Abstract
The Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) have confronted acute and mounting problems in all aspects of their political, social, economic, and institutional development. These problems have been of such a nature and intensity that they have captured world attention. Several assistance programs for the region have been announced, and all these are designed to implement a system of preferential trade and foreign aid for the entire Caribbean Basin, including the Central American subregion. This chapter describes the problems of economic growth and external indebtedness in Central America. The gradual decline of the Central American economy finds expression in three aspects, all of which contribute to the rapid increase in the region's indebtedness: (1) the growing balance of payments deficits since 1970, (2) the outcome and subsequent increases in fiscal deficits, and (c) the internal credit expansion, particularly that portion within the composition of the money supply that corresponds to the public sector expenditure.
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