CENTRAL AMERICA: Experts, Citizens Fear Economic Fallout of Iraq War

Ral Carballo, a nearly-blind street vendor in the capital of Costa Rica, is just one of the 4.3 million Central Americans working in the informal economy who have already begun to feel the indirect effects of the war on Iraq.

The 40-year-old Carballo, who supports a wife and son on what he earns at his street stall, said that in the last few weeks he has barely sold anything, because people have been saving their money due to a possible decline of the economy.

"I'm really worried, because I'm hardly earning any income," Carballo told IPS, sitting in front of his stand, where he sells billfolds, sunglasses, batteries and hair brushes.

Carballo's concerns are shared by analysts consulted by IPS who, unlike other colleagues who predict that Latin America could actually benefit from the conflict, warned that the military attack launched on Iraq by the United States and Britain Thursday could have negative consequences for this region.

If the U.S. economy enters into recession as a result of the conflict, it could have a severe impact on Central America's formal and informal productive apparatus, and the export sector would be the main victim, they said.

"The effect would be very strong, because the United States is the region's main trading partner," Uruguayan economist Enrique Bru, International Labour Organization (ILO) director for Central America, pointed out to IPS.

Trade between Central America and the United States currently amounts to more than $20 billion a year, including $11.7 billion in Central American exports to the United States.

But few have focused on the indirect effects that will be suffered by microenterprise and informal economy workers, who account for one-third of the work force in Central America.

Bru said that these days, people in Central America prefer to save rather than spend, which has had direct repercussions on those who generate their own income.

Central America is an impoverished region of 36 million, 14 million of whom are in the labour market, including 4.3 million in the informal sector.

A study released this week by the ILO said the region has a young and largely unskilled labour force, and that 48 percent of people who work have not completed primary school.

Given the region's lack of competitiveness, experts warn of the economic fallout of the Iraqi conflict, especially for the poorest segments of the population of Central America, where one-third of the labour force lives in rural areas, as indicated by the ILO report.

Studies show that in the past decade, Central America has experienced growth in commerce and services, but especially in the informal sector, with the consequent increase in the precariousness of labour conditions.

The share of the labour market represented by informal sector employment in urban areas in Central America grew from 48 percent in 1990 to 51 percent in 1999.

The expansion of the informal economy can be felt on the streets of Guatemala City, Managua, San Jose and Tegucigalpa -- the capitals of Guatemala, Nicaragua, Costa Rica and Honduras -- which are full of street stalls selling clothing, food, crafts and an endless array of articles.

The majority of street vendors pay no taxes. But nor do they enjoy labour benefits and guarantees, pension funds, health insurance or a steady salary on which they can depend in times of economic crisis.

"The problem is that in recent years, countries in this region have not invested in major undertakings, which is one of the reasons why we have such a big informal sector," Nicaraguan sociologist and economist Cirilo Otero told IPS.

Major electrification and public infrastructure projects would bring jobs and reduce the number of people forced to seek a livelihood in the informal sector, he said.

Central America has found itself caught up in the Iraq crisis, because its three main productive activities -- textiles, low-tax export assembly zones and tourism -- depend largely on trade ties with the United States, said Otero.

Another sector that could be indirectly affected by the war is agriculture -- which employs 32 percent of the work force -- because domestic consumption would drop.

There is also uncertainty in Central America on the direction that the negotiations towards a free trade accord between the region and the United States could take over the next few weeks.

Some Central American leaders fear that the talks will be delayed and that a free trade agreement will not be ready by year- end as projected, although the chief U.S. trade negotiator Regina Vargo said the war on Iraq would not affect the timetable for the talks.

Guatemalan economist and consultant Pablo Rodas commented to IPS that "the hardest-hit sectors will definitely be tourism and transport," in the latter case due to the foreseeable rise in fuel prices.

Rodas explained that given the present uncertainty and insecurity, the influx of tourists into the region will likely decrease, which would affect thousands of Central Americans who work in hotels, travel agencies and other tourism-related businesses.

More than 4.4 million tourists visit Central America every year, spending over 3.3 billion dollars.

Human rights activists like Daniel Camacho, coordinator of the Commission for the Defence of Human Rights in Central America, complain that the neo-conservative and hard-right Republicans in power in the U.S. administration of George W. Bush are only defending the interests of large corporate capital.

"Washington is arrogantly exporting its own vision of the economy and democracy, and thinking only about its transnational corporations," Camacho told IPS.

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