Central America: Neoliberalism, Democracy, and Transnationalism

The 2014 mass migration of undocumented minors from Central America renewed questions about the success of that region’s development. As stories of adolescents, including increasing numbers of girls and those under twelve years of age, filled the airwaves, scholars and policy makers began to search for the causes of this humanitarian crisis. Experts generally agree that elevated levels of criminal violence, lack of economic opportunity, and family reunification are driving forces, but to understand the roots and transnational character of the crisis requires a firm grasp of the socioeconomic and political context of the region in the post–Cold War era. Democratization was accompanied by postwar peacebuilding and the implementation of neoliberal reforms in El Salvador, Guatemala, and Nicaragua. Costa Rica and Honduras, though not torn apart by war, also underwent significant economic and political changes. And while outside observers generally have seen these reforms as successful (or at least partly successful), the migration crisis reveals the very real deficiencies of these transitions.

Central America, Panama, and the Dominican Republic: Challenges Following the 2008–2009 Global Crisis, published by the International Monetary Fund (IMF) and written by IMF economists, provides an analysis of the 2008–2009 global crisis and the policy challenges that lie ahead to ensure medium and long-term growth and promote productivity. Central America has historically fared poorly during global economic downturns, but the impact of the most recent one was shorter and less severe than some expected. In fact, most of the region’s economies were on the rebound by 2010.

In the first part of the book, which focuses on economic performance prior to and during the crisis, authors study the economic impact of the crisis on the region and gauge the success of IMF policies. Andrew Swiston details the extent of the crisis, finding that the region’s integration in the global economy (now more prone to external shocks) had a greater impact on the regional economy than predicted. Alejandro López Mejía finds that the IMF played an important role in mitigating the effects of the crisis through the creation of flexible credit lines, enhanced stand-by agreements, and other products that helped to strengthen reserves. Although growth, imports, and foreign investment contracted, the fiscal sector performed better than expected. Reforms from the past two decades, which required that governments reduce public debt, provided the region’s governments with more flexibility in responding to the economic challenges, though performance in this area varied widely across countries. While growth rebounded fairly quickly in Costa Rica and Nicaragua, the crisis was more acute in El Salvador, where recovery lagged. Notably, the crisis largely spared the Dominican Republic and Panama.

The second part of the book addresses the policy challenges facing the region. In chapter 3, Swiston and Luis-Diego Barrot use an econometric regression analysis that suggests structural reforms could increase growth by up to 2 percent annually. They also find, however, that low levels of human capital are barriers to growth. Chapters by Geoffrey Bannister and Barrot and by Mario Garza, Pablo Mora, and Dominique Simard investigate public debt in the region. Policy prescriptions to address this problem vary, but the need to generate increased revenue is apparent. Chapters 6–9 focus primarily on monetary policy and financial regulations. Of interest to some will be Swiston’s assessment of dollarization in El Salvador, which he concludes has yielded...