Guatemala City: Rising violence from drug cartels and street gangs in Central America is costing the region up to 8 percent of gross domestic product and could hit future growth, the World Bank said on Thursday.
"Beyond the trauma and suffering of individual victims, crime and violence carry staggering economic costs at the national level," the World Bank said in a report.
The 8 percent of GDP spent on law enforcement and healthcare is significant when considering the seven-country region`s GDP grew about 2 percent in 2010, while the rest of Latin America grew around 6 percent, the bank said.
Honduras, Guatemala and El Salvador suffer from some of the highest murder rates in the Western Hemisphere and the risks are growing as Mexican drug cartels increasingly set up shop in their poorer southern neighbours where institutions are weak.
Drug cartels were the driving factor behind rising violence in the region, which also grapples with widespread youth street gangs that extort businesses and pay off corrupt officials, the report said.
The atmosphere of insecurity could harm the investment climate in the region and divert already scarce government resources to crime reduction efforts and away from spending to boost economy activity, the bank said.
There is "no easy fix" to the problem but a key step will be strengthening the region`s faltering justice systems, since many criminals are never convicted, the report said.
A 10 percent reduction in homicide rates could boost annual economic growth by 1 percent of GDP.
Central America is still recovering from decades of civil war and has deep inequalities between the rich and poor.