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Central America   

Central America   

Central America: Preparing for the Future  

How can the region cope with the global risks of 2024?
 


David Gutiérrez, BLP,  February 9, 2024

The World Economic Forum’s Global Risks Report 2024 presents a detailed perspective on the most pressing global risks.

These risks range from climate change and geopolitical tensions to the impacts of rapid technological progress on society and the economy.

A central theme of the report is the increasing interconnectedness of global risks, underlining the need for a collaborative, multi-stakeholder approach to risk management. Extreme weather events are perceived as an impending global crisis, which is likely to deplete the resources needed for effective climate change mitigation and adaptation, while exacerbating vulnerabilities due to resource stress, conflict and polarisation.

Looking ahead to the next decade, environmental and technological risks are expected to worsen. Among these, environmental changes such as extreme weather events, significant disruptions to earth systems and biodiversity loss are the most prominent risks, followed closely by the challenges posed by post-truth, misinformation and the potential negative consequences of artificial intelligence (AI). These findings underline a varying sense of urgency regarding environmental risks.

The report emphasises that while a collaborative approach is essential to address global risks, not all risks require broad global cooperation. Alternative methods with different levels of cooperation are suggested to provide a broader framework for planning and preparedness. These include localised strategies, individual or entity efforts for significant advances in risk mitigation, and collective action, where even small actions can have a significant impact on climate change mitigation.

To apply the risks identified in the report to the Central American context, specific adaptation is required considering local country realities and conditions.

Extreme weather: Central America is susceptible to extreme weather events such as hurricanes, floods and droughts. These events can severely affect agriculture, an important source of income and employment in the country, as well as infrastructure and human settlements, especially in coastal and rural areas. We must focus on strengthening our infrastructure so that it is more resilient to extreme weather events, as well as implementing early warning systems for extreme weather events, including contingency and evacuation plans in disaster-prone areas.

Geopolitical tensions: Global geopolitical tensions can affect the country indirectly through fluctuations in international markets, especially with regards to the import of oil and other essential inputs.  Fortunately, the region has been reducing dependence on specific markets and diversifying trade relations, and at the same time we have strengthened ties with the world’s most powerful economies, such as the US through friendshoring.             

China’s economic slowdown: Central America’s economy could be impacted by China’s slowdown, mainly through global supply chains and commodity prices. A decline in Chinese demand may affect Central American exports, especially in sectors such as technology and agriculture.

Global Financial Stress: As an emerging economy, Central America could face challenges in accessing international financing and external debt conditions in a scenario of global financial stress. This could translate into increased pressure on the national budget and public investments.  Fortunately, in recent years, the country has maintained a responsible fiscal policy and has regulation and supervision of the financial sector to make it more resilient to external shocks.

Trade Fragmentation: Central America, whose economy depends significantly on international trade, is well prepared to face this risk through a robust network of trade agreements and by attracting foreign investment that can strengthen strategic sectors of the economy.

Risks related to AI and cybersecurity: In addition to increasing investment in cybersecurity technologies and training, Central America should promote education and awareness of AI and cybersecurity risks in both the public and private sectors.

In short, it is crucial that the Central American region continues its path towards sustainable development by strengthening its resilience in the face of these global challenges.

Localised strategies involving both the public and private sectors play a crucial role in mitigating the impacts of these global risks.

The collective efforts of individuals, businesses and countries, though small individually, are significant when combined, contributing to global risk reduction. For the most critical risks affecting human security and prosperity, cross-border coordination is indispensable.



David Gutierrez Swanson

blplegal.com
 

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