Central America Jump Starts Regional Integration with Bank Support

July 20, 2010

  • The World Bank will support Central America's integration initiative through financial and technical services
  • Training will be provided to improve key trade areas and align public administration with new requirements of integrated economies
  • Areas of support include: strengthening of democratic institutions, disaster risk management and climate change; social inclusion; and economic integration

SAN SALVADOR, July 20, 2010 - Central America moved closer today towards achieving its long-held goal of full economic integration as a summit of regional presidents vowed to work together on a joint integration agenda with the World Bank playing a key role in facilitating it.

In a final declaration sealing their commitment to rekindling integration, the region's top decision makers said they will devote considerable political power and resources to achieve results in five areas as their countries advance towards integral development.

These areas include: democratic stability; disaster risk management and climate change; social inclusion; economic integration and strengthening of democratic institutions.

"Conscious that after re-launching this integration bid our agreements could only be feasible as long as we work together on an action plan that is measurable, we reaffirm our commitment to be more thorough on the scope of our agreements and to verify more rigorously that our pledges are met," said a final statement from the Extraordinary Summit of Heads of State of the Central American Integration System' (SICA, in Spanish), comprised of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama and the Dominican Republic and Belize.

The summit –sponsored by the World Bank- was convened in response to Salvadoran President Mauricio Funes' call for neighboring countries to jointly address their many common development challenges.

World Bank Group president Robert B. Zoellick hailed the region's move towards integration as "a timely initiative" to increase its links to the global economy and improve the lot of its citizens.

"Integration is key to social inclusion, because of worker mobility and because regional projects can boost schools, centers of excellence, joint research, health projects, and business associations," Zoellick told an audience of regional heads of state and top officials while praising president's Funes leadership in relaunching Central America's integration.

Emphasizing that the Bank is prepared to give Central America's integration bid its full financial and technical support, Zoellick announced a series of initiatives to improve key trade areas and align public administration with the new requirements of integrated economies.

Specifically, the Bank's contribution to Central America's integration, include:

1- Technical and advisory services financed through a $1.3 million, two-year trade facilitation window. This will support efforts that deepen integration: mechanisms to implement single-window merchandise clearing processes; standardization of quality and phyto-sanitary controls; and improvements in the trading capacity of small market participants.

2- A training program managed by regional business school INCAE to strengthen the capacity of the Central American civil service in the area of public administration.

3- A technical assistance facility to strengten the Central American Economic Integration Secretariat (SIECA) to better support its trade promotion efforts. SIECA's current limited capacity will be bolstered by a grant facility that will support institutional strengthening along several dimensions, including an assessment of SIECA's structure and preparation of a strategic regional integration plan.

4- A World Bank Institute program to support judicial transparency and accountability in the region. The World Bank Institute has partnered with the Latin American Judicial Summit, the Legal Department, and the region to design an action-learning program.

"Only by joining forces we would be able to lift our peoples from social exclusion and poverty. Relaunching Central America's integration was necessary to face these new challenges with the new institutions arising from a regional union," said President Funes while taking up Zoellick on a suggestion for a follow up meeting in July 2011 to evaluate the initiative's progress.

The global crisis had a significant impact on Central America. But the region's economic outlook for has been improving in recent months. As a result, the regional GDP growth forecast for 2010 has been lifted from 2.1 percent early this year to 2.7 percent now. While this growth rate contrasts with a recorded contraction of 0.5 percent in 2009, it still falls significantly short of the pre crisis growth levels.

Persistent global economic risks and ailing markets fuel Central America's case for economic integration, argues World Bank economist Humberto Lopez.

"As recovery in the United States remains slow and Europe's prospects look uncertain, it makes sense for Central America to look for other markets, and an integrated Central American market offers interesting opportunities for growth," said Lopez.

He noted that Central America is not alien to the notion of integration, with consistent regional endeavors towards achieving this goal spanning over 50 years.

"The idea of moving forward with economic integration in Central America is not new. In fact, the first article of the Central American Integration Free Trade Agreement signed in Managua on December 13, 1960 already highlighted the need to create a customs union," says Lopez.

The Managua Agreement also created the Central American Bank for Economic Integration (CABEI), and the Secretariat for Central American Economic Integration (SIECA) therefore creating institutions in support of regional integration.

Although the Central American Common Market was temporarily frozen in 1969, the 1990s witnessed renewed efforts on the integration front leading to the Tegucigalpa protocol (1991) and the Guatemala protocol (1993) when the Central America Integration System (SICA) was also created.

As a result of these efforts –argues Lopez- the role played by regional trade flows has expanded dramatically over the past 50 years: in 1960, only 7 percent of exports flowed towards other Central American countries, and today it is 20 percent.

But there are risks lurking behind the region's attempts at integration.

For once, the political landscape in Central America is mixed and this may limit actual consensus and follow up commitments to furthering regional integration. Security is a top priority in all countries in the region and this is affecting the political agendas.

Another potential obstacle is the region's own ambitions, says Lopez. He argues that in the last few years too many initiatives have been launched and for this latest attempt at integration to take hold regional leaders need to be realistic, and stick to the integration road map.

And that's precisely what Zoellick reminded the SICA heads of state at the close of the summit.

"The Central American leaders gathered here today have a unique opportunity. I encourage you to seize it and take the steps necessary to expand economic opportunity for your citizens and to let them contribute to their country's - and region's – future," concluded Zoellick.