Low-growth, high-crime in Central America

Central America has been one of the hardest hit regions in Latin America and the Caribbean during the 2008/2009 global financial and economic crisis, with one in two economies contracting or stagnating, in large part due to their strong links with the United States economy. Per capita GDP contracted 2.2 percent in 2009 in Central America, and private consumption contracted the most in countries like El Salvador and Honduras, countries that have also seen one of the highest increases in murder rates in 2009. The recovery from the crisis has lagged and has been weaker in Central America and, according to the recently released Global Economic Prospects report, economic prospects for the region are not very robust, with growth expected to decelerate to 3.7 percent this year. In per capita terms, this translates into growth of less than 2 percent in 2012.

The dearth of economic opportunities in the slow-growing economies of the region in the aftermath of the 2008/2009 financial crisis may have contributed to the rise in violent crime. Murder rates have risen in many countries in the region, in some at an alarming rate. Even in richer and safer countries like Panama and Costa Rica, homicide rates doubled and surged by 30%, respectively, between 2007 and 2010.

And one of the culprits for subdued economic growth in many of the Central American countries is the expansion of criminal organizations and the rise in violent crime. Weak state institutions have been no match for drug-trafficking organizations that have started to expand in the region and recruit from the 70,000-strong youth gangs known as the maras. With an average of nearly 40 intentional murders per 100,000 inhabitants in 2010 Central America remains the most violent region in the world. It has a murder rate that is almost double that of the Caribbean, the second most violent region, according to United Nations Office on Drugs and Crime (UNODC) homicide statistics.

Increased insecurity and crime are undermining economic activities, including investment and private consumption. According to the Commission on Growth and Development, the exponential growth in drug trafficking and crime in Colombia after 1980 has caused a marked decline in total factor productivity, undermining long-term growth. And now Honduras has reached crime rates comparable to those of Colombia in the 1980s and 1990s, with its murder rate soaring to 82 per 100,000 inhabitants in 2010, the largest anywhere in the world in more than a decade. El Salvador, Belize, and Guatemala, although have much lower crime rates, are also among the seven most violent countries in the world. Ever-stronger criminal organizations are further weakening the state institutions in these countries, having in some cases infiltrated them, feeding the cycle of increased insecurity and crime and weak growth. How can this vicious cycle be broken?