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A SPECIAL ADVERTISING SUPPLEMENT TO THE NEW YORK TIMES MAGAZINE

CAFTA

U.S.-Central America Free Trade Agreement

Comprehensive Agenda of Cooperation

HONDURAS & EL SALVADOR

Enactment of the Central American Free Trade Agreement (CAFTA) between the United States and five Central American nations will benefit both regions by encouraging multilateral trade and forging new commitments on labor rights; providing the participating nations with a firm base on which to build stronger economies.

especially export-led industries. The pact is designed to move forward the goal of a Free Trade Area of the Americas agreement by 2005. Many in the region see CAFTA as a catalyst for change. The process is expected to accelerate the pace of political and economic reform in each of the member states. During the past decade, Central American countries have established democratic systems of government and begun implementing economic reforms to promote privatization and competition, and to open markets. Huge advances have been made in Honduras and El Salvador in terms of policy reform and liberalization. To take full advantage of the trade talks, each country must invest in projects that improve competitiveness by reducing the logistical costs of doing business and facilitating trade. Transition programs for non-competitive sectors are equally important. The region is raising its institutional capacity to administer the complex group of trade and investment obligations involved. Investment in critical infrastructure is also a priority. Massive changes have already taken place. With an agreement planned for early 2004, the five member states have worked hard to eliminate intra-regional trade barriers. There is now harmonization on more than 90% of all tariffs. Not so long ago, the idea would have been unimaginable. CAFTA is seen as part of a longer term development strategy. The ultimate goal is to create productive employment, to raise income levels and increase social wellbeing. The majority of Central America's people still live in rural areas with high poverty levels. It Continues on page 2

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HONDURAS

Industrial boom drives economic growth / Page 3

EL SALVADOR

Desire and determination to succeed / Page 6

n January 2002, President George W. Bush announced his intention to pursue a free trade pact with five countries in Central America ­ Honduras, El Salvador, Costa Rica, Guatemala, and Nicaragua. Although two-way trade between the U.S. and Central America is already worth nearly $25bn annually, it marked a fresh commitment to forge a stronger partnership. There are also plans to integrate the Dominican Republic into the agreement. The Central American Free Trade Agreement (CAFTA) is now a fundamental part of the region's broader efforts to promote economic integration as well as open more trade routes with America. U.S. exports to the CAFTA group totaled $11.5bn in 2002, a 42% rise since 1996. Imports were worth around $13bn. The region has also become a popular location for U.S. investment,

This supplement has been produced and sponsored by Summit Communications. It did not involve the reporting or editing staff of The New York Times.

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Continued from page 1 is essential that these people are given access to the full range of opportunities. The rejuvenation of regional integration is one of the most significant side effects of the agreement. Continuous dialogue among member states across a broad spectrum of issues in addition to trade has led to the realization that the region must stand united in the face of globalization. CAFTA is expected to make the entire region more attractive to foreign investors, creating a larger domestic market with greater access to North America.

SPECIAL ADVERTISING SECTION

Regional bank bolsters trade and financial links

The Central American Bank for Economic Integration (CABEI) is the largest financial organization in Central America, with some $3.4bn in assets. It has a leading role to play in the future prosperity of the CAFTA region, helping to bolster trade and financial links between member states and the rest of the world. The Honduras-based bank has an agenda to back regional development initiatives through carefully targeted project loans and assistance, both in the private and public sectors. Resources are channeled through a network of over 100 banking and non-banking institutions throughout Honduras, El Salvador, Guatemala, Nicaragua, and Costa Rica. Founded in 1960, CABEI focuses on three core areas ­ poverty reduction, regional integration and international competitiveness. Its portfolio includes several

FUNDING A SOCIAL TRANSFORMATION

CABEI's portfolio is extremely diverse supporting a wide range of productive areas and social initiatives. Its position is distinctive from other multilateral lenders in that the private sector makes up more than a third of its overall loans book. The bank's portfolio includes loans to several high-profile infrastructure developments spanning water, energy, transport, and telecommunications. The aim is to equip the region's ports, airports and other facilities with the necessary hardware to handle the anticipated growth. It is also boosting national industries such as clothing production in Honduras and Costa Rica's electronics manufacturing. With backing from CABEI, Honduras' apparel industry

critical infrastructure projects. Investment-grade credit ratLast year, it disbursed a record ings from all three agencies, $1.1bn to projects across the Moody's, Fitch and Standard & region including the modernPoor's, highlight the bank's finanization of El Salvador's roads cial credibility. In June 2003, a and Costa Rica's mobile tele- HARRY leading financial markets magaE. BRAUTIGAM phone network. zine recognized CABEI's achieveCABEI's President, Harry E. President of CABEI ments with the Best Financial Brautigam, believes it is essenBorrower of the Year Award in tial that the countries of the Central Latin America. It followed the bank's debut American region adopt a long-term co- issue, a 10-year $200m bond, that proved operative approach through initiatives like hugely popular with investors from the U.S., CAFTA. Indeed, in December 2002, it Latin America, and Europe. approved $2.5m in support for the CAFTA Mr. Brautigam now sees real momennegotiations with America. "CAFTA, as tum in the Central American region for intewell as other trade agreements, will allow gration into the world economy. CABEI is our countries to access new markets, con- an example of what can be achieved solidate their positions in old markets, har- through regional co-operation efforts. ness new foreign investment, and introduce "Unity is essential in today's complex and new technologies and knowledge," Mr. competitive world." Brautigam says. Indeed, it is important to recognize just CABEI's regional presence, financial how far the region has come in recent soundness, professionalism, transparent years. Dr. Marvin Taylor-Dormond, CABEI's policies, and diverse product mix, are help- Chief Economist, describes CAFTA as a ing to restore investor confidence in the "catalyst for integration" with improveCentral American region. The bank's inter- ments evident in countless different areas. national profile is growing. In addition to One major progress area is in the harmoregional members, extra-regional partners nization of tariff structures. "I think we include Mexico, the Republic of China have made tremendous progress now in (Taiwan), Argentina, and Colombia. Spain and that respect." Korea have expressed their interest in joinThe advancement of CAFTA in re-defining ing. Talks are also progressing with Belize, relations with the outside world is essential. the Dominican Republic, and Panama to Jaime Chávez Almendares, CABEI's become beneficiary non-founding members. Executive Vice President, believes the trade agreement, and the foreign investment it will bring, will raise the profile of the development bank further. "With our correspondent network of banks throughout the region, CABEI will be seen in a much stronger light by the international financial community."

MULTILATERAL FINANCING FOR CENTRAL AMERICA IN THE LAST 5 YEARS

WB (World Bank) 18% IDB (InterAmerican Development Bank) 37% CABEI (Central American Bank for Economic Integration) 45%

EQUITY TREND FY JUNE 2000-2003 (IN MILLIONS OF US DOLLARS)

1300 1200 1100 1000 900 2000 Equity 1029 2001 2002 1087 2003 1143 1209

ASSETS TREND FY JUNE 2000-2003 (IN MILLIONS OF US DOLLARS)

3500 3400 3300 3200 3100 3000 2900

CABEI's micro credit program provides small loans to help individuals and local firms develop new business

exports have soared to over $2.5bn. CABEI has made it a point to strengthen its Special Fund for Social Transformation with the aim of improving the lives of ordinary people in Central America. Priority sectors for social funding include health, education, housing, small enterprise and sustainable rural development.

One major social initiative is the Plan Puebla Panama, a cross-border economic development program designed to improve living conditions from the southern states of Mexico down to Panama's border with Colombia. CABEI has pledged $608m to the scheme. Other important social programs include a micro-credit program to provide small loans, as low as $100, to individuals and local industries to foster productive activity, especially in rural, under-developed areas, and protect people from loan sharks. Micro, small and medium enterprise loans already make up close to 10% of CABEI's total financing. There are other initiatives to help more low-paid people purchase their own home.

2000 Assets 3094

2001 2002 3188 3214

2003 3446

BCIE

LOAN PORTFOLIO BY COUNTRY AS OF JUNE 30, 2003

Costa Rica 21% Guatemala 21%

Nicaragua 18% Honduras 19%

El Salvador 21%

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3/ Honduras

Honduras

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INDUSTRIAL BOOM POWERS STEADY GROWTH

CAFTA member states. President Ricardo Maduro says past differences are being put aside, with initiatives like the customs union and the harmonization of tariffs creating a strong sense of unity. He says the U.S. ­ which receives 40% of Honduran exports and makes up over two-thirds of all inward investment ­ is taking notice. "The region is coming together and moving in a uniform way which is much more powerful." Norman Garcia, Minister of Industry and Closer links with U.S. firms will help Commerce, is leading the country's CAFTA promote greater transparency in Honduras negotiations. He says the implementation of and act as another reassurance for investors the trade agreement will pave the way for greater foreign investment, as new firms is only now starting to be discovered. seek access to the U.S. market. It will also The Honduran American Chamber of give American investors a lower cost pro- Commerce promotes bilateral business duction base. "For the U.S. texthrough its 430 member comtile industry to survive it either panies, which include several comes to Central America or it multinationals. Beatriz Valle, will disappear, because in 2006, General Manager of the Chamber China is going to invade with its of Commerce, agrees that U.S. textile products." firms should pay close attention Honduras occupies a privito Honduras. She thinks closer leged geographical location, links with the U.S. will help proamid a stunning natural landmote greater transparency in the scape, and, with four internacountry, another reassurance for tional airports, Miami is just a NORMAN GARCIA investors. "We're going to have short flight away. It is an ideal Minister of Industry to play by the same rules." platform for manufacturers and Commerce Among the local financial seeking to trim costs without community, the feedback is compromising quality. equally upbeat. Banco Uno is pioneering the According to Jesús Juan Canahuati of regional outlook, offering an identical serthe Honduran Association of Maquiladoras, vice in all countries where it operates. René CAFTA offers the chance to build on the Becerra, General Manager of Banco Uno, positive developments that have already says free trade is only the start. The longtaken place in the country. He says the term aim must always be to build sustainopportunity has always been there but it able growth.

CHAMBER OF TOURISM

n recent years, Honduras has maquiladoras sector in the last proven itself to be one of the two years ­ shows how far the most resourceful and stable country has come. Investment countries in Central America. has brought employment, foreign Steady economic growth, based capital, and new skills. Honduran on a thriving maquiladoras (texmanufacturers now produce tiles) sector, and diversification sophisticated hardware for into non-traditional agriculture, American car giants. The agriculIT, electronics and tourism, has tural base has widened to include placed it at the forefront of the RICARDO MADURO exotic vegetables, shrimps, and CAFTA group. other export crops. The tourism President of Much of the credit goes to Honduras industry is also booming. President Ricardo Maduro who President Maduro believes has worked tirelessly over the last two Honduras must maximize its competitive years to improve social conditions and advantages, including its proximity to the promote development. Long-term priori- U.S., to stay ahead of the pack. There are ties include poverty alleviation, health, ongoing improvements to the nation's and education. Here, a number of quick transport infrastructure to facilitate trade. wins have been realized, including rais- He believes Honduras remains one of the ing nutrition rates among school children. region's best-kept secrets. "We need to Job creation is also critical. "We cannot let ourselves be known." afford to lose one single job," he says. The recent strength of the economy ­ evidenced by the turnaround in fortunes of the

Lower cost production base will attract American investors

Long-term priorities for Honduras include improvements in health and education

onduras has a lot to gain from the CAFTA trade talks. The transformation of its industrial and agricultural economy has placed it in an enviable position, ready to capture a bigger slice of intra-regional trade, and develop its links with the United States. High productivity levels, a skilled workforce, and improving infrastructure suggest a rapidly advancing economy. The government is understandably willing to foster the growing links among the

MUNICIPALIDAD YEGUCIGALPA

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FOREIGN INVESTMENT WILL DRIVE DEVELOPMENT

Tourism, textile assembly operations, and forestry are just some of the sectors that have growth potential

egional integration will bring new commercial markets and significant development expanding the non-traditional secopportunities. According to tor, in areas like fisheries, poultry, and pork. Institutions such Minister of Finance, Arturo as Zamorano University in Alvarado Sanchez, the governTegucigalpa is taking a lead role ment has limited capacity to in the development of new agriinvest, putting the emphasis heavcultural products. ily on foreign investment. This Patricia Panting, Minister will help push economic growth of Natural Resources and both in Honduras and across ARTURO Environment, notes the huge bioCentral America. "It is important ALVARADO diversity of Honduras, something the government creates suitable SANCHEZ conditions so that private invest- Minister of Finance which not only brings opportunity but also great responsibility. ment can come," he says. Areas with strong development potential There is already an infrastructure in place to include tourism, textiles, assembly opera- protect the country's lush tropical environtions, and forestry. Norman Garcia, Minister ment, through organizations like La Fundacion of Industry and Commerce, says there is a Vida, which works with NGOs on local prolong history of American investment, dat- jects. At the same time, Honduras is ideally ing back over 100 years. He says the coun- placed to tap niche markets such as ecotry's urban infrastructure development on the tourism, in which the emphasis is always on Atlantic side is unique to the region. "You sustainable development. "Environmental eduwill not find another country with a city as cation is forever," she says. large and as important in commercial terms as San Pedro Sula in Central America." Outside the city is the region's only deepwater Atlantic port. Agriculture is also a major priority. Honduras is already the largest water melon and cantaloupe exporter to the U.S. and one of the leading suppliers of cultivated Spanish colonial forts, Mayan ruins, wild shrimp. The list also includes pineapples, car- rainforests and golden beaches; the natrots and more traditional crops such as ural beauty and history of Honduras are bananas, and coffee. Total exports have risen almost without comparison. It offers more massively in the last decade from $800m in forest area, Caribbean beaches, and indigenous cultures than any other Central 1992 to $3.2bn in 2002. Mariano Jiménez Talavera, Minister of American country. It is also home to the Agriculture, says Honduras needs to adopt a second largest reef formation in the world, long-term strategy to attract fresh capital, good hunting ground for scuba divers. The fast growing tourism industry is technology and know-how from overseas. "We can provide a clean environment, a big well organized. As a result of some hard country with a lot of potential, and we have work, many species of rare plants and anitrained people." It also means developing mals can still be found in their natural habi-

The Honduran Ministry of Tourism is promoting the country through three key initiatives; Caribbean Creation, Archaeology, and Nature and Adventure

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Commitment to high value from a unique vacation destination

Boutique hotel, Portal del Angel: the best kept secret of Tegucigalpa

tats. The government is understandably pass the level of service that a big hotel can committed to low impact, high value provide. We offer something special ­ the tourism to protect its prized assets. At the details, the warmth, and customer service." The hotel first opened in 1997 with 14 same time, it aims to attract new investrooms catering to visiting businessmen. It ment to the sector. has since expanded with a furThere are efforts to build on ther nine rooms and now caters the country's core strengths to all kinds of travelers includthrough three key initiatives. ing foreign tourists and long`Caribbean Creation' offers a mix stay guests. Many find it through of beaches, reefs, and diving; the Internet. `Archaeology' draws visitors to She describes it as Tegucigalpa's the Copan Ruins and the regions best-kept secret. "We have earned surrounding the Copan Valley, our reputation on guests' experiSepulturas and La Entrada; while ences. Everyday we are thinking `Nature and Adventure' is based MARIA ALICIA DE about how to improve our service on the largest tropical forest in ALVAREZ and to make a better hotel." the Americas after the Amazon. Hotel Portal del International hotels are also "Our logo is: one small coun- Angel operating in this growing martry, three small worlds," says Thierry de Pierrefeu, Minister of Tourism. ket. Other important players include Grupo He recognizes the importance of Central Real, the hotel division of Grupo Poma. America as a multi-destination region to outsiders but is eager to flag the country's own unique attractions. Honduras is nurturing its international profile through a series of exciting projects. "We needed something to put Honduras on the world tourism map," he says. "We are developing the Bahia de Tela resort, a major investment of $60m which involves the Private enterprise council Italian and Spanish governments and the pricampaigns to cut bureaucracy vate sector in Honduras." When completmong the Honduran government's ed, it will have two thousand rooms, seven leading priorities, shared by CAFfour and five star hotels, and golf courses. TA, is support for the indigenous priWell known international hotel chains are planning to invest their money on the site. vate sector. It is a policy that underpins Certainly, the standard and quality of local broader efforts to promote social and ecohotels is on the rise. Maria Alicia de Alvarez, nomic growth throughout the region. Norman Garcia, Minister of Industry and owner of the Hotel Portal del Angel, a small and stylish boutique property in Tegucigalpa, Commerce, believes the Central American says there is now more emphasis on cus- trade pact will allow local companies access tomer service ­ the only way of keeping up to new markets and open up possibilities is taking care of the details. "We can sur- for partnering foreign enterprises, creating

A BETTER CLIMATE FOR BUSINESS

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CHAMBER OF TOURISM

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5/ Honduras

BANKS LOOK TO INTEGRATION IN THE U.S. MARKET

Young and innovative financial institutions are setting high banking standards for the Central American region

he Honduran banking sector has been experiencing a period of consolidation and modernization with more to come. The government has improved transparency, tightening legislation and strengthening the regulatory prowess of the national bank. Arturo Alvarado, Minister of Finance, thinks the effects of CAFTA will be felt throughout the banking sector with the opening of new markets and the advent of greater competition. There are already links between some local finance institutions and larger U.S. players. "In the case of Honduras, we have a very strong integration with the American market," he says. Banco Credomatic is one of the more innovative players in the market. Although it is fairly young, obtaining a license in 1997, A focus on small businesses is key to the it is part of a much larger and longer estabdevelopment of the private sector lished regional financial group. It was one of the first in the region to implement an ATM a better climate for business. "Not only will network, credit cards, direct debits and othit foster investment from our own investors, er electronic transfers. Alberto Galeano but also from foreign companies," he says. Burgos, President of Banco Credomatic, says: "All of our ATM networks The Honduran Council of are connected to the VISA, Private Enterprise, known locally Master Card, American Express as COHEP, is the representative and Diner's Club global netorganization for the private secworks. In this way our custor. Its 10,000 members come tomers can take out cash using from all parts of the economy, their credit cards at ATMs all from tourism to textiles, reprearound the world. These transsenting some 85% of the workactions represent a high volume force. Jacobo Regalado, President of business for Credomatic. We of COHEP, says the council camALBERTO GALEANO are expanding our services and paigns for a better deal for the BURGOS having success in doing so." He private sector, including slashing President of Banco adds that the bank recently red tape and improving the work- Credomatic received an international ing environment. A key part of ISO9000 quality award for its the development of the private high standards. "We are cursector is the increasing focus on rently developing a company culsmall businesses. He says the ture focused on the quality of CAFTA initiative adds momenthe services we offer both extertum. "Since we started with CAFnal and internal clients." He feels TA there has been a great deal of regional integration is a positive Central American integration in thing for the financial sector, crethe private sector. We have been ating a larger market and helpworking together ­ for the first ing to raise standards. "This is time we have many Central JAVIER ATALA why, as a group, we see ourAmerican federations providing FARAJ Vice President and selves as a regional bank." different products." General Manager of Others are making an impresThe Foundation for the Banco Ficohsa sion further away. Banco Investment & Development of Exports (FIDE), an agency originally derived Ficohsa, another young bank founded in from USAID that promotes inward invest- 1994, has aimed for the U.S. market. It has ment from offices in the U.S. and Asia, also established three branches in Florida and one supports private sector growth. Vilma Sierra in Georgia under the name Ficohsa Express. de Fonseca, Executive President, says this There are ambitious plans for growth in New includes fostering links between small firms York, Virginia, North Carolina, and California. with larger, experienced export companies. Javier Atala Faraj, Vice President and General Improving technology transfer and quality Manager, says the branches help customers standards is also vital. "FIDE is very focused remit money back to their families in on eliminating barriers," she says. Honduras. By the end of 2003, the total vol-

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Banco Credomatic received an ISO9000 quality award for its high standards

ume of remittances to Honduras could exceed $1bn. Banco Ficohsa has also made its mark on the technology front with the first on-line banking service in Honduras. There is plenty of appetite to assist foreign investors too. "I think foreign companies will need the bank's services, such as loans and other services, and we are prepared for this." Banco Ficensa is another important local bank with a regional presence combining local know-how with the very best banking practices. Its customers include corporate clients from the U.S., Europe, and across Central America. Established in 1974 as a private institution, it is also nurturing its links

with the U.S. market. Correspondent banks include Citibank and Bank of America. Roque Rivera Ribas, Executive Vice President and General Manager of Banco Ficensa, agrees there will only be room for those institutions operating at international standards. He also sees a niche to support the 600,000 Hondurans living in the U.S., which regularly send home money. "We can take care of those people." On the regional side, he believes CAFTA will create a more conducive environment for finance business. Improvements to the banking code are already marked out clearly. "The banks can take more risks with a more stable legal framework."

BANCO CREDOMATIC

FIDE

El Salvador/ 6

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El Salvador

l Salvador is the smallest country in but what has been done with the resources Central America, but perhaps also the that we have available has been pretty good." most dynamic. The desire to recover The cost of the civil war was large. From from more than a decade of civil war dur- 1979 to 1990 losses from damage to infraing the 1980s (known in the country as the structure and means of production due to "lost years") has imbued El Salvador's guerrilla sabotage and the effect of reduced peace-time governments with impressive export earnings totalled $2.2 billion. More determination and energy. recently the country has had to recover from "We put our house in order," says Juan the effect of its natural disasters. El Salvador J. Daboub, Minister of Finance. "We brought suffered from two earthquakes at the begindown inflation from 30% yearly to standard ning of 2001, when parts of the country international levels ­ the average in the past damaged by Hurricane Mitch in 1998 were 14 years has been 2.5%. We cut the num- still under reconstruction. The cost of the ber of taxes and import duties damage was estimated at from 130 to three: Value Added between $1.5 and $2 billion. Tax, Income Tax and import duty. In spite of these setbacks the Basically, we have a simple proeconomy has proved resilient, business tax system." growing twice as much as the "We are proud of what we world average and 1.7 times have done," says Miguel E. more than the Latin American Lacayo, Minister of Economy. "It average. This is partly due to a is easy to forget where we have commitment to free markets and came from and how tough the sitcareful fiscal management. It is uation was ten years ago. We JUAN J. DABOUB also thanks to a program of diverlived more than a decade of very Minister of Finance sification, which has reduced the bloody conflict and we have been dependency of the country on able to do something that very few coun- the coffee sector, that has historically been tries in the world have been able to do, which the backbone of the economy. is to achieve total peace." The international community rallied "Today you come to our country and you strongly to help El Salvador recover from have no idea how much we have recon- its natural disasters by providing a total structed. We spent several years' budgets. aid package of $1.3 billion, with more than We know there is still a lot of work to be done $168 million from America.

DESIRE AND DETERMINATION TO SUCCEED

Private sector thrives on exports drive and access to new markets

The final round of Central American Free Trade Agreement (CAFTA) talks this month will also mark an important milestone for El Salvador in its quest to fully integrate into the global economy. A CAFTA agreement also will mark a political and diplomatic triumph for El Salvador, which has been a leading country in the integration process. "This is probably because we are the smallest, because migration flow," says María Eugenia we have a high population and because we Brizuela de Avila, Minister of Foreign are the best prepared," says Carlos Affairs. "For us the U.S. is the most imporQuintanilla Schmidt, Vice President of tant market," she adds. About 65% of the El Salvador, who is also President of Proesa, country's trade is with the United States. the country's investment promotion agency. It currently imports $159 million more than "We believe El Salvador cannot survive it exports to its vast northern neighbor. in this globalized world as a separate econHowever, the balance is beginning to omy, we must integrate," says the Vice change. El Salvador is pursuing a stratePresident. "El Salvador is ready for that. gy to increase exports, especially of manOur businessmen and industries know that ufactured and non-traditional products. The this is a great opportunity for them to sell negotiation of trade agreements is part of more products. That is why the private this strategy. Exports grew 4.5% in 2002, sector in El Salvador is very while imports grew just 3.3%. determined, compared to the "Where we can compete is in private sectors of other Central the very selective niche of agroAmerican countries." industrial products that thrive El Salvador is a member of in our climate, for instance, flowthe World Trade Organization and ers," says the Minister of benefits from membership of the Foreign Affairs. successful Caribbean Basin "CAFTA will allow us to extend Initiative. It has also signed free the restricted market access we trade agreements with Mexico, currently have in businesses like CARLOS Chile, the Dominican Republic QUINTANILLA textiles, meat, sugar, dairy prodand Panama and increased SCHMIDT ucts, and tuna," says Salvador exports to all these countries. In Vice President of Urrutia Loucel, Minister of addition, its participation in a El Salvador Agriculture and Livestock. The recently signed Political Dialogue country also sells the U.S. ornaand Cooperation Agreement with the mental plants, corn flour, and red beans. European Union will lead to a customs union "Investors need to see this as a land of by May 2004. opportunity where they can reduce their The country's foreign ministry has been costs of production," says Jose A. Quiros, at the forefront of these initiatives, also Minister of Public Works, who promises taking a lead in building the political con- that by the end of 2004 "El Salvador will sensus within the country to support free have the best infrastructure in the region." trade. "CAFTA will definitely be seen as One of the most ambitious projects is the an enormous opportunity for job genera- construction of a dry canal between Puerto tion, political stability, and for lessening La Unión on El Salvador's Pacific Coast and Puerto Córtez in Honduras on the Caribbean Free trade initiatives and further Sea. Designed to meet the needs of coninternational economic integration will tainer transportation, the canal will create lead the country to greater prosperity an alternative to the Panama Canal.

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PROESA

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7/ El Salvador

the privatization of the banking system and the public pensions system. Import duties have been reduced and price controls eliminated. Measures such as the stricter enforcement of intellectual property rights have also improved the investment climate. With the private sector now firmly established the government 's priority has become the continued diversification of the economy away from the production of coffee and sugar. World prices for these two commodities are currently the lowest in history. The country has been able to maintain some growth through exports, but not to its traditional markets. In 1988 coffee exports accounted for more than half of export earnings. In 2002 they were 3.5%. An agro-industrial reconversion program has been set up to PATRICIA manage the diversiFIGUEROA fication out of coffee Executive Director production. It has of Proesa already productively re-converted 500,000 hectares of coffee preserve. The most successful sector is the maquila industry, which cuts and assembles clothes for export to America. The Caribbean Basin Trade Partnership Act allows goods from the apparel industry to enter the U.S. duty-free under certain conditions. Growth in the maquila sector has already generated 90,000 jobs or 2% of the productive labor force. Other growth areas include call centers, distribution centers, energy production, Continues on page 8

El Salvador is capitalizing on its proximity and the efficiency of its labor force as a source of imported goods to America

CAFTA ACTS AS CATALYST FOR U.S. INTEREST

Promoting the country under the slogan 'El Salvador Works' has stimulated foreign investment

he launch of CAFTA looks set to provide a further stimulus to El Salvador's already dynamic economy. Government estimates show that the agreement could boost annual growth by 4 or 5%. The Salvadorean economy is in good shape to benefit from an expansion in free trade thanks to the importance already given to direct foreign investment as a generator of economic growth. In 2002, the

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Heritage Foundation rated El Salvador as the Central American country with the highest level of economic freedom, and the second highest in all Latin America and the Caribbean. Even so, says Vice President Carlos Quintanilla Schmidt, "the free trade agreement is not a panacea. We must do a lot of work as well." Mr. Quintanilla Schmidt is President of Proesa, El Salvador 's Investment Promotion Agency. In the three years that Proesa has been working, it has brought 95 new investors into the country. The organization's support has also enabled many businesses already in the country to increase their production. The free trade agreement "is also an opportunity for businessmen in the U.S. to have a factory here to produce with less cost and to compete with Chinese products," says the Vice President. "We have been doing everything to attract their investment, based on the slogan `El Salvador Works'," he adds. Everyone at the investment agency sees the inauguration of CAFTA as a crucial moment for the economic future of the country. "When CAFTA happens, many other things are going to happen at the same time. You are going to see U.S. companies looking to distribute their products in the region. You are going to see an increase in trade of all sorts," says Patricia Figueroa, Proesa's Executive Director. "CAFTA is going to ensure that all the work that has been done in El Salvador since the beginning of the 1990s will be

consolidated, such as the democratic progress, the macro-economic reforms, the labor competitiveness and position of Central America as the best place to invest," she says. The government has met with considerable success in stimulating new export industries through fiscal incentives for Free Trade Zones. There are currently 16 zones in the country. The free zone legislation allows companies to benefit from incentives, not only when they manufacture but also when they distribute their goods. "Many U.S. companies are interested in this prospect because El Salvador has one of the best airports in the region," confirms Mrs. Figueroa. "In terms of manufacturing, just about every sector is going to benefit from CAFTA. In terms of tourism we are already negotiating with several groups MIGUEL E. to increase tourism," LACAYO Minister of she adds. Economy The U.S. is by far El Salvador's most important economic partner. Its support for the privatization of the electrical and telecommunications markets expanded opportunities for U.S. investment in the country. More than 250 American companies have established either a permanent commercial presence or work through representative offices. "We have been very successful in opening up to the private sector in those areas where the private sector can do a better job than we can," says Miguel E. Lacayo, Minister of Economy . Other free market policies enacted by the government include

EL SALVADOR WORKS FOR YOUR INVESTMENT

El Salvador's Investment Promotion Agency, PROESA, specializes in supporting and promoting foreign investment and opportunities. A team of experts are standing by to provide you with all the vital information, contacts, and services you need to initiate a successful start-up in agroindustry, call centers, electronics, manufacturing, textiles and apparel, tourism, or distribution centers.

PROESA EL SALVADOR'S INVESTMENT PROMOTION AGENCY Calle Circunvalación #248 Colonia San Benito, San Salvador, El Salvador Tel: + (503) 210 2500, Fax: + (503) 210 2520 www.elsalvadorworks.com

El Salvador/ 8

Continued from page 7 processed food, manufacturing, and various agricultural products for which the country is climatologically and logistically well located. The government hopes that

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GOVERNMENT FOCUS ON FISCAL DISCIPLINE PAYS DIVIDENDS

tourism will also generate significant growth in the future. "Manufacturing is something that most people find very attractive once they come and set up shop here. The labor force is very productive, very easy to train, very stable. You have good infrastructure in terms of what you need to set up a business," says the Minister of Economy. "You can set up a company with this Ministry in two hours. You come here in the morning and two hours later you leave with your social security number, your tax number, working permits, everything. It is a place where it is very easy to do business," he says. Vice President Quintanilla Schmidt agrees. "We must build here not the American dream but the Salvadorean dream. The only way is to create jobs and opportunities."

The traditional dependency on coffee production has given way to new areas of industrial growth such as manufacturing

The biggest source of foreign income is from the 2.2 million Salvadoreans working in the U.S.

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We are a technical institution, committed to:

promoting stability and the development of our financial system consolidating monetary integration generating and disseminating economic data

El Salvador offers advantages as an investment location: Economic Stability Financial Stability US Dollar as Legal Tender Strategically Located Close to the US Market Trade Agreements with Chile, Dominican Republic, Mexico, and now CAFTA Second MOST FREE ECONOMY in Latin America in 2002: Economic Freedom of the World

Banco Central de Reserva de El Salvador

www.bcr.gov.sv [email protected]

PROESA

Contributing to the economic stability of El Salvador

result is that the number of telephone lines per head of population has increased nearly fivefold. Just 8% of the population is without electricity compared to nearly half at the beginning of the 1990s. The number l Salvador has won itself a reputation of people with access to running water has for impressive financial and political doubled to two-thirds of the population. stability since the peace agreement On the revenue side, the government was signed with the guerrillas in 1992. has taken steps to improve tax collection. The country's boldest move was to make In 1999 it started selling bonds on the the U.S. dollar its official currency. In 2001 international finance markets to fund govthe government approved the Monetary ernment operations. El Salvador Bonds Integration Act, which made the U.S. dol- have been some of the most successful lar legal tender alongside the colón. in the whole emerging markets spectrum. However, it has now replaced the old cur- By February 2003 it had sold $2.15 billion rency, which is no longer printed and which in bonds. is only used in isolated rural areas. The biggest source of foreign income "We have locked in the benefits of for the country is family remittances from macro-economic stability by dollarizing our the 2.2 million Salvadoreans (20% of the economy," says Minister of Finance, Juan population) working in America. The valJ. Daboub. The policy allowed a reduction ue of remittances transferred through the in interest rates from 21% to 7%. banking system reached a record total of With the monetary framework fixed, the $1.93 billion in 2002 ­ 13.6% of GDP. government has concentrated on fiscal disOne of the most important institutions, cipline. The 1992 peace accords committed underpinning El Salvador's financial stait to expensive transition programs and social bility is the Banco Central de Reservas del services. However, it has managed to main- Salvador, the central bank, which opertain a budget deficit ates independently of 2.4% of GDP. Total from government. debt for the nonSince the dollarizafinancial public section of the economy, tor of less than 40% the bank's function of GDP means that it has been to regulate has been able to the banking sector. improve its rating "One of our basic from hardship to functions is to investment grade. strengthen the staThe total external bility of the financial debt at the beginning system," says the of 2003 was $5.07 bilbank's President, Luz EL SALVADOR MADE THE U.S lion. Net international María de Portillo. A new DOLLAR THE OFFICIAL reserves totalled $1.6 banking law to strengthCURRENCY IN 2001 AND IS billion. en regulations was NOW REAPING THE BENEFITS Mr. Daboub is proud passed in 2002. New OF MACRO-ECONOMIC of the discipline that rules on capital requireSTABILITY has allowed improvements, risk managements in public services to be financed ment, and exposure of credit outside responsibly over the course of a single El Salvador have also been brought in to decade. "From a corporate perspective, minimize contagious risk. The Central Bank El Salvador is the most healthy economy manages the liquidity reserves of the comin Latin America after Chile," he says. The mercial banks to ensure the stability of the country is comfortably within the IMF finan- banking system. "This is one of its most cial criteria for the region and it will remain important functions as the Central Bank so thanks to policies of debt reduction, can no longer provide banks with loans," governmental efficiency, poverty alleviation, explains Ms. de Portillo. education, and employment creation. The bank has modernized its payment "We cleaned up the financial sector, system and is also developing new finanopened it up and privatized it," he says. "We cial instruments to improve liquidity of also separated the Central Bank from the assets, such as the mortgage portfolios rest of the government. We opened up the of the banks. An Investment Fund Law telecommunications, electricity, and pen- will allow creation of mutual funds prosions industries to the private sector." The viding more liquid and deeper markets.

PROESA

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LEADING THE REGION INTO GLOBAL COMMERCE

El Salvador is acquiring the favorable conditions to become a regional distribution center

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strategic hub in one of the most sta- try and prime facilitators ble and sound economies in the of foreign trade, Americas, El Salvador is set to exploit El Salvador's ports and its location as a regional distribution center airports are the cornerand become the flagship of Central America's stones of infrastructure commercial growth and integration into the development plans, and global economy. By bringing up the country's CEPA is set to meet the ports, airports and railways up to interna- challenge of guaranteetionally competitive standards, CEPA, the ing efficiency and modAutonomous Executive Ports Commission, ernization levels that ensure the country is firmly positioned as a key player in the coun- benefits fully from the increased commertry's commercial and economic expansion. cial activity. The new La Unión Port project, President Flores' efforts to open the the foreseeable realization of an inter-oceanSalvadoran economy to the rest of the world ic channel connecting the Pacific and the are pushing the country to take Atlantic through Honduras, and THE COUNTRY'S advantageous positions in the modernization and expanAIRPORTS AND Central America's imminent sion of airport cargo facilities are PORTS ARE THE growth challenge. El Salvador in the headlines of El Salvador's GATEWAYS TO is now determined to head the development agenda. GROWTH AND region's development through WORLDWIDE TRADE President of CEPA, Mr. Ruy implementing progressive legCésar Miranda, highlights islation and a free market philosophy, which El Salvador's comparative and competitive is showcased by its major role in CAFTA, advantage with the rest of the region regardthe region's Free Trade Agreement with the ing transportation development. "We startU.S., Central America's most important ven- ed developing the airport back in 1980, and ture so far in the path of commercial open- have invested US$80 million from our own ing, and the adoption of the U.S. dollar as resources in the last 8 years. At present, we legal currency in 2001. are the leading airport in the region; passenAs the main entrance gates to the coun- ger capacity of the terminal building has doubled to 2.5 million passengers a year, while we are currently handling 1.8 million, so there is space for growth." The 15-year master plan for the airport development, aiming to cater for the increase in commercial activity generated by CAFTA, also includes a US$2 million investment in the modernization of the cargo terminal, which handles many of the activities related to the Free Trade Zones neighboring the airport. Mr. Miranda draws attention to the strategy of commercial positioning of El Salvador's airport in relation to others. "A beneficial geographic position, with a surrounding land that is available for development, and high security are crucial for maintaining the regional leadership of our airport infrastructure." However, more important than the airports for the realization of CEPA's mission are the ports, which are fundamental for boosting El Salvador's potential as a commercial center. Puerto Acajutla is the mainstay of the country's import and export activities, which is set to experience an unprecedented turn-

around in 4 or 5 years with the opening of a CEPA manages the leading airport in Central America and aims to met the new port. "Today Acajutla is El Salvador's only commercial port, handling around 3 challenge of ensuring El Salvador benefits million metric tons of cargo. Now we are from increased global trade ambitiously launching ourselves into a project for a master concession of the port and is one of the tools for economic development surrounding area to private operators that is that CEPA aims to utilize in coordination with sure to launch great business opportunities," air and shipping transportation activities. explains Mr. Miranda. "The concessionaire The reactivation of railroad cargo and paswill be required to invest US$18 million as a senger transport in the country's western minimum and to reduce the current tariffs in region will provide the backdrop for the more about 25 percent, which will guarantee high ambitious port projects. levels of efficiency and competitiveness in the In addition to being a linchpin for El Salvador port for the next 30 years." and the Central American region's economy, While Puerto Acajutla is presently pro- La Unión is a decisive step towards conjected to absorb the growing trade demands necting the Pacific and the Atlantic oceans created through CAFTA, a technically through a dry channel, as highlighted by Mr. advanced port infrastructure speMiranda. "The truth is that cialized in container cargo, Puerto Central America, during these La Unión, is being built in the Gulf past decades, has always conof Fonseca, on the borders with sidered the possibility of creatHonduras and Nicaragua. "The ing an alternative to the Panama port is going to be a center of disCanal, but at last, for the first time, tribution, mainly for the Central there is a strong possibility of American and Pacific side region," making the dream a reality." The says CEPA's President. "La Unión joining of Puerto La Unión to Puerto is going to have the necessary Córtez through a road network technical and physical conditions RUY CÉSAR built on Honduran territory opens for big ships, improving trade and MIRANDA the path to an inter-oceanic route lowering the cost of ocean trans- President of CEPA that would multiply the region's portation between our region and investment opportunities. the rest of the world." "Honduras has proved to have the resources As well as bringing great economic and and the interest to build the roads; they social benefits -namely substantial employ- have already completed a good section and ment opportunities, the upcoming project, there are around 100 kilometers left to build," a US$125 million investment, will provide a says Mr. Miranda. "In El Salvador, CEPA has powerful magnet for growth. With a depth concentrated efforts on making the La Unión of 46.5 feet, the port has a specialized con- Port project a success." tainer terminal for handling containers and A modern and economically stable democthe most modern and efficient equipment. racy, El Salvador is striving to become a The land surrounding the port provides an strong reference on the international scene additional area for launching the area's com- and is on the path to substantial improvemercial potential. ments. Meanwhile, CEPA is working towards Although commerce in the region will be putting the country on track to realizing its connected to the new port through the high- huge potential and becoming the regional way network, El Salvador's railroad system logistical center.

CEPA...bringing you closer to Central America

Cancun

Puerto de Acajutla

The Autonomous Executive Ports Commission (CEPA) is constantly and efficiently combining technological and human resources with modern infrastructure in its airports, ports and railways to firmly position El Salvador on the international trade map for the last 50 years. With an outstanding reputation, CEPA is not only creating an international multi-modal transportation hub, but is also steadily motivating growth and driving progress. El Salvador International Airport is only 30 min. away from the capital city of San Salvador. The state-of-the-art international airport provides a safe transportation mode for business and leisure travelers. It is the largest airport in the region, equipped with an advanced navigational security system and with room for expansion within El Salvador's favorable investment climate. Acajutla port is a well equipped port with sound infrastructure, now concessioned. By mid 2007, a new deep water port, La Union Port, will commence operations in its first implementation phase with: three berths totaling 2250 ft, two new Panamax type gentry cranes, and two powerful tugboats to assist large container vessels. With an investment of $125 million, it is expected to rapidly become a regional hub with 38 hectares reserved for port related industries. With its strategic geographical location - flanked by Nicaragua, Honduras and El Salvador - La Union Port is poised to become the gateway to other ports in the Atlantic Ocean and strategic-logistic cargo distribution center to and from the US and Asia. With a stable and sound economy, El Salvador invites you to join CEPA in its phase of expansion and enjoy the benefits of free trade.

Santo Tómas Puerto Cortez

Puerto Quetzal Acajutla Corinto

Costa Rica

Manzanillo Puerto Limón

Caldera

Area covered by Puebla Panama Project Ports with Panamax cranes Ports for smaller draught ships

EXECUTIVE AUTONOMOUS PORT COMMISSION

Edificio Torre Roble, Boulevard Los Heroes San Salvador Tel: (503) 260-5477 Fax: (503) 260-3314 For more information, please visit: www.cepa.gob.sv

El Salvador/ 12

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PIONEERING COMPANY HAS INTERNATIONAL ASPIRATIONS

With its four main divisions Grupo Poma has interests in automotive distribution, manufacturing, construction and hotel management

hen Bartolomé Poma arrived in at four factories in El Salvador. Grupo El Salvador in the early part of Roble is a construction subsidiary that the 20th century, he laid the builds and manages shopping centers, foundations of one of the country's most housing, and office space. Finally Grupo successful family businesses. Real, of which Fernando Poma is General More than 80 years later his great Manager, runs the group's hotel interests. grandson, 31-year-old Fernando Poma is This diversification began in earnest the energetic General Manager of Grupo during the 1970s, when the company Real, one of Central America's leading first ventured into real estate. "We purhotel companies. He looks back at his chased a large piece of land in what, Spanish and Italian ancestors with pride. during that time, was `up-town' San "My great grandfather was one Salvador, and constructed of many adventurers seeking what are now known as the his fortune in America," he the Metrocentro Shopping says. He was a pioneer in more Mall, the largest shopping cenways than one. In 1919 he startter in Central America, the ed up one of the first car disInterContinental Hotel, and the tributors in El Salvador with big Torre Roble office building," brands at the time like Hudson explains Mr. Poma. and Essex. It was a successful model "In the early days, there were that the company has been FERNANDO POMA very few cars in El Salvador and able to repeat in many of the General Manager even the main transit arteries of Grupo Real main cities of the region. "In were not yet paved," says Mr. most cases up until now we Poma. The company became the have been lucky with real distributor for GM in the 1930s and acquired estate prices being on the rise. In certhe Toyota license for the country in 1950s. tain instances, by selling the land adjaIt was the second distributor for the firm in cent to the project we have been able to the world after Taiwan. During the next recoup our initial equity investment," decade the Poma family business became says Mr. Poma. distributors for Chevrolet, Kia, BMW, Not everything has been easy. The Mitsubishi, and Ford, while expanding into period of civil war in El Salvador was other Central American countries. traumatic for the family. "We were forced Now the company has diversified far to relocate to the United States," Mr. beyond its origins. Grupo Poma is divided Poma recalls. However, even during this into four main divisions. Grupo DIDEA is still difficult time the business continued to one of the main automotive distribution com- diversify. panies in the region. The 1990s was the decade of regionGrupo Solaire, the industrial division, man- al expansion in Central America. Grupo ufactures windows and aluminum products Poma constructed 14 shopping centers in

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the region, eight five-star hotels and many other mid-range hotels. "We started this regional expansion with the philosophy that we wanted to have the best hotels and the best shopping centers in each key Central American city. When we had accomplished this strategy, we decided to venture into mid-scale products in secondary locations," says Mr. Poma. The company also moved into housing construction. It constructed more than 50,000 low-income homes and provided financing vehicles for the purchase of these homes. Its automobile division secured a more than 50% market share in El Salvador and leading positions in many neighboring countries.

The 1990s was a decade of regional expansion for Grupo Poma, constructing some of the best hotels, and shopping centers in each key Central American city

PHILOSOPHY OF EXCELLENCE FOR LEADING HOTEL CHAIN

A spacious and cool stone-flagged reception, elegant open air swimming pool, and fine city views combine to make the five-star Real InterContinental San Salvador one of the premier hotels in El Salvador. It is conveniently located in the heart of the capital city's business and commercial district, only a 30-minute drive from the international airport. Directly opposite is the largest shopping mall in Central America and close by is an array of restaurants and tourist attractions. For many visitors to El Salvador, the Real InterContinental is the gateway to one of Central America's best kept secrets. "There is a hidden beauty to this country, especially with regards to the mountains, volcanoes, lakes and beaches. Because of the reputation of the past, this has been a well kept secret for Salvadoreans," says Fernando Poma, General Manager of Grupo Real, now the prime hotel chain in the Central American region. The Real InterContinental was the first hotel built by Grupo Real back in 1972. It is now the luxurious flagship in a fleet of top hotels in Central America, Mexico, and the United States. Mr. Poma is proud that his company has been influential throughout the region. "El Salvador's business people have really managed to make a difference in the region. The mentality is always forward looking, something prevalent in countries where people have suffered a lot throughout the years." His company's mission is "to be the best hotel chain in every market that we are present in; to maintain a core philosophy of excellence in customer service; and make full use of our unbeatable competitive advantages at all times in order to provide our guests with the highest perceived value." Grupo Real has conceived ambitious development plans for the coming years. The group will complete its first Quality Hotel this year in the Dominican Republic. This four-star hotel will be constructed just five minutes away from Las Americas International Airport in Santo Domingo.

"We are now headed for the Caribbean, starting with the Dominican Republic," says Mr. Poma. "This month we inaugurate the first airport hotel of Santo Domingo. The second project will be a JW Marriott hotel in the financial center of town that will open in 2005. "We already compete globally in all our operating divisions. This is particularly true in the hotel division where we compete face to face with Marriott, Radisson, Melia, Westin, and many others." Even as it turns into a global company, Grupo Poma continues to nurture its roots in the community where it was founded. It funds several charities and has itself founded two philanthropic organizations. One, the Fundacion Para La Salud y el Desarollo Humano (FUSAL), works in more than 60 rural communities providing medical assistance. The other is the Escuela Superior de Economia y Negocios, a university set up in San Salvador to train future business leaders. For further information contact: Summit Communications 1040 First Avenue, Suite 395 New York, NY 10022-2902 Tel (212) 286-0034. Fax (212) 286-8376 E-mail: [email protected] An online version is available at www.summitreports.com/cafta

The Central American Bank for Economic Integration

(CABEI), established in 1960, pr omotes the integration and balanced economic and social progress of the area by supporting productive and competitive public and private projects.

Within

the

context

of

CAFTA, FTAA, and other current free trade agreements, CABEI is proud to provide direct financing,

co-financing, intermediation, technical assistance, and

policy advice to reinforce high quality growth processes in the region, confirming the bank's leadership in the promotion of Central America `s sustainable development.

Boulevard Suyapa P.O. Box 772 Tegucigalpa, Honduras Tel: (504) 240-2227 Fax: (504) 240 -2226 www.cabei.org

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