a difficult year ahead.

“In the sense that this (capitalist) model has failed, we see clearly the urgent need to strengthen integration and Central American unity,” said Ortega, who in January will assume the six-month post of president protempore of SICA.

Honduran President Mel Zelaya said the global financial crisis presents Central America with an opportunity to change a “model of globalization” that had promised to solve the region’s problems, “yet has only created more underdevelopment and backwardness in our countries.”

“We aren’t energy independent, food independent or financially independent,” Zelaya said, adding that Central America needs to strengthen inter-regional trade as well as find new markets in South America and Asia to survive the economic downturn.

Even the region’s most conservative leader, Salvadoran President Tony Saca – one of the United States’ greatest defenders and allies in Latin America – acknowledges that the U.S. recession is going to “take a severe hit” on the economies of Central America.

He said that the isthmus needs to focus extra attention on integration to survive 2009, which he predicts will be the hardest on the Central American economies.

“We need to keep growing interregional trade,” Saca said, noting that exports to the United States will most likely decelerate.

“The Central American Customs Union will contribute to this growth,” he said.

Central American Trade

The Central American Free-Trade Agreement with the United States (CAFTA), which entered into force in most countries in 2006 and will include Costa Rica come January, has led to rapid growth in interregional trade over the past three years.

The Central American Customs Union, one of the pillars of Central America’s integration process, is a key to fostering that growth in the future. The customs union aims to create one single Central American Customs Agency and a uniform customs code and legislation, making the region a single trade bloc and eliminating additional paperwork and procedures in each of the individual countries.

Import taxes would be paid at the point of entry into Central America, allowing merchandise to then circulate freely across the isthmus until reaching its final destination, where the value-added tax (IVA), selective consumer tax and income tax would be paid upon arrival.

Integration boosters note that growth in inter-regional trade in Central America justifies the need for a custom’s union, which is already 95 percent completed, according to the Secretary of Central American Economic Integration (SIECA).

Intraregional trade for 2008 is expected to total $5.5 billion, up from $5.2 billion last year. In 2006, the first year of CAFTA, trade was $4.4 billion, up from $500 million a decade ago in 1987, according to SIECA.

With the U.S. economic recession expected to take a toll on Central American exports to the United States, the region is challenged to accelerate its economic integration process as a response to the crisis, says SIECA’s José Carlos García.

“The integration process could be very benefited from the crisis, if it’s managed well,” the regional economic adviser said.

Preventing a ‘Boarder of Fire’

For Central American integration expert Mauricio Herdocia, who has played a key role in the regional integration process since the days of the Esquipulas II peace accords in 1987, the global financial crisis is underscoring the concept that unification is Central America’s best “survival tactic.” But the issue is bigger than just economic survival, he stressed.

Herdocia said that the Central American integration process, in its present form, was born in the 1980s to get the region out of war and into a workable peace.

If the process of integration is not consolidated, he warns, the region could return to the conflicts of the past.

“If you abandon integration, you are condemned to repeat the past; integration has to be in constant movement,” he said.

Herdocia said that Central America must continue to strengthen its democratic institutions to prevent a “border of fire” caused by insecurity in one country spreading throughout the entire region.

In Nicaragua, political opposition leader Eduardo Montealegre, ex-Liberal Party candidate for mayor of Managua, agrees with Herdocia’s assessment. Montealegre and several other Liberal party candidates, all of whom claim they were robbed of electoral victory by Ortega’s Sandinista Front in the Nov. 9 municipal elections, traveled to Honduras this week to attempt to warn other Central American presidents that Nicaragua’s democratic order is broken.

“The Central American presidents need to know that whatever happens in Nicaragua will also affect Central America,” Montealegre told The Nica Times this week, while trying to get inside the summit in San Pedro Sula (see separate story).

Uneven Integration

Another major challenge to Central American unification is the unequal commitment to integration between the various countries on the isthmus. For example, Costa Rica has refused to join the Central American Court of Justice and the Central American Parliament. Guatemala has recently agreed to join the court, but hasn’t yet done so formally.

Panama is a member of SICA, yet is not part of the economic integration process or the court. And Belize remains a marginal player in the process.

“There is enormous incongruity in the process, the seven states have to be part of the basic institutions and treaties that make up Central American integration,” Herdocia said. “The institutions don’t reflect the universal composition of Central American integration.”

Though Central America’s negotiation of an association agreement with the European Union has provided an impulse to strengthen regional integration as a prerequisite to the talks, the forthcoming accord with Europe also presents new challenges, Herdocia said.

Central America’s enormous poverty levels and social inequalities will make it hard for the region to have a functional partnership with the EU, Herdocia stressed.

“I am very worried about the social issue – Central America has unsustainable levels of poverty,” he said.

The Nicaraguan government has proposed that Europe provide Central America with a $20 billion “social cohesion fund” to help address the inequalities in the region.

The EU hasn’t yet commented on the proposal.

Another regional initiative is to declare an “Esquipulas III” summit aimed at implementing a regional response to Central America’s poverty problem, treating it with the seriousness as the wars that sparked the Esquipulas II peace accords in 1987.

While there was a lot of hope for the proposal in last week’s summit in Honduras, the presidents committed only to revisit the idea next year.

Ortega at the Helm

Though Nicaragua’s opposition has raised concerns about Ortega taking over the presidency pro-tempore of the region’s most important democratic institution at a time when the state of democracy in Nicaragua is being seriously questioned, SICA officials are trying to put a positive spin on the situation.

“The important thing in this case is that Nicaragua has maintained a position of involvement with regional integration and has done so with enthusiasm,” Herdocia said. “Nicaragua has maintained the theme of integration as a fundamental part of its foreign policy.”

Herdocia also noted that the Ortega government has taken important initiatives in the integration process, such as soliciting the EU to help provide a social cohesion fund – a proposal that others claim would have been more effective if Nicaragua had first consulted other countries in the region.

“I think that we are in a moment in history that requires great responsibility by Central America, and Nicaragua has shown a great desire for integration and has acted as such,” Herdocia said.

Ortega, too, sees the moment in historical terms.

“History and life over the course of the years have shown us clearly that there is no other alternative to unity,” Ortega said. “It’s not just integration, it’s unity!”

Next Week: Ortega’s socialist vision of Central American integration


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