AbstractThe Central American countries are divided by profound political differences. Yet surprising similarities exist in the changing relations between the public and private sectors. Throughout the region, public and private sectors lock into a vicious circle. The inability of the state to provide order and social harmony creates disincentives for the private sector to invest or even to continue existing levels of production. The government responds by increasing its responsibilities at the expense of the private sector. In doing so it assumes risks the private sector refuses, but further alienates the private sector nonetheless.