Financial and Capital Flows in Central America in the 1980s

Since the end of the 1970s, Central American economic conditions have been characterised by a crisis of the external sector. These difficulties are closely linked with the deterioration of the terms of trade, the increase in the real rate of interest in world financial markets, and further with the more limited availability of grants and other international soft monies. In addition, the relatively high service payments on the external debt, and a diminishing financial and capital flow into the region have exacerbated the situation. Central American external financial flows, until the latter part of the 1970s, were a balancing variable, reflecting growth and relatively free exchange rates. As a result of the current political and economic crisis, as well as the lack of favourable conditions for any of the export products of the region, financial flows into the area have been reduced and drastically changed. In the case of Central America, one has to realize that perceptions and information about a specific subject are being continuously examined and re-evaluated. The recent notoriety of the region has been the subject of a number of studies and commissions seen from the United States perspective on the situation.1 Previous to this interest by the United States, Central American organisations have dgvoted considerable amounts of time and funds to study the same problems and conflicts of the area.