Economic Assistance in Central America: Development or Impoverishment?


Whenever Congress is faced with the decision to provide military assistance to Central American governments and "freedom fighters," public protest and debate ensues. The only voices of protest accompanying requests for economic assistance to Central America, however, are those of fiscal conservatives who object to spending large sums of money on such "giveaway" programs. I believe, however, that we should view with alarm the $1.2 billion that was appropriated for nonmilitary assistance programs for Central America for fiscal years 1988 and 1989. These appropriations were included as part of The International Security and Development Cooperation Act of 1985 largely in response to the recommendations contained in the Report of the National Bipartisan Commission on Central America - the so-called Kissinger Commission (1984). Evidence suggests that the ways in which economic assistance is employed may in the long run be just as lethal to the inhabitants of the region as rifles and helicopter gunships.

Alliance for Progress

The Alliance for Progress of the Kennedy years is widely viewed by both Latin American leaders and US scholars as a high point in relations among the countries of the hemisphere. Even though the program came about largely in reaction to the Cuban Revolution, its intentions to improve economic and social development in Latin America were positive and sincere. Yet it has been argued that for Central America, "the alliance became a key cause of the revolutions in the 1970s and 1980s". How did a program that was established to achieve economic, social and political stability result in the opposite? Evidence shows that the Alliance and related programs failed largely because the economic assistance channeled into the region was tunneled through the landowners, merchants and industrialists who made up the region's oligarchy.

In the agrarian sector of Central America, a sector in which more than 50 percent of the people in all of the five republics were involved in 1960, the effects were profound. My research on agrarian systems in southern Honduras and Central America indicates that large landowners used the increased capital made available through the bilateral and multilateral development assistance in three interrelated ways.

Landowners Increase Investments

With government subsidies for loans, machinery, irrigation and other inputs, the wealthy landowners' first response to the availability of credit was to increase their investments in commodities for export markets. Cotton, sugar cane, African palm, melon and beef cattle production all increased rapidly while production of basic staples stagnated. Some of the documented results of this response include abusive uses of pesticides leading to environmental and human harm, a decline in prices for foods for internal consumption and an increase in the need to import basic food staples. At least during some periods, the production of cash crops did create some wage labor opportunities for some of the landless poor, but the recent "bust" cycle for most agricultural exports has resulted in a decline in many of these opportunities.

Landowners Switch to Livestock Industry

The second reaction of landowners to the increased capital, and perhaps the most pernicious, was that many decided to try to eliminate problems of dealing with hired labor. They mechanized their operations, and most importantly, many gave up labor-intensive crops for a land-extensive commodity. The boom in beef cattle in Central America must be understood as a response by landowners to produce a high value commodity and to reduce the need for labor. While it takes hundreds of human laborers to produce sugar cane, cotton or melon crops, with just two or three hired hands and extensive pasture, it is possible to manage a herd of several hundred cattle. As a result, in regions such as southern Honduras, the amount of pasture land increased by about 50 percent between 1952 and 1974 to over 60 percent of the total land area. The destruction of forest that this increase implied was only exceeded by the destruction of tropical forests in other regions of Honduras and Central America. Data from Honduras and Costa Rica illustrate the results (see Table 1). In both countries the amount of land dedicated to pasture and livestock is more than 50 percent while the land in labor-absorbing export crops and annual crops (primarily food crops) is a small fraction of this amount. The term "banana republics" for these countries is not only pejorative but hopelessly out of date. One great cattle ranch is a more accurate description.

Table 1. Land Utilization Pattern in Costa Rica and Honduras

COSTA RICA - 1979(*) HONDURAS - 1974(**)

Livestock 55.2% Pasture 51.2%

Major Export Crops Major Export Crops

(Coffee, Sugar Cane, (Coffee, Bananas,

Bananas, Cotton, Sugar Cane, Cotton) 6.9%

Cacao, African Palm) 6.3%

Food Crops (Beans, 1.7% Other Annual Crops 13.7%

Corn, Rice)

Forest 34.5% Forest and Fallow 25.6%

Other Perennial

Crops 1.4%

Other 2.2% Other 1.2%

* Information based on data provided by Proyecto de Información Agropecuario del Istmo Centroamericano, Institute Interamericano de Cooperación para la Agricultura, San Jose, Costa Rica.

** From Censo Nacional Agropecuario, 1974 (various volumes); Dirección General de Estadística y Censos, República de Honduras, Tegucigalpa, 1977 and 1978.

Economic assistance provided through loans from such agencies as the Agency for International Development (AID), the World Bank, the Inter-American Development Bank and others has been the driving force behind these processes. For example, between 1948 and 1973, of the 55 agricultural projects the World Bank financed, over 71 percent of all the funds were allocated to the livestock sector. The Inter-American Development Bank was not quite as enamored of livestock, but about 20 percent of their loans for agricultural credit between 1961 and 1969 went to this area. In more recent years. Parsons has reported that almost half of all agricultural credit in Costa Rica was for the livestock industry. Data from the agricultural development bank of Honduras (BANADESA) - much of whose funds are derived from loans the international banks and development agencies provide - are contained in Table 2. These data for 1982 loans show the continuing bias toward livestock and export crops, while the major food staples receive only minimal amounts of credit.

Table 2. Agricultural and Crop Loans Made By BANADESA - 1982 (000 Lempiras)


(2 lemp. = $1) LOANS AG. LOANS

Maize 351 5.2 3.9

Sorghum 49 .7 .5

Beans 15 .2 .2

Cotton 1912 28.0 21.0

Rice 1801 26.4 19.9

Sugar 2553 37.4 28.2

Melon 118 1.7 1.3

Sesame 33 .4 .4

Total Crop 6831 100.0 (75.4)


Livestock 2238 24.6

Total Loans 9069 100.0

Source: CONSUPLANE, Tables 6-10, 6-13, pp. 146-47, 1982. Cited in Susan Stonich Duda, Local Responses to Regional Processes: The Interrelationship of Economy and Ecology in Southern Honduras draft Ph.D. dissertation, University of Kentucky.

As a result of all of this agricultural credit, between 1959 and 1979 beef production increased more than 170 percent. The majority of this beef was for export, however, so that despite the huge increases in production, per capita beef consumption within some of the Central American countries actually declined.

Landowners Expand Holdings

The landowners' need for more extensive tracts of land (the principal limitation to expanding herd size) led to their third response to the availability of credit. To expand their holdings even further, they bought up smaller operations, took over national property or even forced peasants off land. This expansion further increased already glaring inequalities in land distribution (see Table 3). One way of gaining some perspective on these figures is to recognize that this pattern of concentration of landholdings is quite similar to that existing in the United States, where one percent of the holders control 40 percent of the land while 78 percent of holders have access to only three percent of the land. The big difference of course is that in the United States, where lots of other opportunities for gainful employment exist, only a very small percentage of the population depends on farming for a living, a marked contrast with the situation in Central America.

Thus, it can be argued that the infusion of funds into Central America in the 1950s and 1960s restructured agriculture. By being channeled through the existing power structure, the increased investment led to:

1) landowners investing in commodities and techniques that were labor-displacing rather than labor-absorbing;

Table 3. Concentration of Agricultural Landholdings in Central America and Mexico

% of Land

Country % of Holders Controlled

Nicaragua (1963)(1)

> 5 hectares 50.8 3.5

< 100 hectares 5.0 58.8

El Salvador (1971)(1)

> 5 hectares 86.9 19.6

> 100 hectares .7 38.9

Guatemala (1964)(1)

> 5 hectares 87.4 18.7

< 50 hectares 2.1 47.7

Honduras (1974)(2)

> 5 hectares 63.8 1.8

< 100 hectares 9.1 44.1

Costa Rica(3)

> 4.76 hectares 35.0 1.5

< 100 hectares 8.4 67.0

1. Source: J.W. Wilkie and S. Haber, eds., Statistical Abstract of Latin America, Volume 22, Los Angeles: UCLA Latin American Center (1983).

2. Source: Censo Nacional Agropecuario 1974. Tomo II. Tenencia de la Tierra. Tegucigalpa: Dirección General de Estadística y Censos (1978).

3. Source: These data were computed from Table 11 of Mitchell A. Seligson, Peasants of Costa Rica and the Development of Agrarian Capitalism. Madison, WI: University of Wisconsin Press (1980). The data in Seligson's table were originally expressed in terms of manzanas, a unit of land that is equivalent to .69 hectare. This is the reason why I have used lands that are under 4.76 hectares for my comparison.

2) increased inequality in land distribution because large landowners expanded their control over land while peasants became increasingly marginalized;

3) the dedication of much of Central America's best land to pasture while peasants produced food crops on the most marginal soils; and

4) patterns of development that raised the expectations of the poor and the middle class but resulted instead in increased misery and inequality.

An examination of changes in the distribution of the labor force in the last two decades provides one indication of all of these processes. It is striking that between 1960 and 1980 the percentage of the population employed in agriculture has declined in every Central American country (see Table 4). In no country, however, has the industrial sector expanded rapidly enough to absorb the people abandoning the countryside. The result is a rapidly expanding "service sector," a euphemism for the thousands of shoeshine boys, street vendors, household servants and other underemployed and unemployed individuals who inhabit every Central American capital.

There is no question that Central America could use infusions of capital to stimulate its economic and social development. The massive quantities resulting from the Kissinger Commission recommendations, however, promise to be allocated on a "business-as-usual" basis. While the large landowners, merchants and the oligarchs will benefit, the poor will not likely see their situation improve.

It also seems incredibly silly to pump $1.2 billion per year into a region that is at war. The likelihood that the money will be invested in the region is small. Samuelson recently reported that between 1979 and 1982, an estimated two-thirds of Argentina's foreign loans and half of Mexico's flowed back out as capital flight. Can we expect the proportions to be different in countries in which there is more reason for capital flight? At least in the short term, the Kissinger Commission recommendations seem likely to do more for the economic development of Miami, Florida, than any Central American country.

On the other hand, even if the money were to stay in the countries and actually be invested, the results might be worse. Because there is no indication that development agencies have learned from the past, in the rural sector we would expect to see more emphasis on export crops, investments to improve the "productivity" of the livestock sector and more money allocated to mechanization. Tropical forests would be destroyed at a more rapid rate, indigenous communities and their lands would be under greater attack and the process of expulsion of rural people would be speeded up. Rather than easing the tensions in the region, economic assistance as it is currently allocated is likely only to fan the flames of the simmering conflicts that exist.

Table 4. Percentage Change in the Distribution of the Labor Force in Central America

Agriculture Industry Services

1960 1980 1960 1980 1960 1980

Honduras 70% 63% 11% 15% 19% 23%

El Salvador 62 50 17 22 21 27

Nicaragua 62 43 16 20 22 37

Guatemala 67 55 14 21 19 25

Costa Rica 51 29 19 23 30 48

World Bank, World Development Report. 1983. New York: pp. 188-89

Article copyright Cultural Survival, Inc.

CSQ Disclaimer

Our website houses close to five decades of content and publishing. Any content older than 10 years is archival and Cultural Survival does not necessarily agree with the content and word choice today.

CSQ Issue: