The Central American Conundrum: Toward a New Regional Security and Economic Order

October 5, 2020
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Why has U.S. foreign policy toward Central America failed, and failed badly?

For over a hundred years, the United States has struggled to find a policy toward Central America that improves its economic prosperity and security. The region’s challenges today are many: weak and failed states, drug and human trafficking cartels, and an exploding migration and humanitarian crisis. At a time when the U.S. military is deployed across the globe to promote U.S. interests, it is grossly ironic that Central America remains one of the most dangerous places on the planet. And the spillover effects are striking. Over 14,000 Americans died from cocaine overdoses in 2018, more than double the number of U.S. servicemembers killed in the wars in Iraq and Afghanistan. 90 percent of cocaine imported into the United States flows through Central America.

Instability in the “Northern Triangle” (Guatemala, Honduras, and El Salvador) presents the most acute security challenges to the United States in the region. Gang violence and trafficking are endemic and the regional economy is not working for its citizens, leading to high homicide rates, high levels of migration, and poverty. What is worse is that the current free-trade relationship between the United States and Northern Triangle countries exacerbates the very problem it hopes to fix by disrupting already small industries and creating trade imbalances with countries that cannot afford to have them yet. In response, the United States should support a regional peacekeeping force under the auspices of the Organization of American States and renegotiate the current free-trade agreement with the Northern Triangle.

 

 

The COVID-19 pandemic exacerbates the many security risks the region poses, but it also presents a unique political opportunity to re-orient U.S. policy toward Central America and to finally get it right. Declining economic outcomes and the health risks posed from massive cross-border flows create an urgency and window to act. The recent renegotiation of the North American Free Trade Agreement into the United States-Mexico-Canada Agreement has also increased the salience of regional economic agreements, which are now ripe to reconsider.

A Century of Poor Results: A Cycle of Failure

In the late 19th century, U.S. policy toward Central America was primarily economic in nature. It involved imbalanced trade deals that delivered raw goods — especially sugar, coffee, and fruit — to the United States, but left local economies dependent on U.S. demand. The politics of the foreign tariff, the largest source of U.S. government revenue until the income tax was established in 1913, made matters worse. While not a Central American country, Cuba is a prime example of how these interactions played out. In the 1890s, political wrangling between Democrats (who wanted a lower foreign tariff) and Republicans (who wanted higher one) led to wild swings in U.S. demand for Cuban sugar. Compounding the Panic of 1893, during which the U.S. economy contracted overall, Congress’ enactment of the Wilson-Gorman Tariff of 1894 wrecked the Cuban economy. Within two years, Cuban merchandise exports to the United States shrank by 47 percent while its sugar exports (its main industry) fell by 62 percent. The tariff is often cited by historians as a cause of the 1895 Cuban rebellion against Spain, which led to the Spanish-American War.

This dependency on U.S. demand, exacerbated by the region’s historically exploitative economic relationships with European powers and weak local governance, led some Central American countries to financial ruin. The region still experiences the consequences of those dynamics today.

Over the course of the 20th century, the United States increasingly intervened militarily (overtly, then covertly) to engineer political outcomes, stabilize economies, and promote U.S. interests, deploying force over 80 times to Central America between 1898 and 2000.  Some of these interventions (like Guatemala in 1954) did appear to leaders at the time to be short-term successes for the United States, but few, if any, led to lasting, positive change.

Diagnosing the Problem: Security and Economics

Northern Triangle countries all experience extraordinarily high levels of corruption, gang violence, homicide, extortion, and drug and human trafficking. They have weak central states that are unable to curb and police these activities. As a consequence, their people flee.

Starting in 2014, the United States witnessed unprecedented migration flows from Guatemala, Honduras, and El Salvador, vastly outpacing migration from Mexico. In Fiscal Year 2019 alone, the United States apprehended 608,000 unauthorized migrants from the Northern Triangle (1.9 percent of the area’s population). The dynamic is also self-perpetuating. Drug cartels benefit from taxing migrants and handlers. In 2017, for instance, RAND estimates that cartels generated somewhere between $30 million to $180 million in revenue by collecting taxes from migrants. Emigration thus strengthens drug trafficking to the United States and further weakens Northern Triangle economies (which then undermines the state and strengthens gangs).

President Donald Trump’s policy has been to institute harsher, often ruthless immigration policies at the border. These moves mistakenly assume that U.S. immigration law incentivizes (or deters) migrants. But to Salvadorans, Hondurans, and Guatemalans, U.S. immigration policy does not matter — the choice for many is emigration or death.

The many intertwined issues plaguing the area stem from two basic realities: citizens lack the security and economic incentives to remain. U.S. policy alone cannot fully resolve all of the issues facing the Northern Triangle, but a change in America’s approach to the region may make a meaningful difference, advance U.S. interests, and improve the lives of people in Central America.

Resolving the Security Deficit: A Regional Peacekeeping Force

Violent gangs, such as MS-13 and 18th Street (and their offshoots), present the greatest security threat to the Northern Triangle. Homicide rates in those countries are among the world’s highest — El Salvador stands first; Honduras, fifth; and Guatemala, 19th. Gangs impede the state’s ability to police within its borders. The stronger the gangs, the weaker the state, and vice versa.

Guatemala, Honduras, and El Salvador lack the state capacity (and sometimes political will, given endemic corruption) to challenge gangs. Strengthening state policing capacity is one way of confronting gangs. Over the last several years, the United States has spent a few billion dollars of aid toward this end through an Obama-era initiative called the U.S. Strategy for Engagement in Central America (a spin-off of the Mérida Initiative for Mexico and Central America, which itself followed Plan Colombia). The Trump administration decreased the annual aid package, undoing the little good that was done, but the strategy was never sufficient in the first place.

The current aid package primarily involves strengthening police and armed forces through training, improving curricula, and vetting new officers. Though important, that policy amounts to a dribble to put out a fire, when what is needed is a fire hose. The Northern Triangle needs a stronger security presence to overwhelm gang activity. One option would be to unilaterally send in U.S. troops to help fight gangs, but such interventions in Central America have not served the region well in the long term. They lack legitimacy, weaken American standing in the hemisphere, and reinforce imperialistic perceptions of U.S. relations with Central America.

Coordinated intergovernmental options, however, do not inspire confidence at the moment. The primary political and security governance institution in Latin America, the Organization of American States, has no permanent enforcement mechanism. It lacks teeth and its current peacekeeping initiatives and capacity mostly have to do with training, mediation, and conflict resolution.

However, such an enforcement mechanism — which would depend on the consent of Northern Triangle countries —  would enhance regional security. And there would be some precedent for this. Internationally, peacekeeping forces are regular features of U.N. initiatives. Though they are often derided as ineffective, peacekeeping forces tend to shorten the timeline of ongoing violence. In the Northern Triangle, violence is ongoing, and a peacekeeping force could reduce that violence by acting as a deterrent to gangs, containing violence, and strengthening state authority and peace processes.

Peacekeeping forces also have some historical precedent in Latin America itself. In 1965, under the auspices of the Organization of American States, the Dominican Republic hosted an Inter-American Peace Force. Granted, it followed an American intervention and lasted only two years before being disbanded, but it did exist. And what’s more is that Honduras and El Salvador contributed to it with troops and staff.

While the United States can revive the idea of an ad hoc inter-American force, it would be more effective to entrench a legal mandate for peacekeeping forces within the Organization of American States’ constitution. This would be similar, in a sense, to African Union peacekeeping forces. A permanent enforcement mechanism would benefit from the efficiency of institutional memory and precedent. As the largest power in the Western Hemisphere, if the United States helped fund, organize, and contribute staff and troops to the initiative, it would stand the greatest chance of success. The United States has already done so with U.N. missions (albeit with relatively low troop numbers). Why not do it closer to home? Many significant questions, of course, would need answering: how missions are approved, how they are planned, who contributes to them, and who leads them. At a minimum, the Organization of American States would need some analogue to the U.N. Security Council.

Some Organization of American States members might balk at the idea of a regional peacekeeping force. A country may not want the troops of its neighbors deployed in its territory. That is a fair concern, but it is not prohibitive of establishing a peacekeeping apparatus. One could argue the same thing about states hosting U.N. peacekeepers, or African Union peacekeepers, but those missions continue.

Resistance to establishing a permanent regional peacekeeping mechanism does not make it any less necessary. The harsh truth is that the depth of gang violence in Northern Triangle countries requires a sustained challenge from state-run policing forces. Those forces are currently inadequate, and mere training assistance will not defeat gang violence in the short or medium term. An international peacekeeping force, operating under the banner of the Organization of American States and coordinating with local state forces, would deliver the requisite security boost. To build support for the idea, the United States could start with its close partners in the hemisphere, including Canada, Mexico, and Colombia.

A New Economic Relationship: Treating Different Economies Differently

Citizens have weak economic incentives to remain in the Northern Triangle. All three countries are clustered in the bottom third of World Bank rankings of GDP per capita. The COVID-19 pandemic further deepened economic hardship. El Salvador’s economy, for instance, faces a projected 5.4 percent contraction in 2020. And with each ensuing year, as more of the local labor force emigrates, the economy risks additional erosion.

To build economic opportunity in the Northern Triangle, the United States already contributes aid through the U.S. Strategy for Engagement in Central America, which has continued, if in a diminished way, under the Trump administration. These initiatives — primarily executed by the U.S. Agency for International Development, the Department of Commerce, and the Department of Defense — are intended to build up civil society resources, protect the agricultural sector, and expand access to energy. Northern Triangle countries are also recipients of aid through an Inter-American Development Bank initiative, Alliance for Prosperity, which is supplying $22 billion to Northern Triangle countries over a five-year period. They have also received one-off assistance from the International Monetary Fund.

Beyond this aid, U.S. economic relations with Northern Triangle countries are defined by the Dominican Republic-Central America Free Trade Agreement. This free-trade agreement allows Guatemala, Honduras, and El Salvador tariff-free access to the U.S. market and other markets in the region.

Yet, free-trade agreements can bring mixed benefits to small, failing states. In a perfect world of free trade between two countries, each country produces different goods that the other hopes to purchase. No side thus has industries that face foreign competition. In more complex relationships, free-trade agreements can still be mutually beneficial when robust economies can adapt to competition abroad. But weak economies of failing states are particularly vulnerable to free-trade agreements with big powers. This very fear of foreign competition led the United States itself to eschew free-trade agreements for most of its history. And while some small countries, like Panama, seem to have benefitted from free-trade agreements with the United States, the truth is that Panama’s growth rate was, on average, higher in the decade prior to its trade agreement.

In the case of a country like El Salvador, the Dominican Republic-Central America Free Trade Agreement opened up its agricultural sector to foreign competition before it had the resources to adapt or compete. Products like wheat or corn, for instance, became cheaper to import from the United States than to produce locally. As these imports grow, local Salvadoran farmers either have to adapt or face displacement. True, Salvadoran consumers benefit from being able to buy cheaper products, but that benefit does not necessarily outweigh the cost of disruption to an already fragile economy without the means to adapt quickly. More telling is the manufacturing picture. Industry accounts for 27.7 percent of Salvadoran GDP. Over the course of the trade agreement’s introduction, however, Salvadoran merchandise trade with the United States (its largest trading partner) went from a $200 million trade surplus to a $600 million trade deficit. This is the story for each of the Northern Triangle countries. Northern Triangle economies grew at precisely the same pace from 2006 to 2016 under the agreement as they did from 1996 to 2006, the decade before the Dominican Republic-Central America Free Trade Agreement. It is debatable that the Dominican Republic-Central America Free Trade Agreement helped at all, and instead only disrupted various local industries.

This economic relationship encapsulates a century of lopsided U.S. policy in Central America. In a narrow sense, U.S. interests are advanced by transforming its trade deficits into surpluses. But in the case of the Northern Triangle, a paltry gain for the massive U.S. economy can be a harmful loss to the region’s small, struggling, local economies. And it only contributes to the cycle that produced the problem in the first place.

In other words, the economic relationship between the United States (with a GDP exceeding $21 trillion) and the Northern Triangle (whose combined GDP exceeds $129 billion) is fundamentally structured incorrectly. Though it delivers short-term, minor economic gains to the United States, it limits the Northern Triangle’s ability to grow its fragile economy. Guatemala, Honduras, and El Salvador should not want unrestricted free-trade agreements with the United States. They should want to protect their local industries to a point where their economies are ready for foreign competition, and then they should want free trade.

It would be far more efficient for everyone to simply structure a better economic relationship. To genuinely build Northern Triangle economies, which is greatly in the interest of the United States, it is necessary for Washington to renegotiate the Dominican Republic-Central America Free Trade Agreement. This would enable Northern Triangle countries to protect local industries of their choice by instituting tariffs on imports. Northern Triangle exports would thus have completely free access to the U.S. market, while the United States would only have duty-free access to industries in which it did not compete.

Such a renegotiation would actually help Northern Triangle countries build their local industries, and it would come at only a small short-term cost to the giant U.S. economy. American politicians might be averse to constructing a trade deal that looks beyond the trade deficit. Opponents might attack it as being imbalanced and a bad deal for the United States. But what is the point of a trade deal that might yield millions in surplus, if billions must be spent to address challenges exacerbated by that very trade deal?

A new trade deal would contribute to economic and security benefits over the medium and long term. A stronger regional economy in Central America would help to stem emigration, weaken drug and human trafficking networks, and end the endless cycle of regional economic depravity. By reducing the need for American aid, renegotiating the existing trade framework between the United States and the Northern Triangle would actually work to America’s benefit over time.

This policy would run counter to the prevailing U.S. approach to trade with the region and the rest of the world. Trade negotiators, after all, are charged with securing the best deal possible for their country. But renegotiating the Dominican Republic-Central America Free Trade Agreement is the right policy for the circumstance. And by no means should the Dominican Republic-Central America Free Trade Agreement be discarded entirely. Many economic benefits accrue from loosening foreign investment restrictions and other aid for civil society organizations, education, and energy resources. But the agreement should be adjusted to help the economies of the Northern Triangle.

This solution is specific to the needs of small, struggling economies of failing states that need protection, time, and help to grow their industries. In the Dominican Republic-Central America Free Trade Agreement, countries are allowed to release import tariffs gradually on agriculture, but agriculture only accounts for a small portion of Northern Triangle economies. Once their economies have some stable basis, the United States should consider integrating them into the newly negotiated United States-Mexico-Canada Agreement toward a more integrative, regional trading community.

COVID-19 Provides Urgency and a Political Window

The United States should re-orient and re-focus its strategy in Central America. The region faces a number of security challenges — such as gang violence, drug and human trafficking, and immense migratory flows — that show no signs of improving. The COVID-19 pandemic exacerbates the risks of massive migration flows, and it also presents a stark opportunity to Central American leaders facing economic contractions to seek international help in building their economies and challenging violent gangs. This kind of political window may not outlive the virus.

The Trump administration should work with the Organization of American States to establish a regional peacekeeping force for the Northern Triangle. U.S. troops and staff should not only be involved (as they already have been, historically, in U.N. peacekeeping missions), Washington should also help organize and finance the peacekeeping force. While the politics surrounding this effort would be fraught, it is likely the only effective approach to combat crime and drug trafficking in the region. In addition, the United States should renegotiate the Dominican Republic-Central America Free Trade Agreement in a way that will genuinely promote Northern Triangle economic growth. Washington recently renegotiated the much larger project of the North American Free Trade Agreement, yielding the United States-Mexico-Canada Agreement in 2020. The political salience of the U.S.-Mexican border crisis and American deaths from drug overdoses also provides a political window to make big and bold policy choices to renegotiate the lackluster regional security order to resolve the root causes of Central American instability.

 

 

Dr. Aroop Mukharji is a postdoctoral fellow at the Center for Strategic Studies at the Fletcher School of Law and Diplomacy. He received his Ph.D. in Public Policy from the Harvard Kennedy School, where he is an associate in the Applied History Project at the Belfer Center for Science and International Affairs. Follow him on Twitter at @aroopmukharji

Image: U.S. Air Force (Photo by Staff Sgt. Siuta B. Ika)