According to a new report by Standard & Poor’s Ratings Services (S&P), entitled Credit FAQ: DR-CAFTA’s Success Depends On Meeting A Challenging Agenda, the region faces multiple challenges in these areas and they must be addressed for the optimistic projections of CAFTA’s impact to be realised.
If, for instance, Central American producers cannot move their commodity products from the interior to the ports quickly, or if the labour force is not equipped to work in a high-tech or semi-conductor manufacturing plant, the trade agreement’s provisions are moot.
S&P credit analyst and report author Roberto Sifon Arevalo says that addressing these issues will be difficult and expensive because of the region’s pressing social needs, low tax revenue levels and “fiscal rigidities”.
Ironically, the expected loss of income from the trade tariffs eliminated by CAFTA will put a further bite on these countries’ treasuries.
Also, certain business regulations and banking supervision and credit policies need to be deepened and integrated to provide more transparency and reduce the cost of doing business region-wide.
“DR-CAFTA is not a magic solution – needed adjustments must be implemented before positive and sustainable results can be achieved,” Mr Sifon Arevalo says.
The good news is that the region’s financial sector is liquid. “From that perspective, it is in fairly good condition to meet an increase in the demand for credit,” he says.