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CENTRAL AMERICA: Protect the Most Vulnerable, ECLAC Says

SAN SALVADOR, Apr 23 2009 (IPS) - The global economic crisis has had a severe impact on Central America and the Dominican Republic, and unemployment and poverty will increase significantly, according to a new study by the Economic Commission for Latin America and the Caribbean (ECLAC).

The ECLAC report studies the effects on the region of the international recession that began in the United States, identifies the mechanisms by which it spreads, and recommends public policies to mitigate the impact.

Jorge Máttar, head of the ECLAC regional office in Mexico, told IPS that most of the Central American economies are highly vulnerable because of their heavy dependence on the United States.

In his view, the outlook is uncertain, because it cannot yet be determined whether the worst of the crisis is still to come, or how long it will last. What is sure, he said, is that this year will be “a very negative one.”

The report titled “Enfrentado la crisis. Istmo centroamericano y República Dominicana: Evaluación económica en 2008 y perspectivas para 2009” (Facing the Crisis; Central American Isthmus and Dominican Republic: Economic Evaluation for 2008 and Prospects for 2009) was presented in San Salvador on Wednesday.

Some 300 economists, civil servants, and representatives of civil society attended the launch, including economic advisers to leftwing president-elect Mauricio Funes, who will take over from the rightwing incumbent, President Antonio Saca, on Jun. 1.

The main routes of “contagion” of the crisis are the falls in exports, cash remittances from migrants living abroad, foreign direct investment and tourism, as well as restrictions on international financing which limit the availability of credit within countries, the study says.

“The countries worst hit by the crisis will be those that have seen their income reduced by lower levels of remittances from, and exports to, the United States,” Máttar said.

The president of the Salvadoran Chamber of Trade and Industry (CCIES), Jorge Daboub, told IPS in early April that 57 percent of Salvadoran exports go to the United States.

The Central Reserve Bank (BCR) reported that remittances declined by an estimated 7.5 percent in the first quarter of 2009, compared to the same period last year.

BCR figures show that 3.79 billion dollars entered El Salvador as remittances in 2008, equivalent to 17.1 percent of GDP that year. Most of the funds were sent from the United States, home to 90 percent of the 2.9 million Salvadorans living abroad.

The Salvadoran government estimates that the economy will grow by one percent this year, but economists believe there will be zero growth, or that the economy will even shrink. In 2008, the authorities reported GDP growth of 3.2 percent.

Nearly 40 percent of El Salvador’s 5.7 million people live in poverty, according to official figures, which civil society organisations regard as underestimates. Unemployment is officially estimated at seven percent of the economically active population, but 43 percent are underemployed.

As for Honduras, income from remittances represents 20 percent of its GDP, according to ECLAC.

Daboub confirmed that 36,000 jobs have been lost in Honduras since August 2008. Exports fell by 21.4 percent between February 2008 and February 2009, particularly exports to the United States.

The crisis could cause the loss of some 120,000 jobs in 2009 in Central America, a region of 40 million people, “indicating the magnitude of the crisis,” Máttar said.

Igor Paunovic, the head of ECLAC’s economic development unit, said the crisis would add 400,000 people to the number living below the poverty line in the region, increasing the overall proportion of poor people from 51 to 52 percent.

The ECLAC economists, who said growth in the region in 2008 averaged seven percent, forecast growth of no more than one percent in 2009. And remittances could decline by between five and 15 percent this year compared to last year, they added.

The main impact of the crisis is due to the fall in exports, since the United States is the main trading partner of the countries of Central America, purchasing between 40 and 60 percent of their exports, the economists said.

This means that the impact has had “immediate consequences” for the region’s economies, Máttar said.

In March the International Monetary Fund (IMF) forecast “even deeper and prolonged recession” on a global scale, and a gradual “modest recovery” in 2010, with an average economic growth rate of 1.9 percent.

Alexander Segovia, an economic adviser to president-elect Funes, said that facing up to the crisis requires integrated public policies that combine macroeconomic and social measures, in order to protect the most vulnerable.

He criticised the Nationalist Republican Alliance (ARENA), which has governed El Salvador since 1989, for repeatedly asking the poor to “tighten their belts,” making them pay for the impact of crises and structural readjustments while sparing the business community.

“It is not fair that the most vulnerable should pay for this crisis,” Segovia said.

More public spending is needed, to provide “some sort of protection for the most vulnerable, because they are the people who suffer most during these crises,” Paunovic said.

Increasing state spending on health, education and public works, to create jobs and make these economies more competitive, is another recommendation of the regional United Nations agency.

The countries of the region should take short, medium and long-term measures, monitor the situation continually, and prepare for a long, deep crisis, the ECLAC experts concluded.