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Executive Summary – Friday (12/05/08) the leaders of the Central American nations met for the 33rd Summit of the Central American Integration System. They issued statements in response to the world financial crisis. One of the measures they intend to implement is the start of a new currency. We assume this is to be called the Central American Dollar and will be tied to a basket of other currencies to avoid fluctuations that a single currency is subject to.
The Central American nations are also going to standardize their passport. It is expected that the new passport will have the name of the country and above or below it say “Central America Passport” similar to the way the Mercosur nations do it now. The nations participating were: Belize, El Salvador, Nicaragua, Guatemala, Honduras, Costa Rica, Panama and Dominican Republic participating as an associate member.
Discussion – With a new currency you can expect to see a new money wiring system similar to the SWIFT system. The big difference is that the USA and EU will not be able to view any and all confidential banking transactions going through this new system. Bank secrecy is still a way of life in these nations and if anything the new system will allow for more secrecy and confidentiality. This will also lessen the demand for US dollars.
It appears to this writer that these are not the only countries to be moving in this direction. Russia has dropped some subtle but clear comments about relying on the US dollar. China is also not happy. Venezuela is in the process of starting a new central bank and has the support of several South American nations. So while the USA can go and push Lichtenstein around other nations are moving to get away from the USD and go back to sensible international banking. In the USA one just goes into a bank and shows a drivers license and leaves in 30 minutes with a bank account. In the offshore world this process can take days or weeks.
I expect the process to soon go back to being a 30-minute process as soon as there is no longer a monopolistic grip on the nations to use the wire systems passing wires through the USA or EU. Without having to rely on the USA and EU wire systems there is no penalty to be imposed on nations practicing banking the way they like to. Will the good old numbered bank accounts with no ID return? We will have to wait and see but this author is optimistic.
So while everyone is saying doom and gloom regarding Lichtenstein and Obama shouting anti-tax haven slogans you now know what is in store shortly down the road. And yes you did read correctly Panama was at the conference. Did anyone notice the Russian battleship being allowed to cross the Panama Canal a few days ago? First time a Russian warship crossed the Panama Canal since WWII. The world financial crisis brought on by the USA changed things. Be patient and watch for these changes to emerge.
Last edited by BEL-AIR; 12-09-2008 at 03:25 AM.
Reason: SPELLING
With the global financial slowdown dragging on Central American economies, eight heads of state came together in Honduras Friday to discuss how to head off the effects of the credit crisis. Presidents and vice presidents of the seven Central American countries plus the Dominican Republic for the annual Central American Integration System (SICA) leaders summit in San Pedro Sula, Honduras. The leaders hammered out a 41-point economic agreement of “urgent measures,”including proposals to step up integration, food security, and investment.
The countries also pitched the idea of creating a common currency.
El Salvador and Panama use the U.S. dollar while the remaining countries currently have their own currencies.
The global credit crisis has delivered a wallop to SICA nations, which were already hit hard by a food crisis that struck earlier in 2008 and a slowdown in remittance flows. Analysts predict a deceleration in Central American growth next year, from 4.3 percent in 2008 to 2.8 percent in 2009. Moreover, many SICA countries command the highest poverty rates in the Americas.
For example, although a new report published by the Economic Commission for Latin America and the Caribbean found that Honduras saw one of the regions sharpest drops in poverty (by 3.7 percent) in 2007, it continued to have the highest poverty rate of any of the countries surveyed, running at nearly 70 percent.
“The architecture of the economy needs changes; we have to achieve financial, trade, and food independence within the region,” said the Honduran President Manuel Zelaya. With these goals in mind, leaders of Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, and the Dominican Republic agreed to create a credit fund and stimulus packages for various sectors to counter the possibility of slowing foreign investment and slowing remittance flows.
The details of how such credit fund would be created have yet to be worked out. So do plans for a common currency and passport as well as a plan to “standardize laws” in the immigration, education, and security sectors “that will give greater cohesion to Central American integration and that ensure citizens the benefits of that integration.” As the Latin Americanist blog points out, should SICA pursue such plans, the region will undoubtedly draw comparisons to the European Union.
The SICA proposal comes at a time when the Central American countries continue to negotiate with the EU for an association agreement designed to deepen political dialogue, cooperation, and establish a free trade zone between the two regions. Negotiations are expected to conclude next year.
The SICA meeting coincided with a handover of the organization’s six-month presidency from Honduras’ Zelaya to Nicaraguan leader Daniel Ortega. On the day before Friday’s summit, Honduran Central Bank President Edwin Araque reported that his country does not plan to follow IMF recommendations to devaluate the lempira. In August, Honduras joined the Bolivarian Alternative for the Americas (ALBA) whose other members consist of Bolivia, Cuba, Dominica, Honduras, Venezuela, and new SICA host country Nicaragua.
Ortega used the moment when taking over SICA’s reins to decry the capitalist model and call for Latin American unity when confronting the global financial crisis. Yet his government could face its own set of crises, given a decision by U.S. and European donors to cut off foreign aid following accusations that the Sandinistas engaged in electoral fraud during recent municipal elections.
Read a recent Houston Chronicle op-ed by Dominican President Leonel Fernández calls for investing a portion of oil profits in countries that have been hit hardest by rising oil and food prices.
The article was originally published in the Fall 2008 issue of Americas Quarterly.
Honduran President Manuel Zelaya. (AP Images) With the global financial slowdown dragging on Central American economies, eight heads of state came together in Honduras Friday to discuss how to head off the effects of the credit crisis. Presidents and vice presidents of the seven Central American countries plus the Dominican Republic for the annual Central American Integration System (SICA) leaders summit in San Pedro Sula, Honduras. The leaders hammered out a 41-point economic agreement of “urgent measures,”including proposals to step up integration, food security, and investment. The countries also pitched the idea of creating a common currency. El Salvador and Panama use the U.S. dollar while the remaining countries currently have their own currencies.
The global credit crisis has delivered a wallop to SICA nations, which were already hit hard by a food crisis that struck earlier in 2008 and a slowdown in remittance flows. Analysts predict a deceleration in Central American growth next year, from 4.3 percent in 2008 to 2.8 percent in 2009. Moreover, many SICA countries command the highest poverty rates in the Americas. For example, although a new report published by the Economic Commission for Latin America and the Caribbean found that Honduras saw one of the regions sharpest drops in poverty (by 3.7 percent) in 2007, it continued to have the highest poverty rate of any of the countries surveyed, running at nearly 70 percent.
"The architecture of the economy needs changes; we have to achieve financial, trade, and food independence within the region," said the Honduran President Manuel Zelaya. With these goals in mind, leaders of Belize, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, and the Dominican Republic agreed to create a credit fund and stimulus packages for various sectors to counter the possibility of slowing foreign investment and slowing remittance flows.
The details of how such credit fund would be created have yet to be worked out. So do plans for a common currency and passport as well as a plan to "standardize laws" in the immigration, education, and security sectors "that will give greater cohesion to Central American integration and that ensure citizens the benefits of that integration." As the Latin Americanist blog points out, should SICA pursue such plans, the region will undoubtedly draw comparisons to the European Union. The SICA proposal comes at a time when the Central American countries continue to negotiate with the EU for an association agreement designed to deepen political dialogue, cooperation, and establish a free trade zone between the two regions. Negotiations are expected to conclude next year.
The SICA meeting coincided with a handover of the organization’s six-month presidency from Honduras’ Zelaya to Nicaraguan leader Daniel Ortega. On the day before Friday’s summit, Honduran Central Bank President Edwin Araque reported that his country does not plan to follow IMF recommendations to devaluate the lempira. In August, Honduras joined the Bolivarian Alternative for the Americas (ALBA) whose other members consist of Bolivia, Cuba, Dominica, Honduras, Venezuela, and new SICA host country Nicaragua.
Ortega used the moment when taking over SICA’s reins to decry the capitalist model and call for Latin American unity when confronting the global financial crisis. Yet his government could face its own set of crises, given a decision by U.S. and European donors to cut off foreign aid following accusations that the Sandinistas engaged in electoral fraud during recent municipal elections.
Read a recent Houston Chronicle op-ed by Dominican President Leonel Fernández calls for investing a portion of oil profits in countries that have been hit hardest by rising oil and food prices. The article was originally published in the Fall 2008 issue of Americas Quarterly.
Increased food costs in Panama a result of U.S. monetary policy
Increased food costs in Panama a result of U.S. monetary policy
"Economist Raul Moreira has correctly identified the reason the cost of food continues to increase in Panama. It is a direct result of inflation created by the monetary policy of the U.S. government.
What could Panama do to solve this every increasing problem? How about working on a new currency platform back by commodities such as gold and silver. If you really wanted to see growth in foreign investment, this would be the way to do it.
Some day soon the U.S. dollar is going to go into hyper-inflation and when it does, countries like Panama who are tied to the U.S. dollar are in a very bad position. The very thing that has helped them over the last 20 years, the dollarized economy, will be the thing that ruins them if they don't look at alternatives."
We are experiencing nearly a deflationary economy in the US, while at the same time the dollar has been weaker against other major currencies. I do not understand the comment of "the value of economy has fallen since inflation eclipsed it".
My understanding is that countries like China and other major growing populations are increasing their demand for food. Therefore, it takes more resources such as fertilizer to produce it. The cost of fertilizer and many other commodities such as fuel shot up tremendously in summer of 2008.
I think we will continue to see more of this pattern.
Bottom line is I do not believe the US economy is experiencing inflation, but it appears to be inevitable in the next year or so. I hope I will be in Panama in a few years because I fear the way our policies are headed.
---------- Post added at 10:41 PM ---------- Previous post was at 10:35 PM ----------
Belair -- I agree with you that some kind of other currency tied to gold would be good move for Panama. I doubt that will happen. Maybe a blend of a currency index that will be used someday for pricing oil might be another option.
Economically speaking in the US things are extremely weird. To begin with you do have the US printing paper and creating money out of thin air to "stimulate" things (lot's of it) Every other country that has ever done that has really wrecked their own currency value. On the other hand since things have been so bad in the US, unemployment way up and people no longer spending (consumer spending is 70% GDP) prices have actually had to fall. Government spending cannot replace consumer spending because the taxpayer is the one still getting the bill. Currently the "green shoots" in the US economy are because of stimulus spending and is temporary. At some point in time the "piper will need to be paid", this is unsustainable. China is currently very concerned about the US printing and spending money like a drunk sailor. Other countries seem to be concerned as well.
Well said, Mr Wahoo. I agree. I think China is going to be carrying more and more weight around the world soon. As a part time investor, I am pretty well over-weighted in gold, but I got to tell you, I am not sure about the rest of it. I am trying to sell a couple of rental properties in US, but not sure about re-investing it in more US real estate or in a country like panama. I don't have enough to live on 'just the cash", so I have to make it work for me.
Hey too222muchcoffee, there seems to be many people realizing the situation the US is in. It really is unique, we (the US) have made the world dependent upon our economy (once again 70% GDP is consumer spending) that countries such as China realized the only way to make their economy grow was to be dependent upon us purchasing their stuff. In return they purchased our debt, everything being done in US dollars. Now they hold about $2 Trillion US dollars. If China, and other countries, were to start dumping dollars and destroying the value they in turn would be hurt. Basically every country holding massive US dollar reserves is now stuck having to prop up the US dollar. With all the talk going on in the world and countries looking for alternatives to the US dollar, faith is just not there. There is now a new global association called "BRIC" (Brazil, Russia, India, China). One of their focus is to look for an alternative to the dollar.
The guy I respect the most in the economic analysis world is Steen Leeb. I can email you some of his newsletter info sometime if you would like to see them. He was once an advocate of BRIC, but now likes BRACC "Brazil, Russia, Australia, Canada, and China" basically all rescource countries, with the exception of China. China selected for its shift in their economic policies and population. He has a book out that I read (I am awful remembering names and titles). Check it out.
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Honduran President Manuel Zelaya. (AP Images) With the global financial slowdown dragging on Central American economies, eight heads of state came together in Honduras Friday to discuss 
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