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The dream of economic integration

Tuesday, June 24, 2014

The leaders of Central America and the Dominican Republic will meet in Santo Domingo at the end of this month, along with businessmen and women from the region, to discuss options for greater economic integration.

It’s an idea whose time should come.

A low level of integration imposes high costs on the region’s consumers.

A major concern involves customs procedures, which affect trade.

A Panamanian product crosses four borders, each with its own customs procedures, in order to be sold in Guatemala.

Mexican goods for their part must cross no fewer than five borders, each of which imposes its own administrative costs, in order to reach Panama.

Stoppages at multiple borders in addition increase the cost of goods to consumers, by lengthening transport times.

The risk of exchange-rate fluctuations - or the cost of hedging - is another important factor in a region, which has no fewer than four currencies.

Meanwhile, each of the six countries has its own national government, with dozens of ministries and hundreds of thousands of civil servants – which in part explains why little progress has been made to integrate.

As far as governments are concerned, integration would create scale economies, which permit downsizing of the public sector.

This could be good for tens of millions of Central American consumers.

But so far it has been hard to get bureaucrats to support the concept of a smaller bureaucracy.