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.

Cities: El Salvador’s Growing Problem

Urbanization is something that every country faces at one point or another in its development. The US, for example, experienced urbanization during the industrial revolution and on to the early 20th century. Today, many developing countries are also experiencing it. Because it is part of the path to development, urbanization is an indicator worth analyzing in the context of El Salvador as it becomes increasingly problematic, specifically in terms of poverty, violence and health.

 

As nations’ economies move from rural farms to more modern technologies, cities begin to form as hubs for commerce and other economic activity. Urbanization’s momentum grows when even more poor people then decide to relocate to the city in an effort to find better opportunities. This can be seen from Mexico City to Shanghai. Problems arise, however, when cities begin to get overcrowded and the poor create squatting communities along the outside of the cities. Often times these individuals have no rights to the land; more so, living conditions in these communities are terrible.

 

El Salvador has cities that are not unlike those of other developing countries. In fact, about 60.3% of Salvadorans now live in urban areas. El Salvador’s main urban hubs are San Salvador, San Miguel, and Santa Ana. While Salvadorans decide to go to cities to pursue better lives, city life is often not that glamorous. Typically, urban homes are made out of bricks and cement. Homes in the slums however, are essentially huts made out of aluminum, plastic, and cardboard. It is important to note that these homes are especially susceptible to constant flooding in the rainy season. There are also instances where the single water source in these communities is contaminated.

 

Urban poverty in El Salvador currently stands at 56%; that is, more than half of those living in cities are barely able to afford to survive. Fewer job opportunities and high costs of living explain why urban poverty is so widespread. Even so, the urban population in El Salvador is growing by about 1.9% each year while the rural population is only rising at 0.6% each year. It becomes a problem when far too many Salvadorans are living in the cities because the government is not able to provide the necessary services to everyone.

 

Another problem related to urbanization is urban violence. Poverty alone does not explain why crime in cities is more common. It seems that inequality, which is more distinguishable in urban areas, is also a key indicator of crime. Inequality, coupled with daily living conditions, is likely to result in conflict and violence. Violence specifically affects developing countries by stifling necessary economic growth. Urban conflict drains financial capital by requiring greater investments in judicial services and healthcare. Human capital is also reduced by the presence of persistent violence. Deaths and reductions in life expectancy, lower levels of personal security, fewer educational opportunities and lower productivity in the workplace all function to weaken the labor force. Lastly, social capital is also reduced through the ongoing fear and lack of trust within communities that result in less coordination.

 

Health is yet another problem affected by urban growth; slums are inherently unhealthy living arrangements. Because these individuals do not own the land and are residing in informal communities, they cannot demand better living standards from the government. Living in city slums, like those in San Salvador, Santa Ana, and San Miguel, where there has been little to no urban planning also facilitates the spread of illnesses. More than that, traffic accidents and pollution, two seemingly trivial consequences of urbanization, account for an alarmingly high number of deaths and illnesses.

 

While the government has not done much to address the issue of living conditions in the cities and slums, it has attempted to address the issue of crime. As a result of its high crime rates, El Salvador has passed a substantial number of laws aimed at reducing crime. With mixed success, the government has remained dedicated to fighting crime since El Salvador became one of the ten most crime-ridden countries in the world. With that said, the government has done little to address the issues of poverty and health in the growing urban areas.

 

Indeed, urbanization signals progress, however it comes with its own unique set of problems. El Salvador does not have the necessary mechanisms in place to offer everyone in the cities the resources and services they need to pursue a better life. Instead, urban poverty is growing and living conditions continue to deteriorate. Poverty, violence, and health are all variables that interact with one another to create the reality of city life in El Salvador today. As such, one of these factors cannot be remedied without the other two being addressed as well. The government will be forced to address it in the coming years as more and more Salvadorans continue to move to the cities.

 

The Cost of Free Trade: 5 Years into DR-CAFTA

The Dominican Republic-Central American Free Trade Agreement (or DR-CAFTA) went into effect March 1, 2006. After 5 years, it is time to evaluate what kind of results this agreement has produced. Like any other free trade agreement, the logic behind CAFTA was that liberalized trade leads to a net welfare gain for both countries. Furthermore, because the seven countries involved in the agreement (US, Dominican Republic, Honduras, El Salvador, Costa Rica, Guatemala, and Nicaragua) have different resources, technologies, and preferences, there are gains to be made from trade. By pursuing each other’s comparative advantage, as David Ricardo first argued, each country may specialize in that which it is relatively better at producing. This is a powerful theory, but as economics often shows, theory cannot always be reconciled with reality; many of these models make specific assumptions that do not always match the real world. Specifically in the case of CAFTA, it appears as though the Central American countries have suffered several negative consequences of this free trade agreement. The results of the agreement that weren’t clearly negative are ambiguous at best.

 

The removal of tariffs lowers the costs of trade between these countries and their main trading partner–the US. That being said, because tariffs have been removed, the governments of the Central American countries have less government revenue flowing in. While the US hardly had any tariffs on imported goods from Central American countries, the Central American nations had high tariffs on US goods in order to raise revenue for their governments. Before DR-CAFTA came into effect, about 80% of all US goods were not duty free, and the removal of the tariffs caused the governments to lose a substantial amount of revenue.

 

Additionally, because the US subsidizes its agricultural products, it has hurt the average farmers in these Central American countries. Since most Central American farmers cannot compete with the massive, more efficient farms in the US that are subsidized by the government, many of these Central American farmers find themselves out of business.  This forces them to instead try to find work in the multi-national corporations’ factories. More individuals in the cities seeking jobs in the so-called “maquilas” means that the supply of labor rises while the number of maquilas stays the same. This leads to an excess supply of Salvadorans seeking jobs in these factories. Thus, factory owners may lower their salaries because there is so much competition for work.

 

Many theorists would assert that one of the largest benefits of trade is that after lifting barriers to trade, the countries involved in the agreement will be able to consume more, leaving them all better off. In reality however, the results are neither negative nor positive, but rather unclear. Data shows that over the course of the last five years and until 2010, exports and imports in El Salvador have steadily increased. One, however, cannot say for certain that this is a direct result of DR-CAFTA. More than that, while Salvadoran exports and imports may have increased, it does not necessarily mean that El Salvador is physically producing and exporting more goods. Export and import data are calculated by value, and therefore one must factor prices into the equation. It is possible that El Salvador produced just as much last year as it did five years ago. However, because prices have risen, the value of its exports has also risen even though El Salvador is not better off in real terms. There is some evidence that suggests that increases in price levels over time account for some of the rise in exports. According to the data, El Salvador has experienced inflation since 2005. Because of the difficulty of directly attributing rises in exports and imports to DR-CAFTA the actual effect of the agreement on trade is ambiguous.

 

The effects of DR-CAFTA remain unclear when analyzing Chapter 10 of the agreement, which eliminates barriers to investment. According to the chapter, investments are very strongly protected.  This protection is provided by the most-favored nation provision (in which the countries agree to accord one another with the same favorable terms that would be offered in treaties with any other nation) the “fair and equitable treatment” clause (which refers to a country agreeing to treat foreign investors the same as domestic ones), and the “full protection and security” clause (which refers to a country’s agreement to protect one other’s investors by providing them with security).  Because of these provisions, multi-national corporations can securely conduct their business in signatory nations and employ their citizens.  Although this is positive for El Salvador and the rest of Central America, the nature of the jobs these corporations often provide is unsanitary, unsafe, and low-paying. Thus, the citizens of Central America are not necessarily better off, especially since the multi-national corporations often do not reinvest their profits within the region but instead send it back to their home country. Due to the lack of economic development from the international investors, workers do not necessarily stand to gain.

 

For all of these reasons, DR-CAFTA has no clear and significant benefits to El Salvador and the other Central American members of the agreement. Salvadorans and other Central Americans need development, and because DR-CAFTA seems to facilitate it through spurring investment, but impede it through working conditions, among other things, this trade agreement is neither a sufficient nor an ideal solution to development.  DR-CAFTA, along with its effects like poor working conditions, low salaries, US subsidized exports, etc, will continue to remain an issue of concern until further investigation and/or reforms can be completed.

Ten Years Later- The Impact of Dollarization in El Salvador

Some economists argue that pursuing a dollarization strategy helps developing countries grow their economies through the stabilization of inflation and increases in investment. Other economists discourage a dollarization strategy because it causes these economically small countries to relinquish control over their own monetary policy. This past January marked the tenth anniversary of El Salvador’s adoption of the US dollar as its currency, and its worth assessing the “dollarized” currency regime to determine how successful its been.

Colones, the Salvadoran currency that was replaced by the US dollar in 2001

Adopting the US dollar as a nation’s official currency can be successful, such as in Ecuador. In the case of El Salvador however, dollarization does not seem to have improved economic development.  El Salvador’s economic growth since adopting the dollar as the official currency in 2001 has not been any higher than it was during the years leading up to dollarization. In fact, El Salvador saw higher growth rates in the years prior to its adoption of the dollar. It is difficult to directly attribute the country’s failure to obtain a higher growth rate solely to dollarization, but it most likely did play a role.

As it did in Ecuador, dollarization has helped many economies stabilize their high rates of inflation. El Salvador, however never faced hyperinflation and therefore did not reap any of the stabilizing benefits. Another argument favoring dollarization is that it lowers interest rates and stimulates investment. In the case of El Salvador however, investments did not flow into the country as much as expected due to instability caused by high crime rates and violence. If investors believe their money and capital is not secure, they will go elsewhere where labor costs are low (not denominated in dollars) and where violence and crime is less of a threat.

Under the dollarization regime, El Salvador has no control over its own monetary policy. By adopting the US dollar as its official currency, El Salvador has ceded its authority over money supply and interest rates to the Federal Reserve. It is highly unlikely that the Fed will consider El Salvador’s needs when determining interest rates. Therefore, the Salvadorian government has to depend on taxes and spending to stimulate the economy since it no longer has control over money supply and interest rates. This has caused El Salvador to run higher deficits through the last decade since the government was forced to raise expenditures to stimulate the economy as opposed to decreasing interest rates to spur consumption and investment.

The poorest Salvadorians are the most affected by dollarization. When the dollar was adopted, all businesses needed to change their prices and translate them into dollars. This led to a phenomenon known as “rounding up”. Because the colon-dollar exchange rate was not an exact value, but a fraction, the shift to the dollar caused businesses to change from colon to dollar by rounding up to the nearest dime, quarter or dollar. This left the poorest Salvadorians worse off because while prices rose, wages did not, leaving everyone with a lower real income. However, since the poorest Salvadorans have very low incomes, a fraction of a dollar comprises a larger part of their income than the average Salvadoran.

The effects of dollarization on trade have been somewhat ambiguous. Whereas it was able to compete against other developing countries when it had the colon, El Salvador’s exports have slowed because countries like China are trading with their own undervalued currencies while El Salvador trades with the dollar. Thus, El Salvador’s exports are relatively more expensive than Chinese exports. Use of the dollar, however, has helped trade with some countries by reducing transaction costs. Since so many of its goods are traded with the US, trade in El Salvador has benefitted. Thus, whether the net effect on trade has been positive or negative remains unclear.

Dollarization has provided some benefits. For instance, El Salvador has not faced hyperinflation like some of its Latin American counterparts have. Keeping inflation low is important because it allows banks to lend more, putting more money into the economy.  Additionally, having the dollar as their official currency has limited the chance of any sort of speculative attacks, which means that El Salvador is much less likely to face a Balance of Payments Crisis like Mexico or Argentina did.

The most important and perhaps disappointing part is that some economists believe a shift away from the dollar is not possible. Economists cite Gresham’s Law as the reason for this. In this context, Gresham’s Law argues that re-introducing the colon or another currency into the system would not work because Salvadorians would not trust it. The way this scenario would play out is: the government would try to introduce a new Salvadoran currency and it would ask its citizens to keep their dollars and instead use this new currency for all transactions. The problem is, without trust, that new currency will have no value. Because the dollar is much more trusted as a stable currency, Salvadorans would resist this change in currency and continue to make their transactions in dollars.

Dollarization is not for all countries. For this policy to be truly successful, hyperinflation must be a real concern and investment must be contingent on interest rates and not other factors such as violence. El Salvador has benefitted in some ways by dollarization, however in the long run, there seems to have been more costs than benefits.

Economic Well-Being Strongly Tied to Democratic Attitudes in El Salvador

The AmericasBarometer survey has recently published their biannual report, The Political Culture of Democracy in El Salvador.  Funded by USAID and other organizations, it focuses on a multitude of social and economic factors and their effect on citizen’s evaluation of democracy in El Salvador. Given the variety of important topics covered in this report, Voices will be publishing a series of articles on the results and their significance.

AmericasBarometer conducts surveys on the political culture of democracy in the Americas every two years, meaning that 2008 was the last year of data collection prior to the current. Since 2008, the economic recession has hit the Americas, and the rest of the world, hard. In Latin America especially, the rates of unemployment and the ‘extreme working poor’ (defined in the report as those who live on less than US$1.25 a day) rose significantly.  Unemployment rose to 8.5%.  Additionally, 9.9% of citizens are now considered members of the extreme working poor. Further, remittances from the U.S. to El Salvador (which account for 17% of El Salvador’s GDP) declined by approximately 12%. Thus, a special focus in this round of AmericasBarometer surveys emerged: the effect of hard economic times on citizens’ perception of democracy.

The economic recession seems to have gone hand-in-hand with a decline or even reversal of democratic development in many developing countries. El Salvador is no exception, reporting a 4-point decrease (68 to 64 on a 0-100 scale) in public support for democracy since 2008. This decline makes sense, especially in light of a 1996 study by Adam Przeworski, a democratic social theorist and political economist, analyzing the link between income and political stability.  Called the Przeworski Threshold, his finding was that no democracy has ever collapsed when the per capita income exceeded $6,055. Unfortunately, El Salvador has not reached that threshold, pointing to a connection between the country’s constant state of political unrest and its ongoing economic struggles. The reason behind this connection is two-fold: besides a lack of funds to support basic infrastructure, public discontent over the government’s money management and institutionalized economic inequality can incite violent political protests. In keeping with this analysis, survey data consistently indicated that democratic dissatisfaction increased as household income decreased, and household income has decreased the most for those who were already the poorest.

Interestingly, though there is a correlation between a survey respondent’s worsening personal financial situation and a lower level of support for democracy, respondents tended to be much more critical of the democratic system when it was the wider government that was in economic trouble. In a way, this is a positive indicator of citizens’ understanding of the democratic system: it signifies a recognition that the success of a country as a whole and the competence of its leaders have a more permanent positive effect than does individual prosperity. At the same time, however, these statistics highlight how important it is that the democratic government in El Salvador dedicate itself to improving the system in place, so as not to lose the support of its people in times of hardship.  It is during difficult times when public support is the most necessary.

Interviewers also asked participants to rate and compare their levels of ‘life satisfaction’ between 2008 and 2010 (note that 2008 life satisfaction levels are retrospectively reported, and results thus do not reflect real satisfaction in 2008). The results are still astounding: 40.8% of Salvadorans reported a decline in life satisfaction in these two years, most closely influenced by a negative perception of their personal economic situation, which has resulted in lower levels of confidence in democracy.

Other significant factors in a respondent’s appraisal of democracy are education, gender, and class. There is a positive correlation between higher levels of education and support for democracy: 61.7 % of Salvadorans with no or only primary education ‘at least somewhat’ support democracy, compared with 64.1% of middle/ high school graduates, and 68.4% of those with a post-secondary education. Historically, women in El Salvador have been less supportive of democracy, most likely due to their lower social status and rising violence towards women. The survey’s 2010 results confirm this. Only 61.7% of women professed support for democracy, compared with 66.7% of men. Lastly, as one descends through the quintiles of wealth, support for democracy likewise declines, confirming the correlation between economic well-being and approval of the democratic system.

We must ask, then, if a decrease in support for democracy necessarily a) implies a denial of the legitimacy of the political system or b) threatens political stability in a region. It seems to not do either. Despite a significant decrease in support for democracy as a political theory, survey results from El Salvador indicate a 7.1% overall increase in support for the functioning political system, most significantly tied to perceptions of the government’s economic success. The indicator for political system support is calculated based on responses to five different survey questions, which address the fairness of the judicial system, the respectability of the country’s political institutions, the protection of basic rights, citizens’ national pride, and, more abstractly, the perceived ideal level of support for the system. Many of the significant factors in determining support for democracy (such as economic well-being) remain significant when considering system support. In practice, though, they indicate opposite trends. Where the most highly educated were the biggest supporters of theoretical democracy, they show the lowest levels of support for the current political system as a whole. This is unsurprising, however, as this general trend appears in most developing and developed nations. Likewise, though women were more likely to be democratically disinclined, they reported higher levels of support for the actual political system than did their male counterparts. The general increase in system support seen here is also due to citizens’ perceptions of improvement in government economic performance, a hopeful indicator that the Americas may soon emerge from the recession.

The results of the AmericasBarometer survey are in keeping with those of the El Faro survey we covered previously, though the former is notably less partial. Where the El Faro survey tended to ask leading questions and thus overstate respondents’ dissatisfaction, AmericasBarometer kept questions as open as possible and seemed to do its best to remove bias and suggestion. That said, anti-democratic sentiment is still unmistakably present in El Salvador: on AmericasBarometer’s 0-100 scale, El Salvador scored third highest in public support for military coups (40.9 in 2010). Still in keeping with El Faro’s results, where the majority of respondents agreed that they would “support an authoritarian government if it resolved economic problems,” AmericasBarometer finds that support for a coup is highest among those who see the (national and personal) economic situation as grave. Again, significant determinants in support for a coup are education level, relative wealth, sex, and age: the more educated and/or wealthy the respondent, the less likely it was that he or she would support a military coup; and men and older members of society were less likely to be in support than women or youth.

The results of the survey show, for the most part, that economic well-being, whether that of individual families or that of the nation’s government, is one of the strongest factors that affect the public’s support of democracy.  In El Salvador, recently, personal economic well-being has been decreasing, and along with it, the support of democracy.  On the other hand, the public’s perception of the government’s well-being has brought an increase in support for the current system.  While public support for democracy as a political theory is important, support for the current, though imperfect, democratic system is more important to immediate political stability, and this does not seem to have been negatively impacted by the recent economic troubles.

 

Ecuador’s Article 422 to Set Example for Rest of Region?

As El Salvador prepares for the next round of hearings before an International Commission for Settlement of International Disputes (ICSID) tribunal, a growing chorus of civil society organizations is calling for a renegotiation of CAFTA-DR (the Central American Free Trade Agreement). Their primary complaint is that the settlement dispute provisions in CAFTA-DR give private corporations the right to sue sovereign nations over investment disputes, limiting the country’s ability to protect its workers and environment. Though an ICSID tribunal recently dismissed the Commerce Group’s claim against El Salvador, Pacific Rim Mining Company’s suit claiming an estimated $100 million in lost investments and profits, lives on. You can read more about the Pacific Rim suit here, here and here).

In recent years, Ecuador has had to defend itself in several investment trade disputes similar to the one Pacific Rim has brought against El Salvador. As a result, when Ecuador adopted a new constitution last year, they included a provision (Article 422) that protects the country from international investors. Article 422 could set an important precedent for other nations in the region, including El Salvador.

Currently, Ecuador has been the subject of thirteen investment disputes before ICSID tribunals, the majority of which have involved oil and energy production. Of these thirteen cases, four were decided on the merits, three have been settled, one has been discontinued, and five remain pending. Though Ecuador won three of the four cases decided on their merits, the country has paid approximately $90 million in damages and settlements. These payments motivated Ecuadorans to reconsider their consent to ICSID and other tribunals.

Article 422 simply states that Ecuador will not sign treaties or international instruments in which the State cedes sovereign jurisdiction in instances of arbitration in contract or business disputes of any kind between the State and a natural or legal person. The exceptions are treaties and instruments that create dispute resolution mechanisms between States and persons in Latin America by regional arbitration or by judicial bodies from signatory countries.

Ecuador’s new approach has drawn both praise and criticism. Critics are concerned that parts of Article 422 are vague and will be difficult to implement, raising concerns about how it will affect Ecuador’s relationships with foreign investors. Without an adequate dispute settlement protection, the risk of investment increases, which could scare away much-needed development. Critics are also concerned that by opting out of arbitration in some cases but not others they are creating another level of discrimination in the Ecuadoran legal system, allowing domestic investors more rights than international investors. Such discrimination is troubling for a modern legal system that is supposed to be based on equality.

 

Supporters of Article 422 praise it as Ecuador’s protecting its sovereignty and national identity, which has been a priority for Ecuadoran President Rafael Correa. Though Ecuador has never been reflexively anti-U.S., the relationship between the two countries has been steeped in economic, political, and military pressure.  Article 422 is seen by many as a move to assert greater independence. It also contributes to a growing sense of Latin American regionalism by deepening the economic and political integration among its neighbors.

Though article 422 limits Ecuador’s exposure to investor-state arbitration, it allows investors to file a complaint in a domestic court. This will limit Ecuador’s exposure and protect their regulatory authority, while ensuring that investors have a way to protect themselves.

Ecuador’s move to protect itself against the onslaught of investor suits is an important development in the debate over investor-state relations. It also contributes to the renewed vision of Latin American regionalism. Whether other nations in Central and South American follow in Ecuador’s footsteps remains to be seen. But it is clear that the debate over investor rights in El Salvador and other countries is not over.

 

http://www.crowell.com/documents/ICSID-Arbitration-in-the-Americas_GAR_Ali_de-Gramont_Nov-07.pdf

 

http://www.iisd.org/itn/2008/07/17/in-depth-latin-america-s-new-model-bilateral-investment-treaties/

 

http://www.boalt.org/bjil/docs/BJIL27.2_Schill.pdf

 

https://litigation-essentials.lexisnexis.com/webcd/app?action=DocumentDisplay&crawlid=1&doctype=cite&docid=11+N.Y.U.+Envtl.+L.J.+19&srctype=smi&srcid=3B15&key=804bf01e38419d502b25eb2ea81ce9bc

 

http://www.asambleaconstituyente.gov.ec/documentos/constitucion_de_bolsillo.pdf

 

http://globalis.gvu.unu.edu/indicator_detail.cfm?Country=EC&IndicatorID=155

 

http://www.iisd.org/itn/2010/12/16/fairness-and-independence-in-investment-arbitration-a-critique-of-development-and-outcomes-of-investment-treaty-arbitration/

 

http://www.iisd.org/pdf/2006/itn_may16_2006.pdf

 

Obama to Travel to El Salvador

President Obama recently finalized the dates for his trip to Central and South America.  Pending U.S. government budget resolutions, he will tour the region March 19 to 23, visiting Brasilia and Rio de Janeiro in Brazil, Santiago, Chile, and San Salvador, El Salvador.  If the budget resolutions are not passed in time, however, his trip will almost definitely be cancelled or postponed.

While many are confounded by the President’s choice to visit El Salvador, there are several hot-button issues on the table. Salvadorans compose the 6^th largest immigrant population in the U.S., numbering approximately between 1 and 1.5 million people. Most of them live and work in the U.S. under a Temporary Protected Status (TPS), begun in 1991 and extended in 18-month increments since then (the current TPS is set to expire March 2012). Given the continued violent and unstable political climate in El Salvador, Salvadoran President Mauricio Funes hopes to work with President Obama to establish permanent residence for those currently living under TPS.

In addition to immigration, a discussion about drug trafficking is likely to be a priority. Organized crime syndicates trading in drugs or weapons are a major cause of violence throughout Central America, though this remains largely unrecognized and untreated.  Where Mexico, the focus of the U.S.’s war on drugs, has 15 murders per 100,000 people yearly, El Salvador has 73, the highest rate in the region.

Funes recognizes that, in both of these cases, it’s important to unearth the root causes of the problem. In the same way that immigration issues can be addressed by reducing the flow of emigrants from El Salvador, so can narco-trafficking concerns be relieved by reducing North American drug consumption. Besides these international objectives, Funes hopes to impress upon Obama the dire need to reduce poverty in El Salvador. Some measures have already been proposed for the resolution of this problem; first, the BRIDGE initiative, which proposes formalizing and securitizing a system for workers to remit money from the U.S. to El Salvador, thus hypothetically increasing the long-term benefit of these remittances for the country as a whole. Second, Funes intends to open negotiation of a renewal of El Salvador’s 5-year compact with the Millennium Challenge Corporation (currently in its 3^rd year), with grant money financing improvements in education, public services, agricultural production, rural business development, and transportation infrastructure.

Overall, President Obama’s visit to El Salvador seems to mark real intent to ally the two countries, and we at Voices are hopeful that these upcoming talks will result in a mutually beneficial relationship.

 

Unemployment in El Salvador

A recent Elmundo article reported that the global economic crisis is not the only reason that El Salvador has high levels of unemployment (the official unemployment rate in 2010 was 7.2%, but that doesn’t account for high levels of underemployment, people that have given up on finding work, or workers in the unstable informal market). They quote Marco Penado of Manpower El Salvador who said recently that the Salvadoran workforce does not match the needs of the current labor market. A similar article published last summer on elsalvador.com reports similar concerns voiced by the Salvadoran Chamber of Commerce. Penado says students are not graduating with the skills and experience that human resource managers are looking for, claiming that university students are more interested in the humanities rather than engineering or other technical skills. He also believes that too few Salvadorans speak English, and that in a globalized world defined by trade agreements, corporations that operate in El Salvador require employees that speak English.

In June 2010 the Chamber of Commerce held a job fair that hosted 8600 job applicants and 22 companies looking to fill 300 positions. According to the Chamber, the applicants did not have the formal training or English proficiency to qualify for the positions offered. The jobs being offered included industrial and mechanical engineers and technicians, accounting, skilled sales associates, program analysts, and computer or lab technicians. Carmen Aída Muñoz, the director of the Salvadoran Chamber of Commerce said that El Salvador’s universities and technical institutes are going to have to adjust their curriculums and standards so that they meet the demands of the businesses that have the jobs. Otherwise El Salvador will not be able to compete with labor pools in other countries.

Manpower El Salvador provided a list of the top ten positions that companies in El Salvador are struggling to fill due to a lack of skilled workers:

1. Skilled labor positions such as certified carpenters, welders, electricians, and plumbers

2. Sales representatives

3. Technicians

4. Engineers of all kinds, from information and computers to electrical and telecommunications

5. Accountants who are bilingual

6. Managers and executive managers

7. Skilled workforce, or workers with some level of technical training

8. Motorists

9. Mechanics with formal technical training

10. Business Administrators

The Salvadoran labor market is a little more complex than these articles suggest. It would be nice if solving the country’s unemployment problem were as easy as redesigning university programs and teaching English. The reality is that most Salvadoran youth, especially from those from rural or poor urban communities, do not receive the academic foundation necessary to get into universities. Even if they did, most are unable to afford tuition for a 5-year university or the 3-year technical school programs.

And just because someone has an engineering degree from the university does not mean they can get a job. After reading the El Mundo article, we checked in with some of our Salvadoran friends who report that a lot of engineering students are getting teaching certificates because there are not a lot of jobs for graduates – even those who speak English – and teaching may be the only employment opportunity for them.

Though some university curriculums may be in need of reform, solving El Salvador’s unemployment issues will require a more thorough analysis of the economy and educational system. It will also require the government and citizenry to commit to addressing the social justice issues that keep most Salvadoran youth from getting the kind of formal technical skills and English proficiency that large international corporations are looking for.

 

New Loan Packages for El Salvador

During the recent Summit of the Central American Integration System (SICA) in San Salvador, the World Bank and Inter-American Development Bank announced new loan packages for El Salvador.

On Monday, the World Bank announced that it would finance three loans to El Salvador, totaling $230 million.  (For more on the series of World Bank loans, see the World Bank announcement, the FINANCIAL or elsalvador.com.)  The loans are intended to help El Salvador’s economic recovery from the global financial crisis and provide support to municipal governments.  El Salvador has been particularly hard-hit by the global recession, and in 2009 saw the first full-year contraction of GDP in two decades.  Robert B. Zoellick, the President of the World Bank, said, “this package is designed to help the poor of El Salvador, and I look forward to its speedy and effective implementation.”  The three loans include $100 million for income protection, health services, and supporting the country’s economic recovery, while $50 million to be funneled through the Programa de Apoyo Temporal al Ingreso (PATI) to low-income families for participation in community activities and training programs.  Another $80 million will be distributed to local governments, to ensure they are able to provide basic services to their communities.

The loans are part of a $650 million loan package planned for the 2010-2012 Country Partnership with El Salvador.  The Salvadoran Legislative Assembly must ratify the loan package before it becomes official.  Ratification, however, is not guaranteed. In the past five years, the Legislative Assembly has rejected at least five loan agreements from the World Bank. In recent years, such loan packages have received great criticism for increasing national debts, which eventually requires that governments cut services such as health care and education (for more, click here and here).

In addition to the World Bank package, the Inter American Development Bank announced a 25-year for El Salvador worth $60 million that will improve public health services. El Salvador suffers from high incidences of chronic and poverty-related diseases and the loan is intended to alleviate some of the strain that these diseases place on the health care system. The loan will fund infrastructure and technology projects to modernize and improve the network of health centers, as well as cover staff salaries.  The Salvadoran government has pledged to contribute an additional $22.7 million towards the projects (for more the complete story visit La prensa gráfica).

During the summit, Central American country representatives discussed the increasing violence throughout the region, focusing on five key topics: security, social policy, climate change and natural disaster prevention, economic integration, and regional institutionalism.  (To read more about the SICA summit, visit La tribuna.)

Transportation Workers Offer Compromise to the Ministry of Transportation

This week over 250 transportation workers took the to streets in San Salvador to call for the cancellation of over $2 million dollars in fines and interest they owe to the Ministry of Transportation.

The majority of the protesters were bus drivers that work in transportation collectives. Bus drivers are receiving high fines for a variety of causes; some are for offenses committed by the driver, such as violating traffic laws, but others are for a lack of regulation on the part of the transportation company, ranging from under-inflated tires to improper documentation of the vehicle.

Regardless of the type of infraction, the fines are assessed to the individual drivers, and accrue interest over time while they remain unpaid. If a driver has too many fines, his license is revoked and he is effectively unable to work.

This system has forced many workers into unemployment, which of course has created substantial problems for their families. Despite this situation, the ministry of transportation has so far refused to negotiate the fines on a collective basis, and instead offers individual payment plans for drivers to pay off their fines over time.

The transportation workers believe the system is unfair, and argue that they are unable to pay their fines without being able to return to work.  They propose that the Ministry of Transportation cancel all or much of the outstanding debt, and discontinues the issuance of new commercial drivers licenses, so that already licensed drivers that have been forced into unemployment can rejoin the workforce.

In exchange, the drivers have offered to work on community development projects with the Road Conservation Fund (Fovial) and the Ministry of Public Works (MOP) one day per week without compensation. Given that the ministry of transportation has previously rejected the driver’s pleas for cancellation based on a lack of funds, the workers see this as an even exchange of resources. Currently, no solution to the problem has been reached, and some bus drivers have chosen not to go to work today as a way to express their discontent.