How Central America Could Win from Trump's 'America First' Policies

How Central America Could Win from Trump's 'America First' Policies

The suspension of U.S. participation in TPP is potentially good news for El Salvador, Guatemala and Honduras.

The same approach should be considered for economic-development activities that will improve conditions and a framework for competitiveness. Taking another page from what has worked in Colombia, the three nations of the Northern Triangle should give priority attention to improving their ease of doing business rankings with the World Bank and also their respective World Economic Forum competitiveness rankings. Currently, Guatemala ranks eighty-eight out of 190 nations in the ease of doing business; El Salvador ranks ninety-five; Honduras, 105. On competitiveness, the scenario is even worse: seventy-eight out of 138 for Guatemala, 88 for Honduras, 105 for El Salvador. They must simplify tax codes while increasing tax-collection efficiencies, discouraging fraud and capital flight while increasing the tax base. And there must also be a more genuine commitment among the three nations to linking their economies more closely together, to increase economies of scale and to reduce production costs. That effort should include trade facilitation, customs procedures, infrastructure development and best standards regulatory, permitting and commercial frameworks. The simple reality is that until the three nations begin to operate regionally rather than nationally, they will continue to lack attractiveness for global investors. An intensive focus on improving both the hardware (infrastructure) and software (smart technologies, anti-corruption procedures, staffing training and efficiencies) of border facilities would be a worthwhile place to begin, and an appropriate priority for U.S. assistance.

Granted, each nation is different and faces its own unique reality. Scenarios such as strategies to control gang violence, for instance, are more relevant in El Salvador or Honduras than Guatemala. And history also intervenes, making meaningful, binding cooperation between and among the countries politically inconvenient at best. But the hard reality is that the three nations in the Northern Triangle are seeking new investments in a global environment. They do not exist in a vacuum. Their competition for the global-investment pool is not Belize or Nicaragua but the Pacific Alliance nations, the Asia-Pacific Economic Cooperation nations and India. Anything they can do to cooperate more fully together—leaving history and politics aside—in order to make their business climates more attractive and to tap into regional supply chains with both North and South America will be effort well spent. Currently, it is said that it is easier to export products to the United States from nations in Central America than it is to export products to each other. In a world of supply chains and global competition, this cannot continue if the region hopes to attract the investment shock leading to meaningful economic development.

Of course, job creation also depends on human capital, which requires a new commitment by governments to workforce development and training. The cost of labor is relatively attractive in the Northern Triangle, but productivity lags. Regional production costs are already high, due to enhanced security requirements, high energy prices, lack of transparency and predictability, judicial issues and contract enforceability, and other aggravations. Potential investors report that these issues are significantly compounded by difficulties in finding adequately trained workers with appropriate abilities, including language and math skills. The mismatch in labor skills with current available jobs and potential jobs is profound and will require sustained attention over time. Education systems must be upgraded by training more qualified teachers, whose knowledge and abilities are the critical link between students and learning. Teachers matter greatly, and capacity and teaching skills must be improved. Meanwhile, migrants both returning and being returned to the region, many with English language abilities, are one pool of workers that could be considered for additional training as they seek to transition back to local communities.

The bottom line is this: without both job creation in the formal economy and human-capital development, prospects for Northern Triangle nations to address effectively the twin security and migration crises that confront them will be next to impossible. And without adequate attention to the factors described above, the domestic and direct foreign investment that creates jobs and builds economies, providing alternatives for men and women alike to build better lives in their own communities, will materialize only unevenly. U.S. assistance can and should therefore be used to prime the pump. But the primary commitments and achievements—including enhanced security, reduced corruption and increasing job creation in the formal economy—must emanate from the region itself. Until they do, U.S. frustration with a lack of meaningful regional progress will continue well beyond the Miami meetings and into the foreseeable future.

Eric Farnsworth heads the Washington office of the Americas Society/Council of the Americas. He served at the State Department, USTR and the White House. He was a senior adviser in the office of the special envoy for the Americas from 1995 to 1998.

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