MESOAMERICA: CURRENT ECONOMIC TRENDS AND CABEIs STRATEGY FOR THE PROMOTION OF REGIONAL ECONOMIC DEVE

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MESOAMERICACURRENT ECONOMIC TRENDS AND CABEIs
STRATEGY FOR THE PROMOTION OF REGIONAL ECONOMIC
DEVELOPMENT AND INTEGRATION
Central American Bank for Economic Integration
www.bcie.org

• Marvin Taylor Dormond, PhD
• Chief Economist, CABEI
• mtaylor_at_bcie.org

Presentation before the OECD, Paris, France.
December 1st, 2005
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Outline

• The new context of Mesoamerica A time of hope
  and opportunity.
• Mesoamerica The current economic setting and
  main macroeconomic trends.
• Key development challenges facing the region.
• CABEI Strategy for the promotion of regional
  economic development and integration.

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1. The new context of Mesoamerica A time of hope
and opportunity
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A time of hope and economicopportunity Five
strategic factors

• Outwards integration
• Trade liberalization (i.e. DR-CAFTA, EU, Andean
  Pact, NAFTA).
• Inwards integration
• Renewed integration process (i.e. Customs Union
  in CA, PPP).
• Macroeconomic stability.
• Democratic consolidation and political stability.
• Three distinctive physical characteristics of the
  region
• Privileged geographic location.
• Ecological diversity and unique environmental
  resources.
• Agricultural and forestry potential all year
  round.

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Areas of investment and growth opportunity
Offshore services
Business and Investment opportunities arising
from the regions trade liberalization process
Business and Investment opportunities arising
from integration process
Source Incae, Competitividad en Centroamérica,
1996
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2. Mesoamerica The current economic setting and
main macroeconomic trends
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First, a word on Mesoamerica's structural
features
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GDP Diverse market dimensions
18 of Mexico's GDP corresponds to SSE US114.7
billion
Total GDP US827.5 billion, compared to US9.4
trillion in the EMU
Source EIU, IADB and WB
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Population size Different demographic
conglomerates
26 of Mexico's population lives in the SSE 27.5
million
Total population 189 million, compared to 307.4
million in the EMU
Source EIU, IADB and WB
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GDP Per capita economic disparity
GDP Per Capita in SSE of Mexico US4,171
EMU GDP per capita US30,579
Source EIU, IADB and WB
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A multidimensional view of regional gapsin
Central America

• Social gaps between families.
• Sectorial gaps between economic activities.
• Geographical gaps Between and within countries.

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Social gaps in CA
Source World Bank and UNDP
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Sectorial gaps in CA Participation of the
informal sector in Gross National Income
Source World Bank
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Geograhic gaps in CABetween countries
Source UNDP
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Geographic gaps within countriesurban and rural
poverty.
Source UNDP
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and, the current economic setting, as well as
the macroeconomic trends
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The current economic setting

• International setting
• Strong, but slowing, world economic dynamism.
• Continued economic imbalances in developed
  countries.
• A gradual rise in international interest rates.
• High and volatile oil prices.
• Increased competition to attract capital flows
  and FDI.
• Regional setting
• Implementation of RD-CAFTA.
• Advances in the Central American integration
  process (Customs Union and greater business and
  financial connectivity), complemented with the
  execution of Plan Puebla Panama projects.
• Governments will continue to pursue prudent
  economic policies.
• Limited debt capacity and fiscal constraints in
  some countries.
• Prevalence of complex political factors in some
  countries could hamper efforts to improve the
  business and investment climate.

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Economic growth GDP
LAC
USA
MA
Euro
In 2006, GDP growth in Mesoamerica is estimated
at 3.5
Source CABEI, using data from the IMF
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Inflation rate
In 2006, the rate of inflation in Mesoamerica is
estimated at 4.7
Source CABEI, using data from the IMF
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External balancecurrent account
In 2006, the current-account deficit in
Mesoamerica is estimated at 1.3 of GDP
Source CABEI, using data from the IMF
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Fiscal balance of the central government
In 2006, the fiscal deficit of Mesoamerica is
estimated at 1.2 of GDP
Source CABEI, using data from the IMF and the EIU
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3. Key development challenges facing the region
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Ten mayor challenges to seize the opportunities

• Improve the investment climate (governance,
  political and social stability, rule of law).
• Foster economic growth and the creation of formal
  employment.
• Improve competitiveness by moving from a model of
  clusters based on legal and spatial criteria to a
  model of clusters based on an economic logic.
• Promote human development, equity and
  environmental protection.
• Maintain healthy public finances and a good
  management of the monetary policy.
• Modernize, strengthen and integrate the financial
  systems.
• Provide regional public goods to enhance regional
  integration.
• Use RD-CAFTA and other free trade agreements to
  revamp economic development (the goal inclusive
  process).
• Tackle the energy problem with a long-term and
  systemic vision.
• Manage the increase in international interest
  rates.

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4. CABEI Strategy for the promotion of regional
economic development and integration
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CABEI Strategic themes 2004-2009
Poverty reduction
Integration
Globalization
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CABEI Strategic Themes and Long-Term Objectives
2004-2009

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FIGHTING POVERTY

• Micro, Small and Medium Enterprise
• Sustainable Rural Development
• New enterprises and entrepreneurs.
• Employment Exchange (Promoting supply and demand
  information flow)

• Financial instruments and services for Micro and
  Small Enterprises (Guarantees, leasing,
  management of flows of remittances)
• Formalization of tenancy of property assets.
• Strengthening existing credit institutions for
  medium, small and micro entrepreneurs.

• Potable water and sanitation infrastructure
• Standards to reduce natural disaster associated
  risks.
• Training in labor skills
• Popular housing
• Concession of public utilities.

• Municipal border programs
• Technology platforms to improve management.

• Education, vocational and technological
• Innovation and technology transfer
• Best practices ( Transfers, standardization, etc.)

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INTEGRATION

• Develop a Regional Capital Market
• Supervision and regulation for the bank and
  financial systems
• Procure resources from Pension Funds.
• Procure Reserves for macroeconomic reinforcement.
• Develop a payment and clearing house system

• Financial System regulatory Framework
• Adoption of Basel II Standards
• Tributary Systems
• Liquidation and Clearing Systems

• Plan Puebla Panamá (regional impact
  infrastructure projects)
• Customs Union
• Reduction of the knowledge gap.
• Foreign trade integrated infrastructure
• Regional Productive Clusters
• Binational and regional projects

• Watershed Management and Management of Hydric
  Resources
• Environmental Legislation
• Carbon Bond Market

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GLOBALIZATION

• Citizen Security and rule of law
• Governance
• Financial System Supervision
• Information and Communication Technology Transfer

• Development and articulation of medium enterprise
  productive chains
• Standardization and best practices in the Region
• Infrastructure and services to support
  competitiveness
• Productive Restructuring
• Development of Clusters Identified in the XXI
  Century Competitiveness Agenda (Agro business,
  Maquila, Tourism, agro forestry)
• Vocational Education for Productivity
• Support to Regional Institutional Structure to
  promote Competitiveness

• Disseminate knowledge on the scope of the Opening
  and its instruments
• Create Treaty negotiation capacity
• Promote Foreign Trade and IED
• Develop Market Studies

• Reallocate Productive Resources among sectors
• Training for reinsertion into new markets

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CABEI Estimate financing distribution during the
next two years by strategic theme
TOTAL US 2 BILLION (ESTIMATED)
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CABEIs distinctive market positionCompetitive
advantage

• Knowledge of the region, experience and market
  position.
• 45 years acting with a regional mandate and
  vision.
• 43 of multilateral development bank lending to
  the region.
• 200 specialized staff members.
• Leadership in the financing of regional
  infrastructure. We have financed
• 25 of electric generation capacity of the
  Central American region.
• 21 of Central American paved roads.
• 14 of Central American primary lines of the
  telecommunications network.
• Main source of medium and long-term financial
  funds to the financial sector.
• Wide range of financial and non-financial
  products and services.

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In sum,

• Mesoamerica is going through an extraordinary
  period in terms of business and investment
  opportunities.
• Based on its competitive advantages, the region
  is pursuing integration and trade opening
  vigorously, within a framework of macro and
  political stability.
• The international economic environment is still
  favorable for Mesoamerica in terms of economic
  and trade growth, but this environment is being
  challenged by various macro-financial and
  geopolitical risks.
• The current macroeconomic trends in Mesoamerica
  are distinguished by moderate economic growth,
  efforts to reduce inflation and maintenance of
  fiscal discipline.
• Mesoamerica faces numerous political, economic
  and social challenges. Ten of these challenges
  must be dealt with, acting with a sense of high
  priority in order for the region to take
  advantage of the opportunities arising form free
  trade and integration.
• CABEI, with 45 years of experience, is prepared
  to play a strategic role in supporting its member
  countries to meet these challenges. To do so,
  CABEI is planning to channel US2.0 billion in
  the next two years to support poverty-reduction,
  regional integration and external
  competitiveness.
• CABEI is prepared to work closely with the OECD
  to support initiatives that will foster
  development and integration in the region, and
  offers its technological platform, regional
  leadership position and network of relations with
  key stakeholders in order to communicate and
  disseminate in the region the Mesoamerican
  Territorial Review.

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MESOAMERICACURRENT ECONOMIC TRENDS AND CABEIs
STRATEGY FOR THE PROMOTION OF REGIONAL ECONOMIC
DEVELOPMENT AND INTEGRATION
Central American Bank for Economic Integration
www.bcie.org

• Marvin Taylor Dormond, PhD
• Chief Economist, CABEI
• mtaylor_at_bcie.org

Presentation before the OECD, Paris, France.
December 1st, 2005