In 1987 a Central American Peace Plan was established that was instigated by President Oscar Arias Sanchez of Costa Rica. It would later include unification plans, similar to that of the European Union. In the 1980’s the countries in Central America experienced an economic slump, where they saw large external imbalances, high inflation, output stagnation, and a deterioration of social conditions. Contributing factors were the armed outbursts in El Salvador, Guatemala, and Nicaragua (which had adverse effects on the economies of Costa Rica and Honduras). Structural policies and Latin American debt crisis worsened this regions foreign trade. In the early 1990’s, however, most of the countries implemented macroeconomic and structural reforms, which were often supported by financial and technical assistance from IMF, the World Bank, and the Inter-American Development Bank. In the mid 90’s privatization, financial sector reform, and trade liberalization become areas of focus. As a result economic performance improved considerably: growth increased: inflation declined: external position strengthened: poverty decreased: the average GDP growth rose to almost 4 percent: and per capita output increased to an average of 1.2 percent. Costa Rica, El Salvador, and Guatemala grew at twice the rate of Honduras and Nicaragua because they had more advanced economies. Nicaragua began to recover in 1994, after suffering a period of hyperinflation by implementing reforms that transformed its regulated economy into a market-based economy. Excluding Nicaragua, the countries of Central America have reduced the rate of inflation from 27 percent to 6 percent. In spite of these economic turnarounds 20 percent of the advanced economic countries and as much as 50 percent of the less developed countries still live below the poverty line. The countries of Central America have clearly begun to turn their economies around. El Salvador ...
