Central America Pushes for One Currency

With the global financial slowdown dragging on Central American economies, eight heads of state came together in Honduras Friday to discuss how to head off the effects of the credit crisis. Presidents and vice presidents of the seven Central American countries plus the Dominican Republic for the annual Central American Integration System (SICA) leaders summit in San Pedro Sula, Honduras. The leaders hammered out a 41-point economic agreement of “urgent measures,”including proposals to step up integration, food security, and investment. The countries also pitched the idea of creating a common currency. El Salvador and Panama use the U.S. dollar while the remaining countries currently have their own currencies.

The global credit crisis has delivered a wallop to SICA nations, which were already hit hard by a food crisis that struck earlier in 2008 and a slowdown in remittance flows. Analysts predict a deceleration in Central American growth next year, from 4.3 percent in 2008 to 2.8 percent in 2009. Moreover, many SICA countries command the highest poverty rates in the Americas. For example, although a new report published by the Economic Commission for Latin America and the Caribbean found that Honduras saw one of the regions sharpest drops in poverty (by 3.7 percent) in 2007, it continued to have the highest poverty rate of any of the countries surveyed, running at nearly 70 percent.

"The architecture of the economy needs changes; we have to achieve financial, trade, and food independence within the region," said the Honduran President Manuel Zelaya. With these goals in mind, leaders of Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, and the Dominican Republic agreed to create a credit fund and stimulus packages for various sectors to counter the possibility of slowing foreign investment and slowing remittance flows.

The details of how such credit fund would be created have yet to be worked out. So do plans for a common currency and passport as well as a plan to "standardize laws" in the immigration, education, and security sectors "that will give greater cohesion to Central American integration and that ensure citizens the benefits of that integration." As the Latin Americanist blog points out, should SICA pursue such plans, the region will undoubtedly draw comparisons to the European Union. The SICA proposal comes at a time when the Central American countries continue to negotiate with the EU for an association agreement designed to deepen political dialogue, cooperation, and establish a free trade zone between the two regions. Negotiations are expected to conclude next year.

The SICA meeting coincided with a handover of the organization’s six-month presidency from Honduras’ Zelaya to Nicaraguan leader Daniel Ortega. On the day before Friday’s summit, Honduran Central Bank President Edwin Araque reported that his country does not plan to follow IMF recommendations to devaluate the lempira. In August, Honduras joined the Bolivarian Alternative for the Americas (ALBA) whose other members consist of Bolivia, Cuba, Dominica, Honduras, Venezuela, and new SICA host country Nicaragua.

Ortega used the moment when taking over SICA’s reins to decry the capitalist model and call for Latin American unity when confronting the global financial crisis. Yet his government could face its own set of crises, given a decision by U.S. and European donors to cut off foreign aid following accusations that the Sandinistas engaged in electoral fraud during recent municipal elections.

Read a recent Houston Chronicle op-ed by Dominican President Leonel Fernández calls for investing a portion of oil profits in countries that have been hit hardest by rising oil and food prices. The article was originally published in the Fall 2008 issue of Americas Quarterly.