Tourism Not Terrorism

According to reports, tourism has become one of Central America’s fastest growing industries.  There has been a 16.2 per cent rise in visitors in 1999.  The long years of peace since civil wars racked the region before ending in the early 1990s are beginning to produce a harvest of revenues which are sorely needed.  Tourists have brought more than US$2.54 billion to Central America which represents nearly 5 per cent of the region’s combined gross domestic product.  According to the World Tourism Organisation, the number of visitors to Guatemala, El Salvador, Belize, Honduras, Nicaragua, Costa Rica and Panama reached nearly 4 million last year.  The regional star was Costa Rica with a total of 1 million visitors providing a US$1 billion windfall for the country.  Costa Rica has enjoyed 50 years of peace which has earned it the sobriquet of being Central America’s Switzerland.  Guatemala, which claimed second place in the tourist stakes, has found that tourism is catching up with coffee as the country’s largest revenue earner and it has seen an increase in the number of elderly and wealthy American and Japanese visitors.    Although Costa Rica leads the way with eco-tourism in Central America, Guatemala is very much geared for backpackers and offers unspoilt beaches, Mayan ruins and Indian market towns situated in both the jungle and the high mountains.

Panama has been slow to develop its full tourist potential, having traditionally concentrated its efforts more on commercial endeavours.  Panama’s answer to eco-tourism has been banking and, consequently, it has become a leading Latin American banking centre through which a considerable amount of regional and also international banking activity passes.   However, since the canal zone, once a United States fiefdom, was returned to Panama at the end of last year, the government has been presented with an opportunity to enhance an already growing tourist economy.  The country has inherited dozens of military installations and some of these former military sites are earmarked for turning into tourist centres.  Several new hotels have been recently constructed.  The zone, having been a strategic site, has remained almost undeveloped, such that its 9,650 square miles of land is practically unspoilt jungle – much the stuff of 1950s Tarzan films.   Rather than Tarzan, however, it is the cries of howler monkeys which can be heard above the treetops.  It’s expected that they will be joined increasingly by the voices of tourists. 

Getting Smaller But Getting Stronger

Expansion in the tourist industry has not been emulated in the Latin American banking industry.  Banco Agricola Comercial and Banco Desarrollo in El Salvador have merged, with a combined asset value of US$2.4 billion.  Banco del Istmo, Panama’s second largest bank, has bought Banex, which is Costa Rica’s second largest private bank based on assets.   Banco del Istmo is also looking at opportunities in Nicaragua, El Salvador, Honduras and Guatemala.  In May of this year HSBC Bank, the London-based financial group, announced its purchase of the Panama branch network of Chase Manhattan of the United States.  It will make HSBC Bank, Panama´s biggest commercial lender.    Consolidation of the local banking sector has now reduced the number of licensed banks to below 100.  And south of the isthmus bank numbers are dropping also.

Argentina, for instance, had over 200 banks some 5 years ago, but today there are only around 120.  Ailing banks have been put out of their misery and today 9 Argentinean banks hold 67% of all deposits.  It is surprising to learn that fewer than 30 per cent of Argentines actually have a bank account (in Brazil it’s even less) whereas in one small town, 450 km. south of Buenos Aires, there are 8 banks competing for business from a population of 40,000.  Banco Galicia, which is the biggest private-sector bank, has 280 branches and holds 9.5 per cent of all Argentinean deposits.  It makes approximately 12 per cent on shareholders’ equity whereas there are many other banks which return only around 5 per cent, so it is fair to ask if they can all hope to last in the long run.  Certainly, existing interest-rate spreads will narrow (in U.S. dollar terms a typical personal loan rate is 23.8 per cent but the 90-day fixed deposit rate is only 5 per cent) and some banks won’t survive a tougher financial environment.  The country is still also heavily dependent on international capital and because it has maintained its currency board (which pegs the peso to the U.S. dollar), it does mean that some businesses have been badly hit by competition from its neighbour, Brazil, which is also its principal trading partner.  Companies have begun to migrate across the border where labour is cheaper.  But the main challenges facing Argentina are those which face all of Latin America:  modernisation of the state and the restructuring of government institutions. Neither banking nor tourism can achieve that.