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ECONOMY-EL SALVADOR:
Passing the Poisoned Chalice
By Raúl Gutiérrez
SAN SALVADOR (IPS) - Warnings about the dire
state of the Salvadoran economy and its weak
position for coping with the global
recession were ignored by outgoing President
Antonio Saca for political reasons in an
election year, analysts say, as they point
out the difficulties that lie ahead for the
new government.
Two weeks before the Mar. 15 presidential
elections, Saca and spokespersons for the
government of the rightwing Nationalist
Republican Alliance (ARENA) stated that
public finances were stable and that "there
is nothing to worry about."
But shortly after voters awarded a victory
to President-elect Mauricio Funes, who will
take office on Jun. 1, the head of the
Central Reserve Bank (BCR), Luz María de
Portillo, and Eduardo Ayala, technical
secretary at the Office of the Presidency,
admitted otherwise.
They reported a sharp decline in exports and
tax revenue, as well as the loss of
thousands of jobs over the past eight
months.
"We have been warning about this situation
for a whole year," especially about the
condition of the state coffers and the fall
in GDP, but "unfortunately (the government)
turned a deaf ear," Jorge Daboub, president
of the Salvadoran Chamber of Trade and
Industry (CCIES), told IPS.
In his view, the "electoral climate"
prevented the situation from being
acknowledged, and preventive measures were
not taken to counteract the global economic
and financial crisis that originated in the
United States, which absorbs 57 percent of
Salvadoran exports.
"Now we have to cope with the consequences
of those bad decisions," Daboub said.
The business leader reported that 36,000
jobs have been lost since August 2008, and
that sales were 21.4 percent down in
February in comparison to the same month
last year, especially exports to the United
States. Tax revenue also declined, by 12.5
percent in the same period.
The economy "is in a tight squeeze," he
said.
Official figures indicate that value added
tax (VAT), the main source of tax revenue,
fell by 25 percent, from 130.8 million
dollars to 98 million dollars in the twelve
months to January 2009, due to the fall in
internal consumption and lower revenues from
fuel sales.
The incoming government of the leftwing
Farabundo Martí National Liberation Front (FMLN),
headed by Funes, will face a difficult
period due to the "disproportionate impact"
of the global economic crisis, the financial
risk rating agency Fitch, Inc. said in
mid-March.
Funes, who defeated ARENA candidate Rodrigo
Ávila, will head the first leftist
government in El Salvador's history.
Meanwhile, the Inter-American Development
Bank (IDB) predicted that remittances from
Latin American migrants to their countries
of origin would fall by up to 13 percent
this year.
Income from remittances is vitally important
to the Salvadoran economy.
BCR statistics indicate that remittances
amounted to 3.79 billion dollars in 2008
alone, equivalent to 17.1 percent of GDP
that year. Most of these funds came from the
United States, where 90 percent of the 2.9
million Salvadoran migrants live. In January
2009, remittances fell by eight percent
compared with January 2008.
The Salvadoran economy grew by 3.2 percent
in 2008, according to the BCR, but official
forecasts for growth this year are barely
one percent.
Carlos Acevedo, an economist with the United
Nations Development Programme (UNDP), added
his own criticism to that of Daboub. "The
(public) financial situation has not
changed; what has changed is the
government's discourse," after the ARENA
defeat, he said.
The expert added that since the third
quarter of 2008, the BCR has posted
"negative values" for the volume index of
economic activity (IVAE), which may register
a fall of as much as three percent in the 12
months to February 2009.
The IVAE is an "advanced indicator" of the
performance of different sectors of the
economy, prior to the closing of an
accounting period. The estimated figures,
therefore, mean that GDP growth was most
likely also negative in the last quarter,
the economist said. "It is unlikely that we
shall have a positive economic growth rate
this year," said Acevedo, adding that the
sharp fall in remittances from migrants has
a severe impact on consumption, the main
engine of the economy, which in turn will
lead to a major economic slowdown.
"The situation is deteriorating at a rapidly
accelerating rate," the UNDP official said.
However, Acevedo said that the 500 million
dollar loan approved by the World Bank at
the end of last year, and another 450
million dollars from the IDB, will give El
Salvador some "breathing space," allowing
Funes to fulfil some of his election
promises, like protecting the most
vulnerable sectors and creating jobs,
although not as many as the 200,000 he
promised.
This week Francisco Rojas, the general
secretary of the Latin American Faculty of
Social Sciences (FLACSO), said that one of
the region's pending tasks is the creation
in each nation of social pacts, or
agreements between the various sectors of
society on how to face the crisis.
Héctor Dada Hirezi, a member of the working
group set up by Funes, said the present
government should implement "immediate
measures to fight the crisis," as otherwise,
the economy may suffer "irreparable damage."
Nearly 40 percent of the 5.7 million people
of El Salvador live in poverty, according to
official figures which civil society
organisations regard as underestimates.
Unemployment is officially estimated at 6.5
percent of the economically active
population, but 43 percent are
underemployed.
This country, with a territory of 20,000
square kilometres, has one of the highest
homicide rates in the world, with 61 murders
per 100,000 population per year. Among the
causes are the 1980-1992 war between the
armed forces and the FMLN, then a guerrilla
movement, which left 75,000 people dead,
6,000 disappeared and 40,000 disabled.
Daboub said that efficient, transparent use
of state resources and policies that attract
greater private investment would help the
country weather the effects of the global
crisis.
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