Economy, El Salvador Government, Politics

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.



IMF Mission Finds that El Salvador’s Financial System Intact After Global Financial Crisis

During May 18 -27, an International Monetary Fund (IMF) mission headed by Alfred Schipke visited El Salvador to meet with outgoing and incoming government officials and private sector representatives to discuss the current economic situation and to review the precautionary $800 million Stand-By Arrangement (SBA) that was approved in January. Though the mission found that El Salvador had a significantly large deficit to overcome and slower economic activity than expected, Mr. Schipke reported that as a whole, “El Salvador’s financial system has weathered well the aftershocks of the global financial crisis and the uncertainties surrounding the elections, and remains liquid and well-capitalized.”

According to the IMF information website, SBAs are the most common way that the IMF assists countries, and it is meant to cover short-term balance of payments issues. The SBA approved for El Salvador was a precautionary one, and it will not be drawn upon unless conditions deem it necessary to do so.

When the SBA was first approved, the IMF agreed that El Salvador was not facing any balance-of payment crises at that time. However, the recent mission found that “Exports, remittances, bank credit, and overall economic activity have been significantly below initial program projections.” Furthermore, this poor economic performance has had a detrimental effect on government revenue. Tax collections in the first quarter of 2009 totaled about $100 million less than projected, and the overall deficit of the non-financial public sector was US$115 million more than expected. Still, the IMF found that El Salvador was surviving the global financial crisis with its institutions intact, liquid, and well-capitalized.

This positive report showed that El Salvador’s relative success was possible through the “broad-based political support displayed by Congress in the recent approval of the financing package for the government.” Furthermore, they were encouraged by the incoming government’s “commitment to maintaining macroeconomic stability, fiscal sustainability and dollarization, and to honoring all contractual obligations.”

El Diario de Hoy, a daily news source in El Salvador, reported that Funes announced his new Economic Cabinet on May 26. Those announced were Héctor Dada Hirezi as minister of the Economy, Alex Segovia as Technical Secretary, Carlos Acevedo as president of the Central Reserve Bank and Carlos Cáceres as head of the Treasury department. The new Economic cabinet has thus far maintained that it would keep the dollar as El Salvador’s official currency, to create more economic transparency, a development bank within the Central Reserve Bank, and a mechanism to ensure that the large informal sector pays taxes. These goals are all in line with the IMF’s recommendations, and the IMF mission reiterated during their visit the goal of maintaining a close relationship with the incoming administration. Soon after the new administration has taken office, the IMF mission will return to evaluate the situation.

Economy, Politics

Government Ends Electricity Subsidy

The Saca administration has announced that it no longer has sufficient funds to continue the electricity subsidies for households that consume less than 99 kilowatt-hours per month.

(To put this in perspective, the average American consumes 600-800 kilowatt hours per month. One kWh would be enough energy for 4 evenings of TV or to power a small refrigerator for 24 hours. )

The $15 million monthly subsidies ended on March 12, 2009 and families that formerly received the subsidies will likely see a 30-50% rise in the electricity bills.

Government officials point out that they are eliminating the electricity subsidy in favor of continuing subsidies for water, propane gas, public transportation and school lunch programs.

The government blames the budget shortfall on the decline in tax revenue as a result of the global economic crisis. On the other hand, some analysts assert that the fragile state of the government’s finances is more a result of mismanagement and corruption by ARENA.

Economist Raul Moreno, head of research and monitoring at the Foundation for the Study of Applicatin of Law (FESPAD) worries that an increase in the cost of electricity will have a multiplier effect and raise the prices of other goods and services.

For more information in Spanish, see:

Economy, Elections 2009

Impacts of the Global Economic Crisis in El Salvador

Since 1992, the political right has aligned itself with the US and pushed a neo-liberal agenda in El Salvador. This has resulted in free trade agreements, the deregulations of markets, and the privatization of banking, telecommunications, and other important sectors. While Salvadorans with the capital to take advantage of these neoliberal policies have benefited significantly, many have not. Economic stagnation, inequality, and a lack of gainful employment continue to characterize El Salvador’s economy.

Now, in addition to these chronic problems, El Salvador faces the effects of the global financial crisis, which are only just beginning to become apparent.  It’s estimated the 10-12 thousand jobs have been lost in the last 4 months. The predictions for growth in GDP range from the government’s optimistic 3% to JP Morgan’s prediction that GDP will actually fall by 0.5% (See article in El Faro for more info in Spanish)

Economic analysts predict that the worst impacts will be felt in 4 main areas: 1) decline in the value of the dollar, 2) contraction in the credit market, 3) a decline in the demand for Salvadoran exports resulting in unemployment, and 4) a decline in remittances from Salvadorans abroad. Click here for further discussion of these in the full article.