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Central America Economic Reactivation in a COVID-19 World: FINDING SUSTAINABLE OPPORTUNITIES in UNCERTAIN TIMES

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Central America Economic Reactivation in a COVID-19 World: FINDING SUSTAINABLE OPPORTUNITIES in UNCERTAIN TIMES Atlantic Council ADRIENNE ARSHT LATIN AMERICA CENTER Central America Economic Reactivation in a COVID-19 World: FINDING SUSTAINABLE OPPORTUNITIES IN UNCERTAIN TIMES By: María Eugenia Brizuela de Ávila, Laura Chinchilla Miranda, María Fernanda Bozmoski, and Domingo Sadurní Contributing authors: Enrique Bolaños and Salvador Paiz The Adrienne Arsht Latin America Center broadens understanding of regional transformations through high-impact work that shapes the conversation among policymakers, the business community, and civil society. The Center focuses on Latin America’s strategic role in a global context with a priority on pressing political, economic, and social issues that will define the trajectory of the region now and in the years ahead. Select lines of programming include: Venezuela’s crisis; Mexico-US and global ties; China in Latin America; Colombia’s future; a changing Brazil; Central America’s trajectory; Caribbean development; commercial patterns shifts; energy resources; and disinformation. Jason Marczak serves as Center Director. For more information, please visit www.AtlanticCouncil.org. This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions. © 2020 The Atlantic Council of the United States. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Atlantic Council, except in the case of brief quotations in news articles, critical articles, or reviews. Please direct inquiries to: Atlantic Council 1030 15th Street NW, 12th Floor Washington, DC 20005 ISBN-13: 978-1-61977-118-5 September 2020 Atlantic Council ADRIENNE ARSHT LATIN AMERICA CENTER Central America Economic Reactivation in a COVID-19 World: FINDING SUSTAINABLE OPPORTUNITIES IN UNCERTAIN TIMES By: María Eugenia Brizuela de Ávila, Laura Chinchilla Miranda, María Fernanda Bozmoski, and Domingo Sadurní Contributing authors: Enrique Bolaños and Salvador Paiz CENTRAL AMERICA ECONOMIC REACTIVATION IN A COVID-19 WORLD: FINDING SUSTAINABLE OPPORTUNITIES IN UNCERTAIN TIMES TABLE OF CONTENTS FOREWORD �������������������������������������������������������������������������������������������������� 1 INTRODUCTION ���������������������������������������������������������������������������������������������2 THE ISTHMIAN OCELOTS: MAPPING CENTRAL AMERICA’S OPPORTUNITIES FOR POST-COVID-19 REACTIVATION �������������������������������������������4 CENTRAL AMERICA: A NEW HUB FOR GLOBAL SUPPLY CHAINS? ���������������������������4 Costa Rica in Focus ��������������������������������������������������������������������������������6 CENTRAL AMERICA’S DEMOGRAPHIC BONUS ���������������������������������������������������� 7 Seizing the Demographic Window ����������������������������������������������������������� 8 Migration �������������������������������������������������������������������������������������������� 8 Guatemala in Focus ����������������������������������������������������������������������������� 10 THE CASE OF NICARAGUA ������������������������������������������������������������������������������12 A RENEWED PUSH FOR CENTRAL AMERICAN ECONOMIC INTEGRATION ���������������13 CENTRAL AMERICA CUSTOMS UNION: REQUISITE FOR SUCCESS? ����������������15 FOSTERING THE MINIMUM CONDITIONS FOR GROWTH: RECOMMENDATIONS FOR GOVERNMENT, THE PRIVATE SECTOR, AND THE INTERNATIONAL COMMUNITY ����������������������������������������������������������� 16 Government ���������������������������������������������������������������������������������������� 16 Private Sector and Civil Society ���������������������������������������������������������������� 17 International Community ������������������������������������������������������������������������ 17 ENDNOTES ������������������������������������������������������������������������������������������������� 18 FOREWORD s the coronavirus pandemic rages on, a roadblock to inclusive growth. Also, the rule of law countries around the world face an must become the norm, not the exception. A 2017 unprecedented test: concurrent public Adrienne Arsht Latin America Center binational and health and economic crises coupled bipartisan task force outlined a policy blueprint as to Awith the resulting political and social reverberations. how Guatemala, Honduras, and El Salvador—in part- In Central America, the collective test of survival is nership with the United States—could improve the no different—at least on its surface. But, as a region rule of law, provide sustainable economic opportu- plagued by weak institutions, migration, violence, and nities, and address insecurity. While many task-force lack of economic opportunities, Central America has policy recommendations have been implemented, to not only meet this unprecedented moment, but a renewed push is urgently needed to revisit other leapfrog beyond it. policy prescriptions that have yet to be addressed, COVID-19 is shining a spotlight on historic chal- but are fundamental for long-term recovery. lenges and inequalities now accentuated by pandemic Since its founding, the Adrienne Arsht Latin fallout. But, can the policy response to this public America Center has advanced a different narrative health and economic emergency also accelerate on Central America—a narrative that does not see long-needed transformations in Central America? It its entrenched problems as intractable. Rather, the must. Actions taken by countries today in response to Center promotes sustained, long-term, and multi- COVID-19 will set the national development trajectory dimensional thinking that counts on the buy-in and for perhaps the next decade. Bold, new actions and collaboration of both the public and private sectors public-private cooperation can help to avoid another to help set a new direction for the region. This is not “lost decade.”1 easy, but is necessary to set the region on a more Consider two pre-pandemic variables in Central prosperous path. America: a highly favorable demographic trend that For all its ills, this publication argues that COVID-19, will continue to churn out a large and young labor if addressed correctly, could be the catalyst to inspire force in the next decade, and advances toward long-needed policy reforms. The following pages greater regional economic integration. When the highlight specific opportunities for Central America’s pandemic hit, a third external variable came into the economic recovery at a time of increasing global mix: in an ever-disrupted global economy, companies uncertainty. Once travel opens up again, the Center in China are seeking to relocate supply chains closer looks forward to working hand in hand with Central to the US market. As free-trade partners of the United American friends to advance the ideas presented in States, Costa Rica, El Salvador, Guatemala, Honduras, this paper; until then, it will work virtually to turn ideas Nicaragua, and Panama have a unique opportunity to into action. capture production and prominent roles in reconfig- ured global supply chains. Jason Marczak That is only possible through swift action to Director, Adrienne Arsht Latin America Center strengthen historically weak public institutions—long Atlantic Council 1 CENTRAL AMERICA ECONOMIC REACTIVATION IN A COVID-19 WORLD: FINDING SUSTAINABLE OPPORTUNITIES IN UNCERTAIN TIMES INTRODUCTION hen the coronavirus pandemic across Latin America, Central American countries— began to rattle developed nations with the notorious exception of Nicaragua—have in the West, experts warned it was implemented a combination of measures to respond only a matter of time before the to the pandemic, including lockdowns and curfews, Wvirus reached emerging economies. By mid-Septem- additional funding and equipment for public health ber 2020, Latin America and the Caribbean—a region services, direct payments to individuals and families, that accounts for only eight percent of the world’s and stimulus packages for small and medium-sized population— reported more than a third of global businesses, all with varying degrees of success.7 While COVID-19 deaths.2 As Latin American countries begin the risk of a second wave of infections is still high as to ease lockdown restrictions—even as the number of the region begins partial or full reopenings of eco- new infections continues to rise in some countries—a nomic activity (with a patchwork of health protocols grim outlook remains for public health, fiscal solven- implemented in different countries), leaders are faced cy, and economic growth and stability. In 2020, the with a challenge that can very well determine the combination of a stalled informal economy, a drop prosperity of their nations: how to sustain reactivation in tourism, capital flight, and climate disruptions will of their economies in a COVID-19 world, especially cause the region’s largest-ever economic contraction, given the preexisting institutional vulnerabilities that according to the International Monetary Fund (IMF).3 have hindered inclusive growth for too long. More worrisome, the United Nations World Food Amid a global crisis forcing countries and private Program estimates that “severe food insecurity” in the enterprise to recalibrate how they do business and region will quadruple, from 3.4 million to 13.7 million, how they cooperate
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