•  guatemala city
• Friday, May 04, 2012
• Inter Press Service

The economic crisis plaguing many countries in the European Union has forced Central America to look at preventive measures to mitigate the effects in this region, which could include a decline in tourism, migrant remittances, exports and investment.

The search for new markets and proposals for reforms to increase tax collection and impose exchange controls are some of the actions being taken in this region, made up of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, with the aim of strengthening the local economies and counteracting external shocks.

'This region needs to look more within itself and towards its neighbours, because the agro-export economic model based on products like coffee, sugar and cardamom is not working,' Jonathan Menkos, an expert with the Central American Institute for Fiscal Studies (ICEFI), told IPS.

Menkos added that 'these countries must diversify their production and exports and invest in security, justice, education, health and nutrition, besides coming up with a strategic plan for investment in economic infrastructure.'

Along those lines, in February Guatemala approved a package of tax reforms with which it aims to collect 154 million dollars this year, 552 million in 2013 and 579 million in 2014. El Salvador, Nicaragua, Honduras and Panama also adopted tax reforms between 2008 and 2011 in the face of the global economic crisis that broke out four years ago in the United States.

The presidents of the central banks of Central America and the Dominican Republic, meanwhile, agreed early this year to adopt measures to ensure financial liquidity, create mechanisms for monitoring risk management and overseeing financial systems, and take steps to mitigate the effects of the crisis in the Eurozone countries.

Central American countries have also recently signed free trade treaties with Colombia and Peru, and are trying to start trade talks with the Common Market of the South (Mercosur), made up of Argentina, Brazil, Paraguay and Uruguay. (Venezuela is in the process of joining as a fifth full member.)

Costa Rica, for its part, established diplomatic ties with China in 2007, and is awaiting approval of a free trade deal with Singapore and exploring other markets like India, all of which has given it greater economic independence, according to analysts consulted by IPS.

The stringent austerity policies adopted by the governments of European countries like Greece, Spain, Portugal , Italy, Belgium and the UK, to address their debt crisis, have caused recession, soaring unemployment and distortions of international trade.

This will impact the countries of Central America, analysts say. In first place, this region’s chief trading partner is the United States, which is affected by the situation in Europe. In addition, while Central America depends on intraregional trade in second place, its next largest partners are the European Union and Mexico.

In 2010, exports to the United States represented 32 percent of the region’s total, and imports from that country amounted to 38.5 percent, according to the Secretariat of Economic Integration of Central America (SIECA). 'The crisis in Europe will be reflected in slower economic growth in the United States, which in turn will reduce growth in this region,' with effects on trade, international development aid, remittances sent home by migrants living abroad, and tourism, Menkos said.

© Inter Press Service (2012) — All Rights Reserved. Original source: Inter Press Service