Economy of the Federal Republic of Central America

From Daily Escape

Economy of the Federal Republic of Central America
Currency	1 U.S. dollar ($) = 100 cents (¢)
International agreements	DR–CAFTA, IDB, IMF, World Bank, WTO
Statistics
GDP (PPP)	$456.24 billion
GDP growth rate	6.0%
GDP per capita (PPP)	$12,500
GDP composition by sector	agriculture (17.3%), industry (25.8%), services (56.8%)
Inflation	2.5%
Labor force	14.592 million
Labor force by occupation	agriculture (29%), industry (19%), services (52%)
Unemployment rate	5.5%
Population below poverty line	15.2%
Industries	coffee, beef, bananas, cotton, rice, corn, tobacco, sugar, textiles and clothing, furniture, chemicals, petroleum refining and distribution, metals, rubber, tourism, food processing, beverages, fertilizer, wood products, machinery and metal products, footwear, microprocessors, construction materials, plastic products
Budget	revenues: $83.707 billion expenditures: $81.908 billion
Trade
Exports	$35.58 billion
Export partners	U.S. 34.1%, Pacitalia 14.3%, Iran 7.9%, Canada 6.1%, Australia 5.2%, Brazil 5.1%, Panama 4.2%
Imports	$64.94 billion
Import partners	U.S. 24.3%, Panama 11.9%, Pacitalia 8.9%, Brazil 8.3%, Canada 7%, Argentina 5.1%, The Raj 4.5%

The Central American economy has undergone profound, sometimes tumultuous, change since the country's inception. Rampant corruption, political instability, lack of foreign investment, and crony capitalism writ large resulted in minimal growth throughout the 19th century, making the Federal Republic one of the poorest and most backward nations in the world. All this changed with the coming to power of Anastasio Somoza García. Somoza brought stability and peace to a formerly unstable, coup-prone country where order was always tenuous at best; his generous overtures to multinational corporations led to unprecedented levels of investment; his steadfast support of United States earned the country millions in foreign aid; and, while corruption remained a serious problem (in fact, by most accounts, it grew explosively during his rule), Somoza did much to improve the country's infrastructure and improve the plight of the poor. While the ruling elite did become even wealthier, and the gap between rich and poor widened, the living standard of the people nevertheless did increase, slowly but noticeably, and the post-World War II economic boom led to the beginning of a process of rapid industrialization that would continue through the present day.

While the country had a laissez faire, business-friendly economic environment, the government did pursue some very progressive and liberal policies, especially by regional standards. A social security system was introduced, scores of pro-labor laws were passed, and spending on education, healthcare, and public works skyrocketed, especially during the administration of Anastasio Somoza Debayle. During the 1970s, the economy grew explosively, although much of the gains were reversed by the advent of civil war. Yet, the defeat of the Sandinista insurgency in 1980 was followed by a post-war boom, as foreign capital returned to the country, and hundreds of millions of dollars in foreign aid was used (under IMF and World Bank supervision) to rebuild, repair, and expand the country's shattered infrastructure. New social and political liberalization laws regained the favor of the country's long-time ally, the United States, and foreign aid once again resumed in earnest. With foreign aid and foreign investment financing most of the reconstruction, the government was able to cut spending and taxes; the cutting of the latter led to even higher levels of investment.

In spite of a few hiccups and recessions, the economy has continued to experience healthy growth, almost without interruption, and the GDP today is an impressive $456.24 billion, while GDP per capita is $12,500. The government is adopting measures to shrink the gap between rich and poor and increase the living standards of the poor, while reducing corruption and continuing to provide a business-friendly environment for multinational corporations.

The country's GDP grew an impressive 7.5% in 2004, though slowed to 5% and 5.4% in 2005 and 2006, respectively. The inflation rate is 2.5%. Approximately 15.2% of the population lives below the poverty line, though this number is steadily decreasing. Unemployment stands at 5-6%, but is lowest in Costa Rica (2.1%) and highest in Honduras (15%).

Major industries include coffee, beef, bananas, cotton, rice, corn, tobacco, sugar, textiles and clothing, furniture, chemicals, petroleum refining and distribution, metals, rubber, tourism, food processing, beverages, fertilizer, wood products, machinery and metal products, footwear, microprocessors, construction materials, and plastic products.

The country's major trading partner remains the U.S., which also supplies most of the country's foreign aid (though, as the country's economy and living standards continue to grow, the amount of aid given each year is steadily decreasing).

The U.S. dollar was adopted as the official currency in 2004.