Central America in 20 Years: A Somalia-Taiwan Duality?

By Xabier Gorostiaga, sj, rector of Managua's Central American University and president of the Regional Coordinator of Economic and Social Research (CRIES). A summary of his presentation to the annual seminar of the Jesuits' Central American Research and Social Action Center (CIASCA), held in Guatemala in January 1996.

Xabier Gorostiaga

Central America has been wrenched by tremendous change in the last two decades. By holding out the hope for social change, the region was more than just another cold war battlefield. It became a virtual test case within that ideological confrontation, and as such consistently made front?page international news. Today, however, it suffers from social anonymity, having fallen off the globalized world's political and economic agenda. Its small countries are uncertain and insecure, since the causes of the greatest crisis they have ever faced are still with them.

This unresolved crisis obliges us to take a hard look at what has happened, is still happening and can happen in the next 20 years in Central America. We start from the conviction that real development alternatives do exist, ones qualitatively better than the dominant trends being forced on us today, which are causing yet another crisis, albeit of a different nature.

Globalized With Our Crisis Intact

Central America has always been a natural bridge between North and South America, between the planet's greatest political and military power and Latin America. It is also a bridge between the Pacific and the Atlantic, between the new Europe and the Asian bloc. This openness is intensely and directly involving the region in all the changes wrought by globalization, without it having yet resolved its own crisis, and thus without it having developed as a sufficiently stable entity.

The pacification of Central America was the regional expression of the end of the cold war, which brought the shift from a bipolar world to a multipolar one. The bogging down of the "low intensity conflict" in the region, with no prospect of definitive victory for any side, made political negotiation possible as a civilized method to resolve the impasse. But that solution did not touch the root causes of the political and military conflict. Central America thus entered into a dynamic of political changes but did not substantially change either its economy (productive apparatus, technology, institutions) or the distribution of wealth and income. Democracy came to the region??together with stabilization and adjustment plans, prerequisites to foreign financing??but neither social justice nor political participation nor even development came with it.

From the US perspective, the region as a whole went from being a strategic foreign policy objective to being an uncomfortable memory best packed away as elegantly as possible. The abrupt US policy switch toward "constructive neutrality" in Central America has created an opportunity for Europe and Asia to play a new role in the region.

The Desolate Scenario:
A Two?Speed Society?

What could happen in the next 20 years? If the current model is extended and foreign cooperation styles do not change, Central America could be heading for "low intensity chaos," with the consolidation of a two?speed society that generates two tiers of citizens.

The broad sectors and zones that are falling ever deeper into unemployment, impoverishment and social disintegration would comprise one tier, with women, children and youth the greatest victims. The health and education levels of vast numbers of people would be too low to allow them to be actors in their own development. This impoverishment is not likely to lead to an organized armed revolt. More probable would be a Somalia?like process: increasing disintegration of the social fabric in indigenous areas and peasant zones, and increased levels of urban violence, all reminiscent of the war years in the 1970s and 80s.

The other tier would be made up of a small elite??basically the oligarchic family networks spread throughout the region, less than 2% of the population??and a middle class sector providing services to this elite and to the transnationalized economy's more dynamic sector. All told, 20% of the population can reach a significant level of international insertion, "taiwanized" in enclaves of modern industry, trade, finance and nontraditional agricultural exports. This sector will join whatever variant of the Free Trade Agreement that manages to consolidate. "Formal" Central American integration, based on these modernizing sectors and led by the scions of oligarchic families, will seek to "democratically legitimize" this two?speed model, gaining hegemony in the legal, political and military apparatuses and controlling the executive branch.

The urban and rural middle class sectors remaining outside of these enclaves will face the dilemma of either struggling to find a slot in this modernizing society to escape the growing impoverishment of the Africanized one or of emigrating en masse.

Direct foreign cooperation will progressively diminish, focusing on compensatory social projects that cushion the inequities and maintain some level of governability amid the growing social tensions. In so doing, cooperation "for development" will continue subsidizing a system that reproduces underdevelopment.

The international lending institutions will continue imposing conditions that financially straight?jacket the most indebted countries (Nicaragua, Honduras) when restructuring their foreign debt. These conditions eliminate any possibility of endogenous, equitable, sustainable and democratic development. Accepting this international financial leadership will be the only realistic alternative. Ever more authoritarian styles of government will dominate the political scene, encouraging the return of traditional strongmen and of the modernizing and business oligarchy, as narco?politics and corruption tears the democratic game to pieces.

Foreign cooperation will find ever fewer subjects of cooperation, in either the donor or receiver countries. Donor fatigue and pessimism will intensify the current foreign cooperation crisis. If the growing ungovernability and social decomposition trigger a social upheaval??more in the style of Chiapas than of the 1980s' revolutions??that puts Central America back in the international spotlight, international assistance might be reactivated out of fear that the system's "stability" could be affected. But the absence of shared values and ethical principles, and even of a rationality able to scientifically forecast the social process and thus lower future costs, will cause donor countries and institutions to further despair of any possibility of development.

These trends will make Central America even more dependent by the year 2015, and cause it to suffer greater exclusion and social disintegration under increasingly superficial forms of democracy and modernization. Meanwhile, the United States will continue selling its image as an "earthly paradise" through the media it hegemonizes, an image furthered by the dollars Central American emigrants to the States send back home. These remittances are becoming key both to survival and to foreign consumerism patterns in each of our countries.

The growing drug trade, fed by the nearby US market which moves billions of dollars, will partly replace the "dessert economies" (bananas, sugar, coffee and cocoa) of the past. It will also substitute for migration to a certain degree, as the protectionist US market puts up more and more barriers against the region's exports: its labor force as well as its textiles, leather, food products and the like.

The social tensions and lack of personal safety will create a demand for strong governments and more spending on public order, albeit less military than in the past. Together with a shift towards new forms of private security, this will require a proportion of the Gross Domestic Product similar to that used in the worst moments of the military regimes. Security spending could equal that of education and health spending combined.

The levels of insecurity in rural and urban areas will discourage the development of an active economic fabric, even between the rural and urban middle classes. Given the shrunken domestic market and high levels of tax evasion, the skimpy public budgets will not be able to finance the security systems and social services required to mitigate the growing social tensions.

Will the Triple Alliance Return?

Today's dominant trends are leading toward this dismal panorama, in which the Central American states are being weakened, diluted, and limited to offering the administrative and diplomatic services that the "Taiwanized" enclaves need. Their armies, shrunk by the impact of pacification and structural adjustment and made economically autonomous by the conversion of high?level officers into businessmen, will form part of the modernizing enclave, but will lack the legal and economic means necessary to repress and control the "Somalia?ized" parts of the country. The national security doctrine, induced by the cold war and US policy, will have shifted to a doctrine of defending self?interests.

The alliance between family elites and military entrepreneurs could reproduce the triple alliance that has defined Central America throughout its history: oligarchy?military?great neighbor to the north. This alliance was broken by the popular struggle of recent decades, by the end of the cold war and by the new democratic culture, but it could return in the framework of a restricted and protected democracy.

The insatiable drug market that passes through Central America to the United States, and increasingly to Europe and the Pacific as well, has begun to corrode Central America's political system and infest its economies with an excess of uncontrolled capital that seeks legal incorporation into the "new" Central America through speculation and money laundering. To make matters worse, the region is also moving from being a simple trampoline to becoming a producer, especially of marijuana and heroin.

Because the productive reinsertion programs for the demobilized forces from the armies and paramilitary groups have been inadequate, many veterans have gone from being cannon fodder to being narcotics fodder. Drug?linked economic and political corruption will become an ever greater threat to Central America as it joins the transnational trend toward general corruption among politicians and businesspeople. This "criminal capital," dangerous anywhere in the world, is even more destabilizing in severely polarized societies with weak institutions, as in Central America.

A More Hopeful Alternative:
Farmer Economy and Free Zones?

This desolate panorama facing Central America by 2015 is not a fatal prognosis. But a necessary precondition to constructing an alternative is the conviction that it is both needed and possible and that the subjects and resources exist to implement it.

Central America's alternative for 2015 would be based on a social contract able to create an agroindustrial base that guarantees both food self?sufficiency and basic grains exports to the 35 countries of the recently formed Association of Caribbean States, which are historically deficient in these products. A "farmer economy" of small and medium?sized producers could meet this challenge. It also has the potential to modernize by improving its production and export capacities in coffee, bananas, sesame, sugar, cattle and other traditional products for which Central America has a regional differential rent and a geographical advantage. Agroindustrializing these and new nontraditional exports would permit the interlinking of rural and urban zones in the region, an ideal never reached with the Central American Common Market. The production of nontraditional goods??fruits, flowers, vegetables, biodiversity??with an added industrial value could avert the dualization of the economy??modern zones side by side with backward ones??and create jobs and effective demand that could generate a real and varied domestic market.

Free trade zones for both industrial and agro?food exports, linked to foreign investment and transnational companies, would add a new focal point of regional accumulation. But each country must avoid intraregional competition in the free trade field. Ideally they should complement each other, thereby constituting a new, regionally integrated industrial fabric that can compete with other free trade zones throughout the world.

In this project, Central American integration is a determining factor to increase the systematic competitiveness of each nation and of the region, increase international negotiating capacities and create a population and resource balance that would correct the differences that currently make such integration difficult. Farmer economies, agroindustrial development and integrated free trade zones form the productive base of a modernized Central American economy selectively inserted into the global economy.

In addition to industrial and agricultural free trade zones, Central America could also become a platform for transnational services. Financial, trade and insurance centers could be created, making use of its geographic position as a North?South and Pacific?Atlantic bridge and the advantages offered by a new sea?level or land bridge complementing the Panama Canal.

A transnational service platform requires transport infrastructure??highways and railroads linking Mexico with Colombia and the Pacific with the Atlantic. The construction of international ports on the Pacific and Atlantic coasts, complemented by smaller ones for coastal trade, would add a new component to the region's traditional wealth by opening up its Caribbean coast to economic development. So far, development has been fundamentally concentrated on the Pacific side.

The creation of energy self?sufficiency is also key to this project, complementing the region's current thermoelectric and hydroelectric sources with its enormous potential for solar and geothermic energy. Central America has comparative advantages over the rest of the world in both of these energy sources.

Central America's geo?ecological recovery is also fundamental to improving its land and water, and especially to preserving the splendid biodiversity potential concentrated in this geological frontier between North and South and between the Pacific and Atlantic. The density of Central American biodiversity can be an important source of the region's future development, the basis of biogenetic, pharmaceutical and ecotourism industries.

The Association of Caribbean States??which has no economic base on which to carry out its Great Caribbean Integration Project??offers the region a complementary potential that needs to be worked on culturally and economically. In this regard, a close link between Central America and the Group of Three (Mexico, Colombia and Venezuela) becomes quite strategic. The crisis of Mexico and of the North American Free Trade Agreement could lead to a more mature regional proposal for Central America to join NAFTA as a single subregional bloc, giving it greater negotiating and competitive clout. At the same time, this open regionalism could dilute dependence on the north through new regional links with the European Union and the Pacific Rim bloc.

Once part of a Greater Caribbean Association, Central America could by 2015 become a Latin American subregion equivalent to those made up of the Andes Pact countries and MERCOSUR. These three Latin American subregions could negotiate their incorporation into NAFTA as blocs, maintaining the principle of diversifying their dependence by not accepting as inevitable an exclusive and dependent relationship with the North American market, and instead reaching accords with the European and Pacific megamarkets as well.

A New Social Contract

To construct this Central America for 2015, development must be seen as movement, not an arrival point. We are not talking about being developed, but about developing, about a Central America in the process of developing a more harmonic society, building a solid social contract based on the diverse social elements that agree to a future for the region that has the potential to be democratic and prosperous.

Central America is a potentially rich region. It is not Somalia or Ethiopia or the Sub?Sahara. It neither is nor can be Taiwan, although, like Taiwan, it had the highest growth rates in the world for 20 years (1958?1978), with an average annual growth of 6%. The reduced US hypersensitivity about its "backyard" with the end of the cold war offers opportunities for a Central America with its own, qualitatively different space.

This Central America of the year 2015 is not a dream; it is a potential and a challenge for the region's new generation. But with no alternative vision, with no project capable of generating the institutions and human capital that could make this vision a reality, today's negative trends will continue to dominate, preventing Central America from consolidating peace, democracy or development.

The vision of Central America's dominant trends is not born of pessimism nor is the vision of a potential alternative born of optimism. It is objective and realistic to be convinced that the forces do exist that could influence the region to move in another direction, but they are still too dispersed and weak to expect any success from them now. Stable societies on a path of endogenous development generate the institutions and mechanisms needed to strengthen a social contract that allows economic growth to be accompanied by the surmounting of economic inequalities, thus substantially reducing poverty, unemployment and discrimination against women and people of color, favoring individual liberties, consolidating democracy and creating a sufficiently integrated and harmonic society. Central American societies, in contrast, are doing none of this??except in a very fragmented way that frustrates those working for an alternative to the system's current disintegration.

Changing the Course of Foreign aid

The trauma of colonization in Central America, intensified by repeated US interventions since the middle of the last century, consolidated the development of an exclusive power model based on paternalism and repression of those in the opposition. That historic model, centered on huge landed estates and a political structure dominated by oligarchic family networks that depended on an alliance with the United States, has now evolved into a model managed internationally, now in alliance with the modernizing sector of Central America's oligarchy. The massive foreign aid received in the last two decades has created a modern but even stricter form of dependence. The foreign debt, a particularly heavy burden in Nicaragua and Honduras, is largely foreign aid poorly used.

The effects of all this, which include serious discrimination, socioeconomic polarization and foreign aid that intentionally or involuntarily reinforces the system??or, at best, mitigates it to allow a measure of functional governability??cannot be overcome without changing the course of foreign aid, without international collaboration with a new set of social and economic forces in the region. Olof Palme's dream of a Central America on the road to development, fed by generous foreign aid that would create the basis for sustainability, is about to fail because aid is not directly linked to the subjects of development and democracy, the subjects who would use that aid most efficiently.

A great deal of foreign aid is wasted trying vainly to create the conditions under which it could withdraw yet only creating more dependence and debt. Moving beyond this requires aid that consolidates the subjects of the new society we desire. This could mean less foreign aid in the future, but only if it goes to the root of the problem. All aid that does not contribute to democratization and endogenous development is potentially perverse.

The subject of foreign aid must be radically reevaluated, particularly now that the state's role, activity and norm?setting capacity in the South's market economies is being reduced. In the Latin America of the past, the state's active and dominant role in the economy??notwithstanding typical deformations of gigantism, militarism and corruption??made it the main recipient of foreign aid. Today, a weak, transnationalized state, subjected to outside management, with no programming, forecasting or even norm?setting abilities, cannot be the main foreign aid recipient.

In Central America, the privatization of much of the state and the takeover of its functions by a "parallel state" made up of various private institutions and think tanks, has allowed the reconstitution and return of the modernizing oligarchy. This "new wave" of the historic families controls the commanding heights of private enterprise, political parties and armies, and is linked to the consulting firms of transnational capital and the multilateral lending agencies.

The hegemony of the modernizing oligarchy is one of the structural problems that is causing and bolstering the two?speed, Somalia?Taiwan societies we see in Central America today, which are polarizing and paralyzing sustainable development in the region. Foreign aid for state reform??both important and necessary to compensate for the rigid structural adjustment policies??has only technified a bureaucratic and oligarchic state. It has not fostered the emergence of an efficient and normative democratic one, a negotiating agent of equitable and sustainable development based on the ample consensus of civil society.

Participation: A Strategic Key

Equitable economic development and a new social contract are two pillars of the same arch; one cannot function without the other. Participation will increase the economic opportunities of the agents of change and strengthen them politically. It is the human capital of these agents that will allow them to accumulate the social capital necessary to be full participants in the new social contract. The broadening of the domestic market??which would result from the economic takeoff of small and medium rural producers??will become a multiplying factor, giving more opportunities to the industrial, construction, trade and urban financial service sectors. Today, the lack of any integration and any synchronization of the rhythms of Central America's diverse economic sectors means that income increases translate into a greater concentration of wealth and more macroeconomic inequalities, starting with a growing demand for imports that the limited domestic market currently does not satisfy. Structural adjustment plans founder in their attempts to resolve this contradiction, because the main one is found elsewhere.

The central contradiction is this: the poor do not become competitive in a highly polarized and exclusive society because they do not have enough income; their productivity is low because they are not trained sufficiently; and they are not motivated to invest in their own education because the fruits of that investment seem more remote than their life expectancy. Since they have no participatory role in public affairs, they know they are not the ones building the future. Yet the social capital the new actors need cannot be obtained without increasing production, income and participation levels so that the benefits of growth can be effectively used.

Meanwhile, the social stratum that concentrates wealth reproduces its lifestyle and capital extensively and with low productivity, because any productivity increase would simultaneously spur an increase in education, which would imply a redistribution of income that this stratum is so far unwilling to accept. To keep income distribution from producing a populism with economic imbalances, as in the past, it is critical to strengthen the axis of participation and education so that the inherited patrimonial political system, the pivot point of social destabilization, can be restructured. Central America's vicious circle??concentration of economic power and centralization of political power in a few families??should be confronted on both fronts simultaneously.

The accumulation of social capital is the point of arrival. But since education and culture constitute the essential elements of this accumulation, they are the point of departure. Without a business culture there is no private investment class. Without a work culture there is no way to increase productivity. Without professional and technical training there can be no efficient production or efficient administration of political processes.

Central America needs to stimulate and liberate the productive potential of the subjects of economic development. This will promote and strengthen the institutions of social participation and democratization and also lead to investment in a continuum of education, democratizing technical and higher education and creating a national educational system that integrates basic with higher education. The artificial confrontation between basic and higher education that international financial organizations are currently trying to promote is fallacious and dangerous.

New Economic Subjects: Another Key

According to the logic of structural adjustment as defended and applied by the international financial organizations, it is enough to eliminate the domestic regulations and barriers that impede access to fair international prices, so that more efficient producers can demonstrate their superiority. The national productive fabric will thus be transformed bit by bit.
Central American governments have supported this thesis, strengthening large agrarian enterprises with the "agricultural modernization" of the 1950s and 1960s; then subsidizing national oligopolies and transnational subsidiaries through "import substitution" in the 1960s and 1970s, later big business with the "trade opening" in the 1980s and finally bankers with the "financial liberalization" of the 1990s. Any attentive observer can note through innumerable family links that the same oligarchic estate has used the state apparatus to facilitate its own constant self?renovations, incorporating the urban middle classes to a greater or lesser degree depending on the country.

Not only the state, but also the international organizations and foreign cooperation have financed this ongoing metamorphosis of Central America's oligarchy.

The alliance between the oligarchy, the state and international capital, with Washington's political support, has kept the Central American nations in a continuous social decline. The region's elites have not been a motor force of regional development, nor have they capably and rationally administered the other social sectors.

Since the new economic subjects will bring more equitable and sustainable development, it is necessary to give priority to them as the axis of development and foreign cooperation policy, Doing so would provide the foundation for a broad social contract that would bring massive numbers of small and medium producers, especially women and youth, into production and political participation. Unemployment and social instability would drop; national and regional market demand would rise; and the basis would be laid for genuine democratic participation.

Small and medium farming peasants are a key sector in this process. Involving them as protagonists in the new social contract would allow them to pull 30?60% of the economically active population along with them, depending on the country. Better that this 60% of the population experience an improvement of just 1% than that 1% of the population??the other extreme of the distribution of wealth??grow economically by 60%. This is not an argument based on charity or even justice, but on hard evidence.

In Central America, doubts about this proposal to make small and medium producers into protagonists come from three sides:

* The false agrarian reforms implemented in the region's countries, which imposed cooperative or state production styles that incapacitated the peasant sector's economic potential.

* The strong urban bias of development policies based on import substitution and the cheapening of urban labor, which depressed the prices of rural products to lower the cost of the basic market basket, thus blocking the rural producers' accumulation and forcing many to migrate to the cities or even to other countries.

* The dominant cultural concept since colonial times that associates peasants with backwardness. In reality, many peasants dream of technological modernization as a way to pull the rural areas out of backwardness. They do not grasp that the only effective way to modernize is through gradual accumulation, based on experience and education, since human capital is the main generator of wealth, savings and reinvestment in the economic circuit.

The Peasantry:
Phase One of Sustainable Development

Due to their numbers, consumption patterns and productive capacity reserve, peasants are the greatest potential creators of employment and effective national demand. They have the greatest potential multiplier effect to create employment and demand in Central America. This happened in Europe in the 18th and 19th centuries and in the United States with the "pioneer farmers" of George Washington's time. Had peasants not been integrated into the modern production of those times, the industrial revolution, the creation of the nation and democracy would not have been possible in either Europe or the United States. In Central America we are still in the stage of forming the nation, democracy and its institutions, and the market itself. Our countries cannot be forced into the international market without having a base in our own national one. This is one of the great lessons of the "Asian tigers."

The proposal to create a "farmer economy" challenges state agrarian reform, developmentism, and anti?peasantism. The solution lies in more integrated and simultaneous programs that incorporate the economic potential of the Central American majorities and promote their potential for political participation to put a brake on the return of the oligarchies. Neither the Mexican revolution nor the different Central American revolutionary attempts since Jacobo Arbenz achieved this.

Taking the "farmer economy" route as the first phase of endogenous development in Central America implies cutting through this sector's restrictions and limitations. Once farmers reach a certain accumulation level, they often seek to imitate the hacienda model of extensive growth and cheap labor on a small scale. To avoid this, it is indispensable that the development model not be limited to agricultural production.

Non?agricultural activities must be set up so that farmers' economic surplus can be invested in industrially transforming and trading rural products. To preserve local control and facilitate the redistribution of benefits, these must be small and dispersed businesses that can adapt to the characteristics, nature and timing of the goods being transformed and/or traded. Within the farming sector, bringing women into productive and municipal life can guarantee greater social efficiency.

This process of incorporating agricultural surplus into the secondary and tertiary sector should be decentralized and participatory from the outset. This will permit local absorption of the labor of impoverished peasants, raising their wages and discouraging their emigration. A leadership role for small and medium farmers??historically left out of the dynamic of economic development and political participation??thereby offers not only development potential but also the possibility of halting the forced decapitalization of natural resources, ecological degradation, emigration, political instability in rural areas and increased urban crime and insecurity. Because impoverished peasants face the greatest risk of exclusion today, they are turning into underemployed urban delinquents or "anti?ecological refugees" who over?exploit the land and forests.

The ecological flank of the Central American crisis is critical. It is made concrete in deforestation, growing water shortages and "ecological emigration." The indigenous?peasant cultures that have passed down their heritage of environmental respect and exuberant regional biodiversity for generations are losing influence because of the depredation demanded for survival. This explosive vicious circle is fueled first by the growing desertification of the last 30 years, provoked by the lack of economic alternatives, and second by the resulting rural?urban migration, which leads to the mushrooming of metropolitan areas suffering water, employment and housing shortages. In an initial phase of Central American development, the "farmer strategy" could transform this vicious circle into a "virtuous" one.

The Crisis of Traditional Politics

Central America's current political situation faces three major issues:

* The inefficiency of the traditional political system, and of its traditional "leftist" opposition, in creating democratic stability compatible with economic development.

* The external pressures on state modernization, accompanied by reduction of its size and ability to act, all justified in the search for balanced budgets and the supposed economic efficiency of privatization.

* The atomization of civil society and its loss of interest in civic participation, part of a critical distrust of the traditional parties of both right and left and of the political system in general.

Notwithstanding all of this, the recently arrived political democracy, despite its limitations and superficiality, has permitted the emergence of new institutions, civil organizations and regional linkages. One of these, the Civil Initiative of Central American Integration (ICIC) brings sizable groups of national and regional civil society together for the first time. A civic movement is taking form, despite unemployment and pauperization, and new actors with a development project are emerging from the majority sectors.

The region's states and political parties cannot reform themselves alone under the current circumstances. Modernizing the state does not mean putting computers in administrative offices, causing more unemployment in the bargain. Furthermore, greater participation in the legislative bodies, a more open electoral game, the plethora of political parties and the reduction of militarism are not enough to democratize politics.

It is something much more profound. Only the formation of civil society and its institutions and the incorporation of their participation??however weak it still is??in the tasks of public administration will bring about the transformation of the state. The same can be said with respect to the parties, which are far too isolated from civil society and are suffering from a credibility crisis and an ethical stigma that has shifted them from the "vanguard of civil society" to its rearguard??and then only sometimes.

The task of introducing open and participatory accountability mechanisms at the state and party levels to guarantee greater civic responsibility and decision?making complements the economic transformations that could make way for the "farmer path" to development. Unless the sense of collectivity in economic and political decision?making is recreated at the village, municipal, regional and national levels, equitable and sustainable development will be impossible in Central America; the family elites alone are not balanced enough to accept the transformations required by political and economic democratization.

Three Institutions
To Take into Account

Three institutions have a particular weight to contribute to the establishment of this new social contract. They are as important as the parties, the state and the business sector??which, obviously, should also be brought into the building of a social contract if it is to be viable and dynamize Central America's potential.

* The regionally?linked organizations of civil society. In this regard, ICIC, which is made up of the regional federations of peasants, unions, cooperatives, human rights organizations, women, indigenous peoples and documentation centers, itself implies a regional social contract from below. The rest of the NGOs and other bodies of civil society could similarly cooperate.

* The churches, especially Catholic and Protestant, are fundamental to creating regional consciousness and consolidating the social contract. Regrettably, an ecumenism that incorporates the religious consciousness of the majorities has not been achieved. Furthermore, the new evangelical sects, clearly responding to certain national and international political interests, are creating tensions in the region.

* The universities and regional educational system. Without the creation of a culture of tolerance, a regional vision and destiny for the new generation and a practice of mediation and negotiation to resolve conflicts at the school and university level, economic and social polarization will continue to be the greatest obstacle to development.

Labor Flexibility and Primary Education

The formation of national and regional human capital at all levels of the productive and educational system is the most critical axis of the new social contract.

The orthodox neoclassical development paradigm implemented in Central America has recently fingered the rigidity of the labor markets as the principal bottleneck to growth. According to new neoliberal dogmas, these markets have been unable to adjust with the speed and scope needed to achieve success. As a consequence, goes the argument, technification and innovative practices in manufacturing are key to promoting successful adjustment. Two basic lines of action are proposed:

Make the labor market more flexible by deregulating labor contracts, limiting labor rights, sidelining the unions and reducing the space for negotiation.

Put a priority on educational spending at the primary, technical and vocational level and reduce spending for higher education.
At the regional level, labor flexibility has not led to either more employment or economic reactivation, but rather to levels of open and hidden unemployment that is even higher than during the war years. "Liberating" the labor market does not shift jobs from stagnated or weak sectors to more dynamic ones, since the latter do not absorb a great quantity of jobs and require high educational levels. The net result has been growing exclusion. A policy of converting and recycling labor is virtually absent in the region. On the other hand, pitting primary education against higher education in order to concentrate budget resources on the former carries an implicit objective: educate regional labor only to specialize in piece work assembly for the re?export plants.

Democratize Knowledge:
Another Key

Given the drastic segmentation of knowledge in Central America??which implies an even greater concentration of knowledge than of income and wealth??there can be no democratization of society and no sustainable and equitable development without democratizing knowledge. Democratizing knowledge requires putting a priority on investment in education as an integrated continuum from primary school through university.

If education is not radically changed, it will remain part of the problem rather than part of the solution. Central America requires national education projects that integrate continuing education, even stressing higher education as a transforming force for primary and secondary education through new teacher training, curriculum transformations and the use of universities as a trampoline for international technological cooperation.

This, in turn, implies a radical change in the universities, which is one of the difficult but promising aspects of the situation in Central America today. There is a university reform movement that recognizes how essential universities are to Central America's future and seeks their profound transformation. In the past three decades, Central America's universities were politicized and radicalized by leftwing parties or converted into bastions of the oligarchy. Academic autonomy is beginning to be recovered, but universities are still not responding to the needs of regional integration and the new regional social contract.

Finally, the new social contract cannot be constructed or the "emerging" economic and social actors consolidated independently in each country unless regional economic cooperation is reinforced and a cultural space for the citizenry is provided.

Integration From Different Sides

Central America's formal regionalization process was reinitiated in 1992?93, and presidential summits to further it are now held every six months. As a result of the Miami summit at the end of 1994, attempts at continental integration are also afoot, with plans to create the Free Trade Area of the Americas in 2005. The United States promoted this accelerated regionalization even before the Chiapas insurrection and Mexico's financial crisis. The economic aspect of Central American integration is clearly led by national and international financial organizations and by FEDEPRICAP, a regional umbrella body of modernizing business sectors that is hegemonized and financed by the United States.

It can be documented that Washington's new interest in Latin America is based on the need to increase the competitive edge of the United States over the Pacific and European megamarkets by consolidating the American megamarket under its hegemony.

On the other hand, the governments of Central America, the Caribbean and the Group of Three agreed to create the Association of Caribbean States in 1994??including Cuba, despite US pressure??as the first step in forming a third regional Latin American bloc, together with MERCOSUR and the Andean Pact. While this integrationist dynamic is important, it faces the same two?speed, two?citizenry problem as Central America. The Somalia?Taiwan duality could thus spread throughout the Caribbean basin, including Mexico, Colombia and Venezuela.

An integration from below and inside the region is also emerging, which is attempting to balance integration from above and outside in a complementary rather than antagonistic manner. It seeks greater participation in the process for the regional networks of medium and small producers, cooperatives, intellectuals, base Christian groups and other civil society organizations. ICIC, ASOCODE (which brings together peasant organizations) and the Cooperative Federation have gained permanent space in regional organizations such as the Central American Integration System (SICA) and in the presidential summits themselves. Their impact is still marginal, however, and there are fears that they will be coopted by the regional integration bureaucracies, since they still do not have their own institutional mechanisms (research and consulting centers, programming and financing organizations, trade systems, publications, and the like).

The integration process from above and outside is sparking divisions within the business sector and diverse factions of Central American capital. These internal contradictions particularly reflect the interests of the trade?financial elite, which coincide with US interests in the Free Trade Area of the Americas. Financial and commercial capital clearly favors rapid economic integration, while industrial capital fears being unable to compete with an avalanche of foreign products. FEDEPRICAP has already initiated contacts with ICIC and other organizations of civil society.

There are also important differences between countries, since "integration" amplifies the internal development contradictions among them. Costa Rica and Panama are maintaining a more bilateral emphasis in relation to NAFTA, preferring to expand their markets through integration rather than form a Central American Common Market. They also reject any kind of political integration. El Salvador's January 1995 economic proposal represents the interests of that country's commercial sector and even more importantly its financial sector. Totally dollarizing the Salvadoran economy is an attempt to transform the entire country into a free trade zone, taking advantage of the billions of dollars in family remittances. This would severely affect regional integration.

Integration from below and from within civil society would help form a more stable Central American region by consolidating the diverse social sectors historically in conflict and/or excluded. A stable region would attract and efficiently absorb international investment and convert the "banana republics" into a modern center of transnational services.

Now It's Democracy's Turn

Central America is still being run by the multilateral financial institutions. Despite the strong reactivation of the regional market, which has surpassed the historic levels of the 1980s, the region's foreign gap keeps on growing. Between 1985 and 1993 the region increased its exports by 36%, but in that same period its imports grew 83.6%, leaving a trade gap of nearly US$3.4 billion. This deficit was compensated for in part by family remittances, primarily in El Salvador. The rest of it has been turned into new debt. Financing for the growth model thus does not come from agroexport production, as it did during the Central American Common Market; most of it comes through the foreign savings of emigrants and international loans that increase the foreign debt. The model produces growth, but only temporarily and without physical or human capital accumulation.

The most serious issue is that the family remittances, generated by the work of the poor who are forced to emigrate, do not go into the hands of productive investors, but rather into those of an elite that basically uses them for import trade and financial speculation. The potential of family remittances as a source of Central American savings has not yet translated into a domestic financial intermediary system for Central American integration.

This is perhaps the most visible aspect of the absence of an endogenic development project. And only endogenous development, born and nurtured within our societies, will deter the perverse Somalia?Taiwan dialectic, the two?speed, two?tier societies that keep the region in a permanent crisis of polarization?paralysis and insecurity?ungovernability, that prevent it from using its potential so that everyone has a place and no one is excluded.

The region's people have tried everything to trigger the necessary changes, from "historic patience" toward domination to rebellion and popular uprisings. Now, for the first time, it is the turn of an incipient democracy, one that for all its restrictions and superficiality is allowing greater consciousness and relations among previously isolated peoples.

In the democratic space opening up in the 1990s, the growing social and economic exclusion, the cultural exclusion through ethnic apartheid, the rejection of peasant culture by the technocratic oligarchs and the historic marginalization of women are an insult to reason and conscience.

A new social contract that, through democratic methods, joins all citizens together to confront current and future crises, is not only an ethical necessity. It is also urgently needed for social efficiency.

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