A new vision for Mesoamerica

Aug 2001 - Peter Bate - IDB America

From Mexico to Panama, eight countries embark on a road to integration

Believe it or not, the average speed of trucks that haul freight from one country to another over Central America’s main highways is only 10 kilometers per hour.

The problem is not just bad road maintenance, the absence of paved shoulders, or traffic congestion. In fact, a recent analysis of Central America’s road system indicates that these roads are still several years away from reaching their saturation point.

A bigger issue–the role of national borders–becomes painfully apparent to anyone who travels along the 130-kilometer stretch of highway that begins in La Unión, El Salvador, passes through Honduras, and ends in Chinandega, Nicaragua. Trucks often take 24 hours to make this short trip, and up to 60 percent of that time is spent handling paperwork and other delays at the two national border crossings.

Because of such obstacles, the volume of trade within the Central American countries is far lower than with countries outside the region. And freight charges in Central America are generally twice as high as they are in Europe.

These are the sorts of problems that the Puebla-Panama Plan (PPP) was created to address. The governments of the Central American countries and Mexico launched this initiative to spur the integration and sustainable development of the Mesoamerican region, which encompasses the seven countries of the Central American isthmus plus nine states in southern and southeastern Mexico. Bigger market for industry.

The plan is designed to provide this region with the infrastructure, means, and social programs it needs to overcome its historical backwardness. Rich in terms of biodiversity and culture, Mesoamerica stretches over more than one million square kilometers and has some 65 million inhabitants. Despite its wealth of natural resources and proximity to major markets, its extreme poverty index is three times higher than the Latin American average. The region is also highly exposed to natural disasters such as hurricanes, floods, and earthquakes.

When the PPP was unveiled in Mexico on March 12, President Vicente Fox explained how closer links with Mexico’s sister nations in Central America would boost development in the southern part of his country.

"We believe that, based on pre-existing bonds and similarities, we can create a vast chain of development," Fox said. "Southern and southeastern Mexico have a great wealth of natural resources, an exceptional endowment of human talent and, regrettably, unacceptable levels of poverty and marginalization against which we are hastening to launch a direct offensive…The sum total of the determination and talents of Mexico and the Central American nations will enable us to forge a zone of exchange and cooperation on the same level as others that have been created around the world."

A joint effort

The Puebla-Panama Plan arose out of the shared goals of two separate initiatives. On the one hand, the new Mexican administration has resolved to reduce the regional differences between the country’s more prosperous northern and central states and the states of the south/southeast. On the other, the Central American countries had prepared their own portfolio of regional integration projects which they presented this year to the international community at a consultative group meeting in Madrid.

In order to define the actual content of the PPP, the countries have asked the Economic Commission for Latin America and the Caribbean (ECLAC), the Central American Bank for Economic Integration (CABEI) and the IDB to analyze the links between the Mexican and Central American initiatives.

When they met in San Salvador on June 15 to reaffirm their support for the integration plan, the heads of state of the Mesoamerican region determined that there were eight major areas, known as "Mesoamerican initiatives," in which their governments would be able to work together productively.

These initiatives deal with sustainable development, human development, natural disaster prevention and mitigation, the promotion of ecotourism, roadway integration, electricity grid interconnection, and the telecommunications development.

The Mesoamerican leaders agreed that projects included in the PPP project portfolio would have to be regional in scope and would have to preserve the environment and respect the local communities involved.

They also agreed upon an organizational structure for implementing the plan. Political leadership for the process was entrusted to presidential delegates, generally persons of cabinet rank. At the same time, the Mesoamerican leaders set up a PPP financing committee made up of the finance ministers of the region and IDB President Enrique V. Iglesias.

The leaders emphasized that PPP projects should be extremely practical. At a recent press conference, Salvadoran President Francisco Flores summed it up as follows: "Mesoamerica, with a population of more than 60 million, has an enormous potential… and this potential can only be realized through concrete projects that will give it a unified electricity market, a highway corridor that will provide a route for the movement of people and goods, educational and development projects, and projects that will protect our environment and that will ultimately enable us all to pass on the benefits of this concept to their rightful recipients, the poorest people of this region."

Action plan

The Puebla-Panama Plan also offers the countries of the region a cooperation mechanism for addressing shared challenges and for channeling support from the international community (see link to press release on the right).

One example is the energy integration initiative, which is aimed at unifying the region’s electrical power markets and thus attracting more investment in power generation as a means to reduce the high cost of electricity. The cornerstone of this initiative is to be the Electrical Interconnection System for Central America Project (known by its Spanish acronym, SIEPAC), whose objective is to link up the electricity grids of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. The idea for this project can be traced back to studies conducted by ECLAC nearly 30 years ago. It was not until the past decade, however, that the countries reached the political agreements needed to launch SIEPAC, although the final negotiations may well take several years. Despite these difficulties, the project has secured backing from the government of Spain, which has offered $60 million in concessional funding for its implementation. It has also attracted one of the world’s largest electricity companies, Endesa S.A., which now holds a stake in the firm that owns the SIEPAC transmission lines. Other firms are keeping a close watch on the process and are refining the details of their own projects. More investment in power generation would not only lower the price of electricity in Central America; it would also increase the reliability of its energy systems, which is a factor that carries a great deal of weight with manufacturing industries.

Under the PPP proposal, the SIEPAC project would be supplemented by the interconnection of the power grids of the National Electricity Institute of Guatemala and of the Federal Electricity Commission of Mexico. Later on, Guatemala and Belize would also be connected.

Clearly defined rules

The Mesoamerican plan will promote cooperation among the countries and facilitate trade by setting down clear-cut rules. Energy exchanges, procedures at border crossings and the smooth flow of vehicles could all be hampered or prevented altogether by the absence of such agreements. Their conclusion will call for a mutual effort on the countries’ part, with the financial and technical support of the international community, to certify each other’s procedures and standardize their regulations. Faster transport for fresher fruit.

The PPP also encourages cooperation in other fields in which the Mesoamerican countries have similar advantages and vulnerabilities. Many of its initial proposals arose from studies backed by the IDB, ECLAC, and CABEI to identify economic and social projects to further integration among the countries of Central America and among the states in southern and southeastern Mexico.

Many of the projects dealing with sustainable development and human development focus on traditionally marginalized groups, such as campesinos, indigenous peoples, and Afro-Caribbean communities. The proposed initiatives will foster such groups’ participation in projects on environmental management and the sustainable use of natural resources, as well as in the promotion of their own local government institutions.

Projects are also envisioned that will focus on strengthening the Mesoamerican countries’ legal and regulatory frameworks for environmental management, upgrading statistical databases on migration, and creating a regional network of labor-skills trainers, an especially important field in a region where the unemployment rate often reaches 50 percent of the working-age population.

An additional project would focus on controlling contagious diseases such as HIV/AIDS, which are spreading at an explosive rate in some of the region’s poorest areas.

Catastrophe insurance

A project in the area of natural disaster prevention and mitigation will upgrade the quality of the meteorological and hydrological information in this region. This initiative is particularly important for a region where hurricanes, flooding, earthquakes, tidal waves, volcanic eruptions, landslides, forest fires, and drought claim thousands of victims and cause hundreds of millions of dollars in economic damage each year.

In order to reduce the devastating financial effects that natural disasters have on the participating countries, the PPP will promote the development of a catastrophe insurance market to provide coverage for public infrastructure such as highways, bridges, schools, and hospitals. It is expected that this insurance could reduce the need to raise funds for reconstruction, and the premiums may act as an incentive for builders to construct public works more resistant to natural disasters.

Support will also be provided to organize public campaigns to promote measures for reducing the region’s vulnerability to natural hazards. This is particularly important because such disasters usually wreak the greatest havoc among the poor, and their destructive power is often heightened by man’s actions. For example, people build in high-risk areas and remove forest cover, encouraging disasters from flooding and landslides.

Potential for progress

The PPP initiatives seek to translate the integration aspirations of the Mesoamerican region–where good intentions have often been confined to words rather than deeds–into concrete action.

This objective is combined with a healthy dose of fiscal realism. The participating countries are aware of their budgetary constraints and want to conserve scarce resources for high-impact poverty-reduction programs in such social sectors as education and health. Consequently, infrastructure will be financed with private funds whenever possible.

An example is the telecommunications development initiative, which is aimed at upgrading the region’s informatics infrastructure by installing a fiber optics network in the region. This would have to be a private-sector undertaking in which the participating states would act as regulators only.

In the case of the roadway integration initiative, an effort will be made to hold down costs by starting out with improvements to the existing infrastructure in order to facilitate the movement of merchandise and people. This proposal focuses on connecting and rehabilitating the roads making up the Puebla-Panama corridor, most of which follow the route of the Pan-American Highway. In addition, the Atlantic corridor and some of the routes connecting the two coasts will be refurbished.

The PPP also seeks to open up economic opportunities in areas where few now exist. It is hoped that the tourism initiative will encourage investment in projects in which local and especially indigenous and Afro-Caribbean communities are actively involved. This type of tourism, which has a low environmental impact, would help to generate foreign exchange, jobs, and business for micro- and small-scale entrepreneurs in locations that are not included in the usual tourist itineraries. One possible option might be based on what is known as the "Botswana model," where an international hotel company joins with a local community to develop a tourism project that respects the host community’s ethnic and cultural traditions.

One of the key aspects of the Mesoamerican plan will be its information, consultation, and grassroots participation program. This initiative is designed to build upon the local and national dialogues held in a number of the countries in the region to agree upon development projects. Both the participating countries and the international community feel that this initiative will be essential in ensuring that the PPP lasts over time and can continue to incorporate new initiatives for the common good.

In a recent meeting in Washington with the finance ministers of the Mesoamerican countries and the PPP committee members, the President of the IDB underscored the plan’s significance under current world conditions. "We are talking about a vast political initiative to turn Mesoamerica into an area of economic and social cooperation where major presidential agreements will be translated into concrete projects to help the region meet the challenge of globalization," said Iglesias.