ABSTRACT

This chapter deals with the issue of trade finance and the Central American monetary system. The financing of foreign trade is crucial because half of the material product of the region is exported, and the 'working capital' which is essential for the transactions and which forms the basis for the monetary system, have been drained off by capital flight and debt payments. Monetary integration and fixed parities are held to have contributed to stable and rapid growth in the region. The chapter examines one of the major problems that will need to be resolved if economic recovery is to take place in Central America once armed conflict has terminated and external pressures reduced to a level that might be regarded as normal for the Third World. The Central American Bank for Economic Integration was established in 1963 and rapidly built up a large loan portfolio, particularly for modern industrial and agro-industrial projects.