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Poverty and Potential in Central America

Better public institutions in Guatemala and Nicaragua would help those nations become richer. (Read this article in Spanish here.)

by
Jaime Daremblum

Bio

September 29, 2011 - 12:00 am
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It is election season in Central America. On September 11, while the United States was marking a somber anniversary, Guatemalans were heading to the polls to pick their next president. No candidate received a majority, so there will be a two-way runoff vote on November 6.

The favorite to emerge victorious is conservative Otto Pérez Molina, a retired general and former military intelligence chief, who led all candidates with 36 percent support in the first round. The same day that Guatemalans choose between Pérez Molina and centrist businessman Manuel Baldizón, Nicaraguans will decide whether Sandinista leader Daniel Ortega gets another five years in the presidential palace. Most expect that Ortega will cruise to reelection, though Nicaraguan politics is wildly unpredictable, and we should not rule out a late surprise.

The outcome in Guatemala will determine how a beleaguered and polarized citizenry responds to an escalating security crisis. The outcome in Nicaragua may lead to a further erosion of constitutional democracy. In each case, the presidential winner on November 6 will be charged with governing one of the poorest countries in the Western Hemisphere. Yet despite their deeply entrenched poverty, both Guatemala and Nicaragua have enormous untapped potential. With better political leadership and better public institutions, they could be much richer.

For starters, the two countries boast an abundance of tourist attractions, including volcanoes, mountains, rain forests, and beaches. Guatemala also has magnificent Mayan ruins (most notably, the ruins of Tikal), and Nicaragua is home to famous Spanish colonial cities such as Granada and León. Guatemala is a major sugar and banana exporter; Nicaragua is a major beef exporter; and both are major coffee exporters. Since 2006, Guatemala and Nicaragua have enjoyed preferential access to U.S. markets under the Central American Free Trade Agreement. Each country has a young, fast-growing population, and each could become a very appealing destination for foreign investment.

Indeed, the United Nations Conference on Trade and Development believes:

Guatemala has the potential to become the main hub for FDI in Central America, given its macroeconomic stability, the size of its internal market, a geographical location facilitating trade and competitive labour costs.

Meanwhile, foreign investment in Nicaragua has increased by 77 percent over the past five years, according to the Miami Herald. “Foreign investors see plenty of opportunities,” reports The Economist. “Levi’s jeans and parts for BMW cars are among the things already made there, tempted by Nicaragua’s low costs.”

Unfortunately, both countries face serious hurdles to greater economic development and faster poverty reduction. Guatemala has witnessed a surge of violent crime, thanks to deadly youth gangs and Mexican drug cartels (particularly the organization known as Los Zetas). Its homicide rate is more than twice as high as Mexico’s, and the cartels are effectively controlling substantial chunks of Guatemalan territory.

According to a 2010 study by security analyst Hal Brands, “the influence of nonstate criminal actors rivals or exceeds that of the government in up to 40 percent of the country.” Things got so bad late last year that President Álvaro Colom declared a state of siege in the northern province of Alta Verapaz, which borders Mexico. He made the same declaration for Petén (another northern border province) this past May, following a massacre by Los Zetas. “In the first seven months of 2011,” notes the U.S. State Department, “approximately 42 murders a week were reported in Guatemala City alone.”

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