Could European Markets Be the Answer to Costa Rica’s Trade Deficit?

Studies show that the U.S. economic crisis has already begun to take effect in Central America: countries that have already implemented the Central American Free Trade Agreement (CAFTA) report that exports to the United States are less lucrative than expected. Costa Rica has not yet finished approving CAFTA, and therefore has yet to feel as strong of an effect, but experts believe that the free trade agreement will be neither the miracle nor the failure that both extremes believe it to be.

Economist Pablo Rodas Martini stated that low Central American export numbers may relate more to slow export growth than a disproportionate U.S. import rate. “For what is noticeable, the result does not correspond to a change in U.S. market tendencies, but to internal problems in Central America that evidence the difficulty for exports to increase at faster rates,” Rodas Martini explained. To remedy the problem, the economist recommends that the four involved countries — El Salvador, Honduras, Nicaragua and Guatemala — boost their industrial and agricultural industries.

Due to the economic crisis in the United States, Central America must diversify its exports, focusing heavily on need-based products rather than material and consumerist exports. “The region must not sit with its arms crossed, [but neither] should we despair,” Rodas Martini emphasized. In short, Central America must not put all its eggs in one country’s basket – it’s time to diversify and strengthen the region’s exports, to both North American and farther abroad.

The European Union, a current trade partner, may be part of Central America’s journey into the future. “The world that’s on the horizon will not be the same that we leave behind, I won’t dare to predict the economic future of the region, but I know that it will not be the same,” Enrique Iglesias, Ibero-American secretary general, stated. His words reflect not just the U.S. financial crisis, but the problems that the world market has seen in recent weeks; though it may not have hit Central America hard quite yet, changes are looming just around the corner.

“It’s during times of crisis that it becomes more necessary to rethink integration, a subject that is, from my point of view, demonstrative of an integrative attitude since the 80s, and now is more well-known through negotiation with the European block. I don’t think that it is a stale subject… since in times of crisis Central America, in spite of their differences, has come to the agreement to move forward,” explained Iglesias. The leader agreed that Central America had not been wrong to look towards the United States for increased trade, but emphasized that the region must also look toward a mutually-beneficial free trade agreement with Europe.

Central America offers much to the world in the way of exports, a fact that will help the region through the impending world economic crisis. Since recent statistics show that CAFTA will not be enough to buoy Central America through these times, the region must again pull together to create strong trade agreements with other countries and political entities, perhaps beginning with the European Union. Finding new trade partners has been a goal of the Arias administration as seen in their alliance with China and trade talks with the EU. Hopefully the current economic crisis will serve as a catalyst to bring discussions to their final stages and give the Costa Rica finance situation a needed boost.

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Filed under: Costa Rica News on October 16th, 2008