The Case of Privatizing Happiness

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Dozens of reporters, spent an entire day, braving the heat to cover a story concerning one of the major issues Voices is currently working on. The story is about the implementation of mega-tourism, sponsored by the Millennium Challenge Corporation in the Lower Lempa Region of El Salvador. The main theme is it’s negative impacts on the communities living in and around the Jiquilisco Bay.

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IMG_0040 IMG_0055  IMG_0031 An article published by the Foreign Policy Journal said: “U.S. foreign aid is expected to promote poverty alleviation and facilitate developmental growth in impoverished countries. Yet, corporations and special interest groups have permeated even the most well-intended of U.S. policies.”

The United States has $277million in aid money to grant El Salvador and much of it will promote tourism in the Jiquilisco Bay by funding infrastructure projects like wharfs ans marinas in order to encourage private investment.

IMG_0116 IMG_0108 IMG_0092 IMG_0134Voices has been working extensively with communities and NGO’s in the Lower Lempa region to ensure that residents are bring represented, rights are being protected and those in charge are being held accountable for non-ethical practices. La Tirana and El Chile are two communities most affected by the plans and have expressed concerns about the potential threats to the land, the water, the culture and the economy of their communities. Voices even collaborated with them to create a detailed report on the situation.                >> Read the report here                                                                                                        >> Read the article here

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IMG_0149  IMG_0009“They are privatizing our happiness. They are stealing our smiles.”  La Tirana’s community leader said as he looked over the bay where kids were playing. Thanks to the efforts of leaders like him, many of these people here know what’s going on. They know that this isn’t free money coming into their communities and they are banding together to demand that their lives and rights be taken into consideration.

The day’s event was a great opportunity for exposure. Many diverse, national and international journalists were able to experience the reality these communities face. These communities have been taking good care of the natural resources through climate change, contamination and even flooding with little to no help from the government. To them, these resources are their lifeline. This is something that tourists who are primed to vacation here will never understand.

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The Price for a $277 Million MCC Grant

Since Sanchez Cerén became the President of El Salvador on June 1, his administration has said securing the $277 million Millennium Challenge Corporation (MCC) grant is a top priority. Vice President Oscar Ortiz said they want to get it done within their first 100 days in office, which means within the next three months.

The MCC approved the grant in September 2013, but the US Embassy blocked the release of the funds until the government met conditions such as reforming the Public Private Partnership Law (P3 Law) and restructuring a popular seed program.

The P3 Law facilitates government contracts with private entities to provide public goods and services. The US Embassy made the P3 Law a prerequisite for the MCC funds but they don’t like the law passed by the Legislative Assembly. They don’t approve of the oversight role the Legislature created for itself – a committee that must approve all P3 contracts. The Embassy and business community also don’t like that the law exempts important public goods and services like water, health, education, and public security from public private partnerships.

One of the most vocal opponents of the P3 Law has been El Salvador’s labor movement. Unions fear that public private partnerships will result in a loss of jobs, decrease in wages, and even worse working conditions as private investors maximize profits. Other civil society organizations fear the P3 Law, even with the exemptions, will lead to the privatization of important goods and services – like water, health care, and education.

The US Embassy also doesn’t approve of the Seed Distribution Program operated by the Ministry of Agriculture (MAG). Officials argue the procurement process violates the Central American Free Trade Agreement (CAFTA) because the government only buys seeds from Salvadoran Farming Cooperatives, excluding international seed producers like Monsanto. The program provides thousands of jobs for people working for the cooperatives and ensures that more than 400,000 farmers have quality, non-GMO seeds.

Last week US Ambassador said that the Embassy’s problem was not with the seeds, but with the process. On May 2 Voices wrote an article arguing that the problem was not the seeds or the procurement process, but CAFTA.

The MCC program is popular with a lot of Salvadorans and politicians who see it as free money for development projects. But a growing number of environmentalists, unions, and communities argue that the Embassy’s conditions are too high a price to pay for development projects they don’t want anyway. And many see the conditions as an encroachment on El Salvador’s sovereignty.

Among those who oppose the MCC program outright are environmental groups and communities in the Jiquilisco Bay. MCC funds will support tourism development in the Bay and residents fear it will cause irreparable harm to mangrove forests, nesting grounds for the critically endangered Hawksbill sea turtle, and El Salvador’s most fertile agricultural land. (Voices has written about Tourism on this blog in the past – here are two reports we wrote on tourism in the Jiquilisco Bay).

Roberto Lorenzana, President Sanchez Cerén’s Chief of Staff said two weeks ago that the administration already has a draft Fomelinio Law (in El Salvador the MCC is called Fomelinio) that they will send to the Legislative Assembly soon. It’s unclear what is in the Fomelinio Law, but it likely contains all of the reforms the US Embassy is requiring for release of the MCC funds. Even before he became Chief of Staff, Lorenzana said the new administration is going to open the procurement process to national and international seed producers, in an apparent effort to satisfy the Embassy’s concerns.

While some Salvadorans have spoken out against the second MCC compact, the P3 Law and other neoliberal policies, many have not. The politics of opposing neoliberal economic policies grew more complex when the leftist FMLN party took office in 2009 and again on June 1, 2014. People and groups that organized against privatization, dollarization, CAFTA, and the first MCC compact (all policies adopted by the rightwing ARENA party between 1994 and 2008) have not been as critical since the leftist FMLN party took power. The result is that opposition to these destructive policies is less now that the FMLN is power.

El Salvador will soon get a $277 million grant from the U.S. Millennium Challenge Corporation, but it should be clear – this is not free money.

The 17 farming cooperatives that have been growing seed corn and beans for the MAG’s Seed Distribution Program will pay for the MCC grant when they have to compete with Monsanto and other international seed giants.

Communities that depend on the mangroves for their survival will pay for the MCC grant when developers cut down forest to build resorts and golf courses.

The Salvadoran labor force will pay for the MCC grant when private contractors take over government services and cut jobs and wages to increase profitability.

And all Salvadorans will pay if public goods and services like water, education, and health are contracted out to for-profit entities, especially if there is no oversight in the process.

 

Free Trade Threatens El Salvador’s Seed Distribution Program

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Agricultural workers in the Bajo Lempa harvesting seed corn for the MAG’s distribution program

In recent months conservative groups and the U.S. Embassy in San Salvador have criticized a popular seed distribution program run by the Salvadoran Ministry of Agriculture (MAG). They allege the Ministry’s procurement of seeds violates section 9.2 of the Central American Free Trade Agreement (CAFTA) and lacks transparency.

Salvadoran farmers, however, argue that the seed distribution program provides real benefits to farmers and farming cooperatives, and that if there is a problem it is rooted in CAFTA and free trade.

Since 2004, the Salvadoran Ministry of Agriculture (MAG, in Spanish) has provided seed packages to small farmers in one form or another. The latest incarnation of the program is part of the Family Farming Program. In 2012, Vice-Minister Hugo Flores told the UN Food and Agriculture Organization that “after 20 years of neo-liberalism – a model that has neglected subsistence farmers, which total some 325,000 in the country, and left them in a situation of extreme poverty – a targeted approach had to be put into action given the lack of technical assistance for these sectors.”

Every year MAG buys beans and white corn seed, primarily from Salvadoran producers, and distributes them along with 100 pounds of fertilizer to peasant farmers. The seeds program amounts to a small agricultural subsidy of less than $100 per family, covering only part of the cost of producing corn and beans.

The program is very popular with the cooperatives that produce the seed and the small farmers who receive them. Will Hernandez, a member of the Nueva Esperanza Model Cooperative, told Voices on the Border, “the seed program has strengthened our cooperative, both economically and technically. Before it was just transnational corporations that had the capacity to produce seeds [on a large scale], now we also have the technical capacity.” In addition, the seed program generates employment in rural areas. Mr. Hernandez said that in 2013 the seed program resulted in $1.5 million in wages in rural communities, which is particularly important for thousands of peasant families.

MAG officials say the seed distribution program promotes domestic production of basic grains and food security for the population. They report the program resulted in a record 22.6 million bushels of corn and 2.7 million bushels of beans at harvest in 2013.

In April, MAG distributed more than 188,000 seed packages to small farmers throughout El Salvador. MAG officials plan to distribute more than twice that amount the first week of May to reach of total of 400,000 packages for the year, almost all small farmers in El Salvador.

In January, Vice-Minister Flores said that MAG will “prioritize domestic seeds and the importation of seeds will depend on the offers that we have. Last year we imported 8% of the seeds, because the cooperatives were unable to satisfy demand.” In fact, last year 17 Salvadoran Agricultural Cooperatives, three of which are located in the Bajo Lempa region of Jiquilisco, Usulután, supplied more than 91% of all the seed used in the MAG packages. The remaining 9% was from Guatemala and purchased on the Bolsa de Productos y Servicios de El Salvador (BOLPROS, in Spanish) market. The domestically produced seed cost the MAG $124 per quintal while the imported seed bought at the BOLPROS seed cost $132 per quintal. The domestic seeds used in the program are a specific hybrid and the MAG carefully monitors its quality.

The decision to buy domestic seeds was not just MAG’s. In December 2012 the Legislative Assembly passed Law No. 198, entitled the “Temporary Special Provisions for the Promotion of Certified Production of Corn and Bean Seed.” The law required that all seed used in the agricultural packages be purchased from Salvadoran farmers. Law No. 198 expired in December 2013, at which time the Legislature passed the Temporary Special Provisions to Promote the Production of Basic Grains, which governs the seed program this year. The new law allowed the MAG to purchase seed directly from Salvadoran farmers without going through an open bidding process or purchasing on the BOLPROS. The justification was that the Ministry did not have time to go through the procurement process and still have the seeds ready to distribute by April and May.

There are several reasons why it is more beneficial for the MAG to purchase seeds for the distribution program from Salvadoran cooperatives. As Vice-Minister Flores and Mr. Hernandez pointed out, the program invests in the technical capacity of farming cooperatives. Similarly, the money invested in the seed distribution program, $25 million in 2013, remains in the Salvadoran economy and generates jobs rural communities where they are needed most. Another benefit is that the domestic seeds in 2013 were $8/quintal less than the seed from Guatemala bought off the BOLPROS. This is likely due in part of the cost of transporting seeds from Guatemala to El Salvador. Another reason for contracting with Salvadoran growers is that the MAG can more easily monitor the quality of seed they are buying. The government works directly with farmers on producing hybrid seeds that are able to better withstand El Salvador’s increasingly extreme climate, which can present drought and floods in the same growing season.

Despite the economic and social benefits, John Barrett, an Economic Advisor for the U.S. Embassy, and Amy Angel, an agricultural economist with FUSADES, argue that requiring MAG to buy seed from domestic producers violates CAFTA. Section 9.2 of CAFTA requires the Salvadoran government to give domestic and international providers equal consideration and treatment when procuring goods and services. If the government wants to buy seeds or any other goods or services, Section 9.2 requires that it treat all interested vendors the same, without giving preference based nationality or country of origin.

Amy Angel and members of the ARENA political party also argue that the procurement process this year violated the Law on Acquisitions and Contracts for Public Administration (LACAP, in Spanish) and lacks transparency. Ms. Angel argues that Article 72 of LACAP requires specific conditions to be in place in order for the MAG to directly purchase seeds from the Salvadoran cooperatives, and that the seed purchases did not meet any of the conditions. She rejects the argument that the MAG did not have time to go through a formal bidding process. Ms. Angle says that even if they did not have time they could have gotten a third party to contract with buyers or just bought seeds off the BOLPROS, which would have made the procurement process transparent and CAFTA-compliant.

In January when the Legislative Assembly passed the Temporary Special Provisions to Promote the Production of Basic Grains bill, the rightwing ARENA political party accused MAG of ignoring LACAP and transparency norms in order to give “benefits to one of the FMLN businesses, Alba Alimentos.” Members of the leftwing FMLN party created ALBA in 2006 as a framework for working with the Bloivarian Alliance for the Peoples of the Americas, an economic trade alternative created by Venezuela. In April,Minister of Agriculture Pablo Ochoa reiterated that the reason for bypassing the formal procurement process was a time issue, and the claim that ALBA is at all involved in the seed program was a politically motivated claim that is untrue.

The seed program’s apparent violation of CAFTA is one of several issues that is currently holding up the release if the Millennium Challenge Corporation funds – a $284 million grant from the U.S. government to help develop El Salvador’s economy. While there is no indication that the U.S. government is planning to file a complaint against El Salvador over the program, John Barrett said “the seed issue is very important because it is an example of where the Salvadoran Government has to give confidence in how it will respect their obligations to free trade.”

According to Jose Santos Guevara, Coordinator of the Movement of Victims of Climate Change, the problem is not the seed program – it’s CAFTA. He believes the U.S. Government is using free trade to allow giant transnational organizations like Monsanto take even more control over El Salvador’s agricultural sector. Monsanto is the largest seed company in the word, controlling more than a forth of the global seed market. A few years ago Monsanto bought Semillas Cristiani Bunkard, the largest seed company in Central America, for more than $100 million, taking control of the regional seed market.

The United States, Central American countries, and the Dominican Republic all signed and ratified CAFTA in 2006. By 2011 U.S. exports to El Salvador had risen more than a billion dollars, a number the U.S. government says was low due to a spike in fuel prices. During the same period Salvadoran imports to the U.S. rose half that amount, resulting in a significant trade deficit that did not exist pre-CAFTA. More relevant to Salvadoran peasant farmers, in the seven-years between 2006 and 2013 U.S. agricultural exports to El Salvador doubled to $467 million. The US claims that under free trade they have increased its agricultural exports around the world by $4 billion. The U.S. maintains a trade surplus in agricultural products in part by ensuring that U.S. farmers, which receive large agricultural subsidies, have access to foreign markets and can compete in the kind of procurement opportunities like the MAG’s seed distribution program. While free trade has been good in allowing U.S. farmers to access to Salvadoran markets, it has been bad for the Salvadoran economy and the peasant farmers who are trying to survive and feed their families.

Every dollar (and it is dollars because in 2001 El Salvador traded the Colon for the U.S. dollar) that El Salvador spends on agricultural imports is a dollar that leaves the local economy and not invested in local farmers and agricultural workers. If MAG officials are forced to allow international producers to bid on contracts for the seed distribution program, it is likely to increase the trade deficit with the U.S even more. It will mean the 17 cooperatives that have been providing the seeds will lose their most stable source of income, and agricultural workers will loose their jobs.

Perhaps the MAG’s seed distribution program violates the Central American Free Trade Agreement, but that does not make it a bad program. It is just another reason why CAFTA and free trade are bad policies.

The Debate Over Public-Private Partnership Law and MCC Funding in El Salvador

Last week Pacific Rim Mining Company announced it is seeking $315 million dollars in damages from El Salvador. It was a stark reminder that the 8-year old mining debate, which included several years of threats and violence between mining supporters and opponents, has yet to been resolved and could still result in a devastating economic blow to El Salvador.

As the mining issue continues, another debate with the potential to become just as volatile is brewing. In March the Funes Administration provided some details about its proposal for a second round of funding from the Millennium Challenge Corporation (MCC), a US aid program started by President Bush in 2004. The proposal is worth $413 million dollars, half of which will likely go towards an infrastructure project like improving the Litoral Highway that runs along El Salvador’s southern coast. The other half is likely to help finance public-private partnerships and improve human capital, which seems to mean education.

As details of the proposal emerge, opposition to a second round of MCC funding is growing. So far, opposition has opened on two fronts. The Salvadoran labor movement has been the most outspoken opponent, denouncing the proposed Law on Public Private Partnerships (P3 Law) since last year. Environmentalists and communities in the Lower Lempa region of Usulután have been less outspoken, but oppose the MCC proposal because the public-private partnerships will support tourism, which they strongly oppose. In 2011, members of the anti-mining movement also spoke out against the P3 Law fearing it would result in mining activities.

Mangrove Forests near La Tirana, a community targeted for a large tourism project

Mangrove Forests near La Tirana, a community targeted for a large tourism project

Because politicians within the FMLN are supporting the MCC, the politics of opposing the P3 Law and tourism are a little more complicated than opposition to mining was. Other than a protest outside the US Embassy in March and other small activities organized by the labor movement, opposition has remained largely behind closed doors, which may change soon.

            The Public Private Partnership Law

US Ambassador Maria Carmen Aponte said in October 2012 that approval of a second round of MCC funds relies on the passage of the P3 Law. The labor movement and their international supporters, argue that the P3 Law will privatize government operations including the airport, seaports, health care facilities, and other important services. They fear it will result in the loss of thousands of jobs, increasing the country’s already high rates of unemployment and driving wages down even further.

The labor movement and other opponents also do not want the private sector to control important resources and services like water, education, and health controlled. For example, Salvadoran civil society has fought against privatization of water for many years, making it such a toxic issue that politicians are unable to advocate for it publicly. Just like the government has not been able to privatize water, civil society organizations have not been able to pass a water law they have been promoting for over 8 years. Among other things, the law would protect water resources from privatization. Similarly, in 2002 then President Francisco Flores tried to privatize part of the health care system, but health care workers and many others took to the streets and forced the government to back off. Opponents of the P3 law fear it will make it easier for the government to accomplish what it has failed to do in the past – privatizing water and health care.

Supporters of the P3 Law, including President Funes, counter that public-private partnerships are not privatization, and the government will not privatize any important services, like health and education. They argue, instead, that public-private partnerships will result in more foreign direct investments, injecting capital into services and industries that are lagging behind.

The labor movement and other activists fear, however, that while not called privatization, the P3s are a way to accomplish the same goals. Concessions could last as long as 40 years, which means the state is essentially relinquishing control of an asset. Similarly, while capital investments are needed, the P3 Law will allow private, international investors to generate profits from basic services in El Salvador and take the profits overseas instead of re-investing in El Salvador.

Public-private partnerships are not new in El Salvador – they government has contracted out many operations to private companies over the years. One regular criticism is that these relationships prioritize profits over the well being of Salvadorans. For example, in the aftermath of the October 2011 floods, communities and organizations in the Lower Lempa blamed the CEL for washing them out. The CEL is the state-owned agency that manages the dam, generating electricity that private power companies sell for profit. The more electricity produced, the more money the companies make. In the months after the 2011 floods CEL representatives responded frankly, stating they operate the dams to make electricity and generate profits, not protect the people downstream.

FESPAD and Voices on the Borders 2012 legal interns recently published a full analysis of the P3 Law.

Tourism and other Investments

One of the public-private partnerships being proposed in the second MCC compact is tourismhotels and resorts being built along El Salvador’s Pacific coast. In December the government solicited proposals from the private sector and received 49 responses, 27 of which are tourism projects in Usulután, La Paz, and La Libertad.

Tourism is not inherently bad, but communities in the Lower Lempa of Usulután fear that building hotels and resorts in and around their important and fragile ecosystems will cause irreparable harm. One Lower Lempa community targeted for a tourism project is La Tirana, an isolated and economically poor community located at the edge of one of the most pristine mangrove forest in Central America. In addition to its immense natural beauty, the forest supports thousands of species of flora and fauna. The nearby beaches are protected as a nesting ground for several species of endangered sea turtles. Residents of La Tirana fear tourists would damage the fragile mangroves with construction of houses and resorts, jet skis and motorboats, and solid waste and sewage, while displacing local residents and their farms.

Proponents of tourism argue that resorts and hotels in places like Tirana would provide jobs and spur the local economy. They believe this to be especially important in communities, such as those in the Lower Lempa, that have had their agricultural economy diminished by free trade. But locals doubt resorts will help the local economy. They know that hotels are much more likely to hire bilingual youth from San Salvador who have degrees in hotel management than poor campesinos who barely have a sixth grade education.

Voices staff recently met with community members in La Tirana, and they are very much against outside investors building resorts in their region. Recognizing that they live in a special place, the community board is proposing that the community build a series of small, humble cabanas that would have a small ecological footprint, but provide comfortable housing for a small number of guests. They are also proposing that the community build a small community kitchen that could feed guests. The community wants to develop its own small eco-tourism industry that it can regulate and ensure does not harm the forest or turtle nesting ground. It would also mean that the money from tourism would benefit the community, and not just make wealthy investors in San Salvador or abroad even richer.

Other communities in the region are even more vulnerable than La Tirana. In El Chile and other small communities, many residents still do not have title to their land. They fear that if a private investor wants to build a hotel or resort the State could take their land and they would have no legal recourse.

Our staff also met with other communities in the Lower Lempa – Comunidad Octavio Ortiz, Amando Lopez, Nueva Esperanza – and several local organizations. They are also completely opposed to tourism projects in the region. They fear that hotels and resorts will further destroy agricultural land, use up limited water resources, and destroy local culture. The community of Octavio Ortiz even wrote in their strategic plan that they see tourism as a large threat to farming and their peaceful way of life.

While most of the public-private partnership proposals involve tourism, there are quite a few agricultural projects. According to PRESA, the government agency managing the project proposals, they received 14 requests to support production of exports in dairy, mangoes, limes, and honey. In order to be considered for a public-private partnership, investors have to have $100,000 in capital and be producing export crops. The capital requirement means local farmers will not be able to participate. And the requirement that products be grown for export means even more land will be dedicated to products that do not contribute to food sovereignty, which is a top priority for the region.

There are also civil society leaders and academics in El Salvador who oppose the MCC because they see it as the latest phase in implementing a neoliberal economic agenda in their country. They hold it in the same regard as the privatization of state assets (1990s), dollarization (1995-2001), Central American Free Trade Agreement (2006), the first MCC compact (2007-2012), and Partnership for Growth (2011). Similarly, Gilberto Garcia from Center for Labor Studies (CEAL, in Spanish) believes the

highway projects, including the northern highway funded by the first MCC compact and the Litoral Highway project planned for the second compact, are part of an effort to build a land bridge in Guatemala. The “Inter-Oceanic Corridor” will connect ports on the Pacific coasts of Guatemala and El Salvador with Caribbean or Atlantic ports in Guatemala. ODEPAL is managing the project in what they call a public-private partnership. The land bridge is located in Guatemala, but it is right on the borders with El Salvador and Honduras, giving both countries easy access.

Politics of Opposing the MCC and P3 Law

Building a strong national movement around opposition to the second MCC compact and the P3 Law may be more difficult than organizing Salvadorans against mining. While the anti-mining movement was able to reduce the debate to a single issue that all Salvadorans could understand – i.e. gold mining will destroy water resources for 60% of the country – most people believe that tourism, better highways, and other capital investments are always good. Similarly, the P3 Law is fairly abstract and difficult to reduce into a simple message that the majority of Salvadorans can relate to their everyday lives.

The politics around the MCC and P3 Law will make it more difficult to achieve the kind of nation-wide opposition that the anti-mining movement was able to garner. During the mining debate, the FMLN (leftist political party) was the opposition party and had the political freedom to take an anti-mining position. The FMLN is now in power and has to consider the economic and political interests that helped them get there. President Funes and FMLN presidential candidate Sanchez Cerén support the P3 Law and MCC compact, arguing the investments will be good for the economy. According to anonymous sources, many of the same business interests that helped Mauricio Funes with the 2009 presidential elections will benefit from the P3 Law and MCC funds. FMLN legislators have been a slower to sign on to the P3 Law. At times FMLN legislators have said it was not their top priority, and more recently they have tried to negotiate amendments to exclude certain sectors such as health and education from public-private partnerships. Officials from the conservative ARENA party have accused the FMLN legislators of not supporting the law because they want to implement a socialist economy agenda.

But the civil society organizations, communities, and labor unions that are opposed to the P3 Law and the MCC funding generally make up much of the FMLN’s base. If Sanchez Cerén and his supporters continue to embrace the P3 law and the MCC funding, while many in their base protest against it, it could exacerbate an existing split within the party in the months leading up to the February 2014 presidential elections. Many former FMLN militants and supporters, especially in the Lower Lempa, already believe the movement they once fought for no longer represents their interests and values.

Though the US and Salvadoran governments want to pass the P3 Law and sign the MCC compact before the elections, many opponents are gearing up for a long struggle. Even if the P3 Law passes, when the government wants to enter into a public-private partnership the Legislative Assembly will have to approve it. They are likely to face great scrutiny and opposition. Similarly, developers wanting to break ground on tourism projects in La Tirana and other communities are likely to face some rather significant legal and social barriers – much like Pacific Rim faced in Cabañas.

Dollarization: “A Sack of Unfulfilled Promises”

In January 2001, El Salvador began the dollarization process, which changed the official currency from the Salvadoran Colon to the U.S dollar. According to an article posted on Tim’s El Salvador Blog, former President Francisco Flores and his Minister of Finance, Manuel Enrique Hinds, made the change in order to keep interest levels low, control inflation and increase foreign investment.

In the twelve years since, Salvadorans have engaged in a constant debate over dollarization – has it been good or not, and should they keep the U.S. currency or revert back to the Colon. In June 2011, we posted an article on this blog looking back at ten years of dollarization, concluding that it has not brought about the positive benefits promised.

Others have reached the similar conclusions, including the current President of El Salvador’s Central Reserve Bank, Carlos Acevedo who earlier this month said dollarization was “a sack of unfulfilled promises.” The Central Reserve Bank is a government-controlled entity that regulates many aspects of El Salvador’s economy, including its currency, and Acevedo’s opinion carries some weight.

This is not the first time Acevedo has criticized dollarization. In March 2012 he penned an opinion piece for El Faro that described the process of planning for and implementing dollarization as “hasty and improvised.” He also said that reversing dollarization (de-dollarization) would be even more detrimental. Acevedo, however, also told Contrapunto that “the next government will be forced to consider the possibility of de-dollarization to allow for a monetary policy that provides greater flexibility of public finance, and so it will be able to return to printing money and adjusting interest rates to stimulate the economy.

Bank President Acevedo made his most recent statements (reported by Active Transparency) following the release of a government study on dollarization, which reached some rather negative conclusions. The report found that many key economic indicators, including exports and GDP fell, while inflation and interest rates rose. Dollarization has failed to shield the economy from downturns and instead made El Salvador more susceptible to instabilities in the U.S. economy, as witnessed during the 2009 recession. The Economista published an article yesterday reaching very much the same conclusions.

In his statements this month, Acevedo said dollarization was “badly designed, improvised and lacking consultation,” and that El Salvador’s fiscal performance with dollarization was the worst in sixty years. He also said the performance was so poor that even proponents of dollarization could not ignore its negative impacts. Even in his most recent comments, however, Acevedo stressed that the Funes administration is not considering de-dollarization and that doing so would cause more economic hard and instability. One of his fears is that Salvadorans would make a run on the banks, withdrawing dollars before they were converted to Colones or another currency.

While President Funes may not have de-dolarization plans for the last year of his administration, Vice President and FMLN 2014 presidential candidate Sanchez Ceren said in May 2012 that dollarization was the cause of the current economic recession and that El Salvador’s currency had to be changed back to the Colon.

Norman Quijano, the Mayor of San Salvador and the ARENA party’s 2014 presidential candidate stated in the past that dollarization would be beneficial to consumers. In a more recent interview he said, “reversing dollarization would be the worst thing to do.” Former President Tony Saca, who may run as the GANA party’s 2014 presidential candidate, stated in the past that he supported dollarization and that de-dollarization would be detrimental.

Acevedo’s comments paint a pretty difficult position for El Salvador in terms of the country’s economic policy. Dollarization has been bad, but de-dollarization would be really bad. While the current slate of presidential candidates have made general statements, it is unclear whether they are open to more nuanced positions that will give government economists more tools to promote a more stable economy.

Street Vendors Ousted from Downtown San Salvador

San Salvador looks a bit like a war-zone today after mayor and ARENA presidential candidate Norman Quijano deployed 1,000 police officers and 4,000 city employees to oust 970 vendors from 33 blocks in the downtown area.

When police and city workers showed up Friday with heavy machinery and began clearing the area, vendors fought back by setting up barriers and lighting fires. They were eventually removed, but not before 10 people were injured including 6 police officers. The mayor has asked for locals to be patient as 2,500 workers clean up the area, a process he expects to continue through Tuesday. He also estimates that the clean up will cost taxpayers a whopping $200,000!

Downtown El Salvador has been the home to an informal market for many years. Venders sell just about everything – food, clothing, videos and music, school supplies, hardware, and so much more.

Vendors did not have advanced notice of the removal and many lost all of their merchandise and other capital investments including refrigerators, jukeboxes, slot machines, video games, antennas, and much more. One vendor, who lost $10,000 worth of merchandise, told La Prensa Grafica, “they did not give us the opportunity. They arrived and threw us out and we lost all of our things. The mayor is responsible for everything.”

La Prensa Grafica noted that this was not the first action of its kind. Since 2009, the San Salvador municipal government has removed vendors from 167 blocks in the city in more than 31 interventions.

The mayor’s office says the vendors are able to move to a central market in the area where there are 623 stalls available for them to use. Of course that is not enough space to accommodate for the 970 vendors removed over the weekend.

This has been a complex issue for many years (downtown street vendors organized their first union in 1962) and there are some real issues, all of which stem from the systemic exclusion of people from the formal economy. Salvadorans without jobs can generate income by selling things on the street, generally to other poor people who can’t afford to shop in the formal economy. These informal markets are a bad deal all the way around. The street vendors lack the security, rights, and benefits that their counterparts in the formal sector have (or are supposed to have, but that’s another article). But they also don’t collect or pay taxes, which has been a point of contention for the international community (World Bank, IMF, U.S, and other). Many street vendors also violate international intellectual property laws by selling pirated movies, music, software, and clothing ($10 knockoff Ray Bans). Street venders also clog downtown streets, and if you’ve ever tried to take a bus through downtown on a Friday afternoon, you know how bad it can be.

Spending $200,000 to clear street vendors with bulldozers is in no way a sustainable solution to these problems. It doesn’t help venders get work in the formal sector and it definitely doesn’t mean low-income folks will all of a sudden start buying their blue jeans at Metro-Centro (a San Salvador shopping mall).

These evictions only mean that the poor have even fewer and fewer options – but that seems to be a global trend.

Here is a link to photos of the destruction.

 

U.S. Beef with El Salvador!

The U.S. Meat Export Federation (USMEF) reported this week that El Salvador has “lifted all age and product restrictions on U.S. beef, eliminating the need for an export verification program.”

USMEF regional director for Central America said El Salvador is “a potentially strong market, as it currently imports a significant amount of beef (about 28 million pounds last year) from Nicaragua.” The article reports that U.S. beef exports more than doubled between 2009 and 2011, totaling more than $1.2 million. Now that the restrictions have been lifted, exports of beef and beef products from the U.S. are expected to rise dramatically.

El Salvador’s age restrictions meant that beef and beef products had to be from cattle that were no more than 30 months old. This is a fairly common restriction meant to protect against the spread of bovine spongiform encephalopathy (mad cow disease). Japan has one of the more restrictive age-limits; beef and beef products have to be from cattle no more than 20 months old. So far in 2012, the U.S. has reported four cases of mad cow disease – the last was in April.

A report from the US Department of Agriculture Foreign Agricultural Service says that since 2008 the USDA/FAS/San Salvador has been “in an intense negotiation with the Government of El Salvador [Ministry of Agriculture] to allow full access for U.S. bovine meat and its products to the local market.” The report says that until recently, El Salvador did not recognize the U.S. mad cow disease “controlled risk status granted by the World Animal Health Organization.” As a result, El Salvador restricted access of “bone-in beef, and beef and products of animals over 30 months of age.” These products were not completely banned; they just had to go through an Export Verification program that increased the cost of the products and made them less competitive with local products.

Last year, USMEF led a campaign to promote U.S. beef consumption in El Salvador. They set up stands in “18 high-end Super Selectos retail locations” throughout the country. USMEF told customers that the majority of their meat was produced domestically or in Nicaragua, meaning that it is grass-fed and therefore “severely lacking in tenderness.” But in the U.S., there is actually a movement to promote grass-fed beef. Whole Foods Market and many others have even organized campaigns of to inform their customers about the benefits of grass-fed beef and introduce customers to their producers. The Tallgrass Beef Company has even declared, “the grass-fed revolution is here.” So either the USMEF really only likes grain-fed beef or their campaign to educate Salvadoran consumers is more an effort to run their competition out of town and sell U.S. beef.

While doing away with the age restriction may increase competition for cattlemen in Nicaragua, it probably won’t have much of an impact on Voices’ local partners in the Lower Lempa who mostly raise dairy cattle. And as in most rural communities throughout El Salvador, beef sold in local markets is from local cattle. U.S. beef will mostly end up in higher-end grocery stores that are already full of goods imported from the U.S.

Anti-Walmart Action in Mejicanos, El Salvador

This past Thursday civil society organizations, international solidarity groups, students, and community associations came together to protest the construction of a mega Walmart store in Mejicanos, a municipality in northern San Salvador.

Protest organizers issued a statement that read,

“We are aware that transnational companies like Walmart create more precarious environmental conditions, exploit our workers, and put our lives at risk.  We demand that the Environmental Ministry, the Office on Metropolitan Planning, and the Mejicanos Mayor’s Office, release the technical information that demonstrates the viability of Walmart’s construction in the area.  The communities must be consulted, since they are the ones threatened by floods and landslides, and who have resisted the project for years.”

Photo courtesy of Georgina Salinas

According to community leaders , construction of the super-store poses a serious risk to the surrounding communities along the folds of the San Salvador volcano.  Mejicanos is already ranked as the third most vulnerable urban center in El Salvador, and 45% of the households lack at least one basic service such as water, electricity or proper shelter.[1]

Mauricio Cortéz of the Inter Communal Coordinating Committee has been demanding answers to the various risks that the municipality faces for decades.  The Picacho ravine of the volcano is unstable, and residents fear a repeat of the devastating 1934 and 1982 landslides that covered entire communities.  Intense urbanization has forced poor families off of the their land in favor of up-scale residential development and new boulevards  – projects which heavily impact watershed patterns and hill side stability.

Rene Bermudez, who has been part of the Walmart resistance movement for the past 5 years, also denounced Walmart’s demolition of an important access road along the parameter of the property.  Municipal land-use maps establish the Arenal road to provide residents of Las Marias access to their community. In order to prepare for the new Walmart, contractors bulldozed the road claiming that it was just a drainage ditch.  Las Marias residents now have to use a winding path through residential properties.

Today’s protest was in response to the new mayor’s sudden approval for the construction permits.  Prior permits had been denied due Walmart’s inability to meet environmental regulations, but within weeks of taking office, the new conservative mayor, Juanita Lemus de Pacas, announced that Walmart would be open by December of this year.

Walmart has been in Central America since 2005 and is already the region’s largest retailer. Walmart Centroamérica has 79 stores open in El Salvador; Despensa Familiar – 51; La Despensa de Don Juan -25; Walmart Supercenter – 2; and Maxi Despensa -1.

Community leaders are upset by the mayor’s eager support of the project, and have signaled that Walmart was able to cull favor with the new administration through tactics that were similar to those used in Mexico and exposed this past April.  Lemus de Pacas’ entire campaign was based on inviting large business contracts into the area, and she has continued to align the mayor’s office with private interests.  Gloria Andrade, a community leader in San Pedro, Mejicanos, said that local market women had planned on participating in the protest, but the mayor threatened to pull funds for their new market if they were to attend.

 

Photo courtesy of Georgina Salinas


[1] FLASCO, Mapa de Pobreza urbana y exclución social. FLASCO-MINED. 2008.

Protest Against Walmart in Mejicanos, El Salvador Next Thursday

Last month, Walmart received permits to build a store in Mejicanos, a municipality within the greater Metropolitan San Salvador Area. The 86,100 square foot store will be located on a lovely 6.6-acre lot on the Constitution Boulevard, at the base of the San Salvador Volcano. Walmart officials estimate that the store will create 500 new direct jobs and 250 new indirect jobs and inject a bunch of new tax revenue into the local and central governments.

Sadly, the 6.6 acres where Walmart is going to build was a forest, which was removed to accommodate the large building and parking lots.

Destruction of the forest and other reasons have sparked a group of Salvadorans to oppose the new Walmart. They are organizing a protest on Thursday June 21 at the Shafik Plaza in front of the new store’s location. In an email invitation to the protest, organizers provided a top-ten list of reasons they oppose the new Walmart. Their reasons include:

  1. The reduction of income and the closing of local businesses as the result of competition with Wal-Mart;
  2. The cutting down of thousands of trees;
  3. Floods, landslides and the obstruction of drainage pipes as a result of deforestation;
  4. Damage to hydraulic basins which would mean less water for human consumption;
  5. Higher temperatures: if there are fewer trees, the temperature will increase;
  6. Labor rights violations: poor employee compensation, with difficult working conditions such as the denial of the right to form a union;
  7. Increased dependence of small producers that sell to Wal-Mart, because as the sole business partner of these producers, Wal-Mart controls the terms and prices of trade;
  8. More genetically modified and unhealthy products would enter the country;
  9. More imported products would worsen the country’s economic crisis; and
  10. There will probably be more illicit processes in the acquisition of permits; which could include corruption and intimidation.

Anticipating that Salvadorans would not appreciate their cutting down trees, the mega-giant store plans to plant 10,000 trees in a deforested areas in the nearby municipality of Nejapa. Whether their reforestation efforts will offset losing 6.6 acres of forest at the base of the volcano remains unclear, but opponents are doubtful.

Protest organizers have a Facebook page with information about the protest and their opposition. Here is a poster advertizing the event:

Elsalvador.com published an article on May 1st of this year giving the new ARENA mayor, Juanita Lemus de Pacas, credit for getting Walmart the permits they need to start building. Up to the March 2012 elections, the leftist FMLN party had held the mayor’s office in Mejicanos and Walmart was unable to secure their permits. Shortly after the new ARENA government took over the municipal government, Walmart broke ground on the project.

Walmart has been in Central America since 2005 and is already the region’s largest retailer. Walmart Centroamérica has 79 stores open in El Salvador; Despensa Familiar – 51; La Despensa de Don Juan -25; Walmart Supercenter – 2; and Maxi Despensa -1.

Call Center Industry Growing in El Salvador

According to recent article on ElSalvador.com, El Salvador’s call center (aka contact center) industry has grown by 29% over the past six years, now employing 12,000 people in 45 different facilities around the country.

PROESA, the Agency for Promotion of Exports and Investments, began planning to bring call centers to El Salvador in 2001, and by 2004 several companies had opened facilities in San Salvador, including Dell, Sykes, Teleperformance, and others. The call centers are primarily used to provide customer service and make sales calls in the United States. A 2004 article reporting on the emergence of the call center industry in El Salvador says the Central American country has a “state of the art telecommunications infrastructure, stable dollar-based economy, a sizeable bilingual workforce, competitive operation costs, and a government supportive of facilitating foreign investment.”

One of the limitations to growth over the years has been the relatively small bilingual workforce. In 2006, PROESA tried recruiting English-speaking Salvadorans in the US, promising salaries as high as $1500 a month to move to El Salvador and work in contact centers. Tim’s blog posted an article at the time about the recruitment efforts, which sparked an interesting series of comments about the reality of such a plan.

Because the majority of El Salvador’s contact centers serve US cliental, they have to compete with countries such as India and Philippines, both of which have larger populations of English-speakers. El Salvador, however, has a couple of advantages that make it competitive. One is its proximity to the US, which makes the cost of doing business less. Government officials also argue that because Salvadorans have a better understanding of US culture, they are better able to serve their customers. The average salary for a bilingual contact center agent in El Salvador is $600, roughly the same as in India and Philippines.

One company, Transactel, has grown its call centers in El Salvador by 35% in just the past year, increasing from 1,700 employees, to 2,300. They will also add another 120 contractors to help with the November – December holiday season. Transactel is also offering online services so that customers can receive help via email or chat.

Another company, Sykes, claims to provide high quality call center services to prestigious companies. Since 1999, Sykes has opened several call centers throughout Latin America, including El Salvador, Costa Rica, Mexico, and Brazil. The company claims they take good care of their employees, offering educational assistance, medical services, life insurance, and more.

While contact centers are probably not the solution to El Salvador’s economic issues, it is becoming an important industry, and could provide youth with the opportunity to build their language skills, get a paycheck, and get their foot into the service sector.