Icefi recommends a change in economic and fiscal model in Central America in light of the possible adoption of radical policies by the United States of America
The growing expectation that institutional strength, self-restraint and common sense will prevail in the process of redefining U.S. policies, and that Latin America- and particularly Central America- don't seem to be among the main priorities of the new American government, are elements of hope in the region. However, the threat presented by the possibility that President Trump accomplish the aggressive and radical promises made during his electoral campaign continues and, according to the Central American Institute for Fiscal Studies (Icefi) must be analyzed with seriousness and solid technical criteria.
In order to face this uncertainty, Icefi studied the possible impacts on Central American countries, with emphasis on those on their economies and public finances, in case that the new U.S. president delivers his most radical and alarming proposals on immigration, trade, and investment. Icefi analyzed what the main transmission channels to Central America could be, through which these countries could suffer detrimental effects.
On the immigration front, during his campaign the now President Trump promised the construction of a wall along the U.S.-Mexico border, massive deportations, actions that would criminalize immigration and a Zero Tolerance Policy against immigrants, with programs like ¨entrance-exit¨ (surveillance on foreigners who enter the country with a visa, to detect those who do not leave the country), or ¨extreme examination¨ (to identify ideological or religious characteristics of those who enter the U.S.). For Icefi, complying with these measures could generate negative effects for El Salvador, Honduras, and Guatemala (the so-called Central American ¨Northern Triangle¨), through a decrease in remittance that immigrants living in the U.S. send to their families in Central America, a source of U.S. Dollars of growing macroeconomic importance, comparable to exports and direct foreign investment that reaches those countries.
Another possible transmission channel identified by Icefi for the possible negative effects in Central America if Trump delivers his most aggressive promises is international trade. As part of his opposition to free trade and globalization, Trump promised to revise, or even withdraw the U.S. from Free Trade Agreements, such as the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), which made permanent the tariff-free treatment enjoyed by 80% of the Central American products included in the Caribbean Basin Initiative (CBI), reaching an estimated total two-way trade of US$ 30 billion.[1
Source: U.S. Commerce Service, at: http://www.buyusa.gov/guatemala/cafta/index.asp
Icefi explains that, historically, the U.S. has been the main trade partner of Central America as a whole, but foreign trade data shows differences among countries in the degree of their economic dependency, and with the only exception of El Salvador, a decrease has even been registered in exports to the U.S. as a percentage of the GDP of each country. The Institute explained that a restrictive trade policy from the U.S. towards Latin America, and in particular towards Central America, could deepen the decrease in exports of the region to this important market.
Another transmission cannel considered by Icefi for possible negative effects produced by a radical shift in American policies is the direct investment that the region receives from the U.S. According to the Institute, the available official figures show that as a percentage of the GDP, American investment has increased in Nicaragua and lightly in El Salvador and Panama, in Costa Rica it came to a standstill, and in Guatemala and Honduras it fell. With this, drastic measures of withdrawal of American capital, like those already being implemented in Mexico, would exacerbate the reduction of their impact in growth and economic development of the region, especially in the countries in which lower or static investment flows.
It must also be recognized that a decrease in the economic growth and the resulting weakening of the public income in the region could have negative consequences for the majority of girls, boys and teenagers, especially those from the Northern Triangle- as the low public investment in their wellbeing could be reduced as part of adjustments in social spending. In Guatemala, Honduras and El Salvador, it is estimated that there are currently 6.2 million children without access to education and only between October 2015 and September 2016, a total of 46,893 children and teenagers who have migrated alone were detained by border police of the U.S.
Guatemala, Central America, January 21st, 2017.
Note: this press release was translated into English with the kind and most valuable contribution of the American Friends Service Committee.
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