Roots of the Crisis

Through these recommendations this Commission seeks to promote peace, democracy, and development by addressing the root problems of the current crisis. To put the Commission's strategy in proper context, three major factors in Central America's complex history must be understood: the failure of political institutions to mature during the period of economic expansion from 1950 to 1978; the inability of Central American economic structures to ensure sustainable, equitable development; and the added complications arising from the military involvement of governments outside Central America.

Exclusionary Politics

Throughout most of Central American history, political structures have not shown the ability to modernize and accommodate the interests of all members of society. In the 1970s, all Central American nations except Costa Rica lacked the key attributes of democracy: full participation, peaceful and tolerant means of conflict resolution, observance of civil and human rights, civilian governance through free elections, and social and economic justice.

Central American elites have often excluded other interests through economic, social, and political practices. The military frequently formed alliances with the traditional elite, enforced the closed political system, and assumed a crucial role in the management of governmental affairs. In some cases the military also prevented the development of political institutions and mechanisms that could have served not only to establish civilian control over the military itself, but also to allow less privileged groups to organize and to advance their interests.

As economic growth failed to translate into political and economic decisionmaking power for the majority, the political repression that predominated in most countries of the region sparked vigorous, widespread public frustration. Though economic expansion helped many poor Central Americans raise their standards of living, expanded the middle class, and improved social mobility, neither existing nor emerging social groups were permitted to participate democratically. Elections, when held, were frequently marred by fraud and the marginalization of many political groups. Through campaign restrictions, limited media access, threats, and violence, political parties were excluded from genuinely competing for power. Repression by authoritarian regimes in all countries of the region except Costa Rica eroded faith in political institutions and undermined the public legitimacy of national leaders.

Along with the absence of genuine democracy in Central America, government instability since World War II stymied peace and development. In Guatemala since 1950, chief executive power has changed hands three times through coups, twice through elections widely viewed as fraudulent, once through assassination, and once through U.S. intervention. In Nicaragua, the dictatorial Somoza family dominated politics for four decades. Even after the Sandinistas ousted Anastasio Somoza in 1979, following years of bloody civil war, an atmosphere of confrontation and intimidation still inhibits the achievement of democracy. Of the fifteen Salvadoran administrations since 1950, only two governments came to power through free, open elections. In Honduras, there have been five coups since 1950. Although in the 1980s efforts to overcome political instability and install lasting, democratic governments have made progress, gains toward true democracy remain fragile.

Historically, the active military involvement of foreign interests and powers in the affairs of the Central American states has too often exacerbated civil unrest and government instability in the region. This has occurred at various times since World War II. As local discontent grew, so did repression and political instability; as unrest grew into armed conflict, both governments and local insurgents found support from countries outside the region.

Although guerrilla groups had been active in the region for more than a decade, the late 1970s and early 1980s saw the greatest increase in armed conflict. Civil wars erupted in El Salvador and Nicaragua, and the widespread guerrilla insurgency intensified in Guatemala. Civilian opposition to counterinsurgency programs provided additional support to guerrilla groups.

From Growth to Crisis

Equally important to understanding the causes of the Central American crisis is that despite periods of strong economic growth, the gains from that growth were distributed extremely inequitably.

Central American economies expanded rapidly over the post-World War II period through export-led growth based on agro-industrial activities, accompanied by some import substitution. This growth was characterized by stable terms of trade and high investment rates. During this period of growth, Central America expanded trade with the international community and among the five nations themselves, and the region began to modernize and diversify its narrow economic base.

While aggregate measures of economic health improved, however, mechanisms for distributing the fruits of expansion to the majority of the population were absent or inadequate, and while many people struggled out of poverty over the course of these three decades, rapid population growth actually increased the numbers living in extreme poverty. Rapid urbanization and industrialization created new opportunities for the middle sectors, yet by the late 1970s job creation failed to keep pace with rapid growth in the work force because of labor-saving technologies and reduced business investment. This exacerbated the root causes of the crisis. At the end of the 1970s, growing social unrest alarmed local business communities throughout the region, resulting in a drastic reduction in private investment and substantial capital flight.

In the early 1980s, just as the violence was increasing, Central America's international terms of trade suffered the sharpest downturn in 40 years, as prices for Central America's four primary exports—bananas, sugar, coffee, and cotton—fell sharply and remained depressed throughout the decade. Faced with the resulting trade deficits and the burdens of growing external debts, the governments of the region began to face foreign exchange constraints and adopted diverse measures to ameliorate their respective imbalances. Efforts to curtail imports resulted in progressive restrictions on regional trade.

The Central American Common Market virtually collapsed after 1980, adding to the region's growing trade gap and depressing industrial...