II. AGROSOCIOECONOMIC DATA

1. Geographical context
2. Basic macroeconomic data

1. Geographical context

The Central American region is located between the two great continental blocks that make up North and South America, on a narrow isthmus that comprises seven nations: Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama, which together make up the Central American Isthmus.

These countries occupy a surface area of 522 418 km². Nicaragua is the largest country, with 129 494 km² (corresponding to 24.8 percent of the total area), followed by Honduras, with 111 888 km² (21.4 percent); and Guatemala, with 108 889 km² (20.8 percent). These three countries account for 67 percent of the region's total surface area. El Salvador is the smallest country, with 21 040 km², equivalent to four 4 percent of regional territory. See Table 1 and Chart 1, below.

Chart 1. Distribution of land in Central America

Table 1. Surface areas of countries of Central America

Country	km²
Belize	22965
Guatemala	108889
El Salvador	21040
Honduras	111888
Nicaragua	129494
Costa Rica	51060
Panama	77082
Total	522418

Source: Central American Integration System (SICA)

Geographically, the Central American region is composed of high mountains and volcanoes (27 of which are active in the coastal region of the Pacific Ocean, in a "line of fire" less than 500 km long), intra-mountain valleys and alluvial and coastal plains.

Due to its location in the Caribbean basin, the region is susceptible to the impact of hurricanes, with Honduras and Nicaragua the most prone to penetration, with a 36 percent⁴ chance and, specifically, the Atlantic coasts of both countries, primarily inhabited by indigenous populations living in rustic wooden homes with straw roofs. The population exposed to this type of risk is estimated, for the whole of Central America, at approximately 8.4 million people (26 percent of the region's total population)⁵. Panama is the country least vulnerable to hurricanes, because of its geography.

It should also be noted that there is a soil-preparation practice widespread throughout the region, according to which stubble and bush fires are set in planting areas, causing uncontrollable, violent forest fires in all countries of the region. This cultural practice, coupled with the gradual expansion of farming land by formerly landless rural workers, is destroying the forest at the rate of about 388 000 hectares per year.⁶

2. Basic macroeconomic data

a. Trends in Gross Domestic Product

The Central American countries affected by the hurricane show declining trends in the overall structure of their Gross Domestic Product (GDP), due to the impact of Hurricane Mitch on primary activity. Within that overall structure, the biggest impact has been seen in the agriculture and fishing sectors, and their opportunities for productive exploitation in seas, rivers and in aquaculture.

While this was occurring in the Central American region, the GDP of Latin America was growing at a rate of 0.3 percent.⁷ This growth was especially marked in countries close to Central America, such as Mexico, Panama, Colombia and the Dominican Republic, where 1999 GDP growth was 3.4 percent, 2.8 percent, -5.5 percent and 7.0 percent respectively. The growth registered in the Dominican Republic is significant, because in September 1998 it was rocked by Hurricane George, which reached category 4 on the Saffir-Simpson Scale, and was regarded as the second most-destructive hurricane of the season. In Costa Rica, a country with considerable economic influence in the region, and which sustained a low level of damage from Hurricane Mitch, GDP grew 7.5 percent.⁸

All countries in the region, without exception, show falls in primary activity, with the global average for the region before hurricane Mitch being 21.2 percent. At the end of 2000 the average of this activity decreased to 17.8 percent, i.e 3.4% less than the year prior to the hurricane (see Table 2). The country showing the biggest drop was Honduras, with a 11.5 percent fall between 1997 and 2000, followed by Guatemala and Belize, with a drop of one percentage point over the same period. El Salvador and Nicaragua show the increasing importance of the primary GDP during the last year. As a result of reconstruction activity in the region, secondary and tertiary activities showed slight growth, rising 1.9 percent and 1.5 percent respectively. Only Nicaragua recorded a decline in tertiary activity over the same period.

Primary activity accounts for approximately 20 percent of GDP. El Salvador, Honduras and Belize are the countries least dependent on this activity, with GDP percentages in the year 2000 for primary activity of 10.1 percent, 13.5 percent and 19.3 percent respectively. In the remaining countries affected, the primary sector accounts for more than 23 percentage points. The percentage GDP weighting is highest in Nicaragua, at 29.5 percent over the last three years, and Guatemala's at 29.5 percent, and Guatemala's at 23.4 percent (see also Annex 3).

It should be noted that tertiary activity, which includes the trade and services sectors, accounts for very close to 60 percent of GDP in the economies of the nations affected. Secondary activity, which comprises factory industries, construction and mining, makes up more than 20 percent. It is in El Salvador that the tertiary sector accounts for the highest percentage GDP weighting, with an average of 72.8 percent over the last three years. Over the last year (2000), that percentage decreased to 61.7 percent, which enabled an increase of 28.2 and 10.1 percent, respectively.

Table 2. GDP structure of countries affected by Hurricane Mitch (%)

Country	YEAR	Activity
		Primary	Secondary	Tertiary	Total
Belize	1997	19.9	20.1	60.0	100
	1998	19.1	19.6	61.3	100
	1999	18.9	19.8	61.3	100
	2000	N/d	N/d	N/d	N/d
	Average	19.3	19.8	60.9	100
Guatemala	1997	23.7	16.6	59.7	100
	1998	23.4	16.5	60.1	100
	1999	23.1	16.5	60.4	100
	2000	22.9	15.7	61.4	100
	Average	23.2	16.5	60.2	100
El Salvador	1997	8.7	16.1	75.2	100
	1998	7.5	16.1	76.4	100
	1999	5.7	16.3	78.0	100
	2000	10.1	28.2	61.7	100
	Average	8.0	19.2	72.8	100
Honduras	1997	25.0	19.0	56.0	100
	1998	23.6	19.2	57.2	100
	1999	21.9	20.4	57.6	100
	2000	13.5	23.3	63.2	100
	Average	21.0	20.5	58.5	100
Nicaragua	1997	28.5	26.7	44.8	100
	1998	28.3	27.0	44.7	100
	1999	27.8	28.8	43.5	100
	2000	29.5	27.9	42.6	100
	Average	28.6	27.6	43.8	100
Overall Average	1997	21.2	19.7	59.1	100
	1998	20.4	19.7	59.9	100
	1999	19.5	20.4	60.2	100
	2000	17.8	21.6	60.6	100
	Average	19.7	20.4	59.9	100

Source: Central Banks

It is also important to note that, in general, the region has recently experienced frequent highs and lows in its farming-production trends, reflected most strikingly in food-production shortages. In production of traditional export crops, however, the lows appear more significant in the coffee sector, which has an uncertain future in the region, especially among small and medium producers, due to the dramatic declines seen in world prices and the increase in export supply from Asian countries, which recently joined this sector. As a result, in the immediate future, the value of regional exports in this sector is expected to fall by more than 50 percent.

The impact of Hurricane Mitch has also accentuated the decline in productive capacity in the coffee-growing sector, which is heavily in debt and in search of productive alternatives that might enable growers, over the medium term, to break with a monoculture activity dating back more than a century. This will undoubtedly have an impact on the region - especially on domestic incomes deriving from this activity and, more particularly, on the large quantity of labour associated with this crop.

The countries concerned did not conduct an effective assessment of the direct implications of Hurricane Mitch on regional GDP during the year following the hurricane. There continues to be a tendency among institutions to neglect the required follow-up to such disasters over the medium term. The region is undergoing an integration process with the world economy (mundialization and globalization) for example in signing the free trade acts and the creation of tax free zones. The decrease in food production may be a result of the new economic context, but the effects of the hurricane could have accentuated this decrease.

b. Impact on inflation

Contrary to what one might expect, after a meteorological event of such magnitude, inflation in the region continued to trend downwards, leading, in some countries, to a deflationary process. This was the case in Belize and El Salvador, which recorded a combined fall in inflation of 2.7 percentage points, however the economic re-activation during 2000 was not sufficient and the external assistance received was not as hoped thus as a consequence the inflation increased by 1.4 and 4.3 respectively. Only Nicaragua recorded in 1998 a growth of 2.7 percent, although subsequently, it managed to control inflation and approach the average recorded before the Hurricane, as shown below.

Including the results for the year 2000, the average inflation rate over the past six years for the countries involved is 8.7 percent. The countries with the greatest degree of control over this economic indicator are Belize, El Salvador and Guatemala, with percentages of 1.6 percent, 4.7 percent and 7.6 percent, respectively, over the indicated period. During the same period inflation in Honduras and Nicaragua decreased.

Table 3. Inflation rates in countries affected by Hurricane Mitch

Year	Belize	Guatemala	El Salvador	Honduras	Nicaragua	Regional Inflation
1995	3.9	8.4	11.4	29.5	10.9	12.8
1996	6.4	11.1	7.4	23.8	11.6	12.1
1997	-0.5	9.3	1.9	20.2	9.2	8.1
1998	-0.9	6.6	4.2	13.7	13.0	7.5
1999	-1.0	5.2	-1.0	11.6	11.2	5.4
2000**	1.4	5,1	4,3	11.1	9,9	6.4
Average	1.6	7.6	4.7	18.3	10.9	8.7

Source: Central Banks; ** Preliminary figures

c. Trade balances before and after Hurricane Mitch

The economic situations of Central American nations, as reflected in their respective trade balances, are universally negative, as shown in Table 4, below. The deficit among all countries concerned increased after Mitch, from 50.3 percent to 74.5 percent, based on the total deficit of the balance on exportation between the years 1997 and 2000. This is equivalent to an annual sum of US$6 191.6 million, which is directly absorbed by three countries: Guatemala, with US$2 177.0 million; El Salvador, with US$ 2 032.0 million; and Nicaragua, with US$1 002.6 million. Together, these three nations have a deficit of US$5 211.6 million, which is equivalent to 84.2 percent of the total deficit. See annex N°2

The country experiencing the biggest difficulties with its trade balance is Nicaragua, whose balance has been rising at a disturbing rate. Between 1997 and 2000, the difference between exports and imports rose by around 155 percent, whereas the other countries recorded percentages of 83.6 percent (Belize); 80.4 percent (Guatemala); 68.4 percent (El Salvador); and 49.4 percent (Honduras).

Table 4. Trade balances of countries affected by Hurricane Mitch

Country	YEAR	Millions of dollars
		Imports	Exports	Balance
Belize	1997	288.1	199.9	-88.2
	1998	296.4	194.4	-102.0
	1999	369.8	201.4	-168.4
	2000	N/d	N/d	N/d
	Average	318.1	198.6	-119.5
Guatemala	1997	3851.9	2390.6	-1461.3
	1998	4650.9	2561.9	-2089.0
	1999	4560.0	2492.8	-2067.2
	2000	4.885.3	2.708.5	-2.177.0
	Average	4487.0	2538.5	-1948.6
El Salvador	1997	3766.5	2440.0	-1326.5
	1998	3991.0	2455.1	-1535.9
	1999	4108.0	2511.9	-1596.1
	2000	5001.0	2969.0	-2032.0
	Average	4.216.6	2594.0	-1622.6
Honduras	1997	2705.6	2211.0	-494.6
	1998	3060.6	2529.0	-531.6
	1999	3284.2	2383.0	-901.2
	2000	2964.0	1984.0	-980.0
	Average	3003.6	2277.1	-726.5
Nicaragua	1997	1329.3	703.4	-625.9
	1998	1383.6	573.2	-810.4
	1999	1683.2	543.8	-1139.4
	2000	1647.7	645.1	-1002.6
	Average	15511.0	597.0	--914.0
Total Commercial trade balance deficit	1997	11941.4	7944.9	-3996.5
	1998	13382.5	8313.6	-5068.9
	1999	14005.2	8132.9	-5872.3
	2000	14.498.0	8.306.5	6.191.6
	Total	53827.1	32697.9	-21129.3
Total annual average	1997	2388.3	1589.0	-799.3
	1998	2676.5	1662.7	-1013.8
	1999	2801.0	1626.6	-1174.5
	2000	3364.2	2038.9	-1325.3
	Average	2807.5	1729.3	-1078.2

Source: Central Banks

In all countries concerned, imports have risen since Hurricane Mitch. The most notable increases have been achieved by El Salvador, Guatemala, Belize, and Nicaragua, with rises of 32.8 percent, 26 percent, 24.8 and 24 percent, respectively. For Honduras the percentages is 9.6 percent. Exports, on the other hand, have recuperated since the hurricane. Overall, they have increased by 5.6 percent on a global scale since 2000, and only Honduras, the country most affected, has recorded a decrease during the period since the hurricane and has recorded a decline in export, with falls of 10.3 percent when compared to the year prior to Mitch.

Chart 4. Central America's trade balance

d. Employment

According to official figures provided by Central Banks of the nations affected by the hurricane, 30 percent of the population is unemployed. And yet, the underemployment situation in both urban and rural areas suggests (and the various organizations of civil society have indicated as much) that this percentage may be slightly higher than, or equal to 50 percent of the economically active population in the region. This is equivalent to around 15 million people of working age.

Table 5. Unemployment rates, 1994 - 2000

	(%)
Year	Belize	Guatemala	El Salvador	Honduras	Nicaragua	Average
1994	14.6	47.6	40.9	29.2	29.3	32.3
1995	19.2	46.1	39.7	30.1	28.7	32.8
1996	22.8	45.9	38.6	28.8	27.6	32.7
1997	21.7	44.6	38.0	29.0	26.5	32.0
1998	23.7	43.6	38.8	28.2	24.8	31.8
1999	22.0	46.0	35.1	29.3	23.0	31.1
Average	20.7	45.6	38.5	29.1	26.7	30.6

N/a: Not available; Source: Central Banks

Rates in the remaining nations have trended downwards since the hurricane, with the exception of Honduras, which in 1999 recorded a slight increase in its unemployment rate, of 1.1 percent. Unemployment in El Salvador was exacerbated by the earthquakes that shook the country. It is expected, however, that the programme for the reconstruction of homes and roads and the restoration of productive activities will alleviate the desperate conditions in which the people are living.

Chart 5. Unemployment rates, pre and post Mitch