agriculture, Agua/Aqua, Climate Change, Corruption, Economy, Environment

The Water Crisis in El Salvador

Versión Español

On 28 July 2010, through resolution 64/292, the General Assembly of the United Nations recognized the human right to water and sanitation, reaffirming that water is essential for the realization of all human rights; however, for a significant proportion of humanity this is not true. The Friends of the Earth International Federation (FoEI) says that over 1 billion people lack clean water and more than 5 million die each year from water-related diseases.

El Salvador is one of the countries in the world facing a profound water crisis. The Economic Commission for Latin America and the Caribbean (ECLAC) reports that El Salvador has 1,752 cubic meters per capita per year, which almost qualifies as “water stress.” This serious lack of water is related to deforestation and to the contamination of surface water bodies. According to the Salvadoran Ministry of Environment: more than 90% of surface waters are contaminated and only 10% are suitable for drinking by conventional methods.

In the opinion of the Office of the Procurator for the Defense of Human Rights, this situation of pollution and environmental degradation represents an accumulated evil throughout history that was deepened by the lack of diligence of the authorities, relegating the environmental issue of all State policies. For this reason, in 2006, a group of social organizations submitted a proposal for a General Water Law, which explained that the existing legal framework was obsolete and fragmented and couldn’t provide the population with resolutions. The law was based on principles such as: participation, full access, a focus on basins, sustainability and decentralization.

According to Carolina Amaya, environmental activist with the Salvadoran Ecological Unit (UNES), the main reason for not approving the General Water Law is because the right-wing business leaders represented in the Legislative Assembly, intend to control the water issue, they want to control the institutions that privatize water. This breaking point is the main motive that has interrupted the discussion of the law. In Amaya’s words, “allowing large private enterprises to have control over water management is like putting the coyote in the care of hens.”

This lack of regulation allows golf course owners, bottling companies, sugarcane producers, and other private interests to use as much water as they want, no matter how it affects local communities. One media outlet reported that a golf course has all the water it needs while nearby towns struggle to meet their daily needs. Likewise, residents of the Bajo Lempa region of Usulutan argue that sugarcane producers are depleting their water sources.

These social sectors that hold economic and political power say that water is a commodity that is bought and sold, and the only way to manage it efficiently is to let the market take over. This neoliberal thinking is rejected by various civil society organizations arguing that water is a common good and its access is a basic human right.

Conflicting visions often manifested in street closures for protests of lack of water, while companies engaged in the production of carbonated and alcoholic beverages using millions of liters a day, equally large shopping malls and exclusive residences use excessive amounts of water without any restriction. The bottom line; unequal access to potable water is a clear indicator of social injustice in El Salvador.

Crisis de Agua en El Salvador

El 28 de julio de 2010, a través de la Resolución 64/292, la Asamblea General de las Naciones Unidas reconoció el derecho humano al agua y al saneamiento, reafirmando que el agua es esencial para la realización de todos los derechos humanos; sin embargo, para una importante proporción de la humanidad este derecho no se cumple. La Federación Amigos de la Tierra Internacional afirma que más de mil millones de personas carecen de agua limpia y que más de 5 millones fallecen cada año por enfermedades relacionadas con el agua.

El Salvador es uno de los países del mundo que enfrenta una profunda crisis hídrica, la CEPAL reporta que el país cuenta con 1,752 metros cúbicos per cápita por año, y lo califica en una situación cercana a lo que se conoce como stress hídrico. Esta escasez tiene que ver con la deforestación y con la contaminación de los cuerpos superficiales de agua, el Ministerio de Medio Ambiente salvadoreño afirma que más del 90% de las aguas superficiales se encuentran contaminadas y que únicamente el 10% son aptas para potabilizar por métodos convencionales.

En opinión de la Procuraduría para la Defensa de los Derechos Humanos, esta situación de contaminación y degradación ambiental representa un mal acumulado a lo largo de la historia que se fue profundizando por la falta de diligencia de las autoridades, relegando el tema ambiental de todas las políticas estatales. Por esta razón fue que en 2006 un grupo de organizaciones sociales presentaron una propuesta de Ley General de Aguas, explicando que el marco legal existente es obsoleto y fragmentado y no da respuestas a la población, por lo que se requiere una ley basada en principios como: la participación, el pleno acceso, el enfoque de cuenca, la sustentabilidad y la descentralización.

Once años más tarde aún no se cuenta con la referida ley, Para Carolina Amaya, activista ambiental de la Unidad Ecológica Salvadoreña, la razón de fondo por la cual no se aprueba la Ley General de Aguas es porque las cúpulas empresariales representadas en la Asamblea Legislativa por los partidos de derecha, pretenden tener el control de la institución rectora del agua, quieren controlar la institucionalidad para luego privatizar el agua, este es el punto de quiebre y principal motivo que ha entrampado la discusión de la ley. En palabras de Amaya, permitir que la gran empresa privada tenga el control en la gestión del agua, es como poner al coyote a cuidar a las gallinas.

Esta falta de regulación permite a los propietarios de campos de golf, compañías embotelladoras, productores de caña de azúcar, y otros intereses privados utilizar toda el agua que quieran, sin importar la forma en que afecta a las comunidades locales. Un medio de comunicación publicó que un campo de golf tiene toda el agua que necesita mientras que las poblaciones cercanas luchan para satisfacer sus necesidades diarias. Del mismo modo, los residentes de la región del Bajo Lempa en Usulután sostienen que los productores de caña de azúcar están agotando las fuentes de agua.

Estos sectores sociales que ostentan poder económico y político sostienen que el agua es una mercancía que se compra y se vende, y la única manera de administrarla eficientemente es dejando que sea el mercado quien se hace cargo. Este pensamiento neoliberal es rechazado por diversas organizaciones de la sociedad civil argumentando que el agua es un bien común y su acceso es un derecho humano básico.

Visiones enfrentadas que se manifiestan con frecuencia en cierres de calles en protesta por la falta de agua, al mismo tiempo las empresas dedicadas a producir bebidas carbonatadas y alcohólicas gastan millones de litros al día, igualmente grandes centros comerciales y residencias exclusivas usan cantidades excesivas de agua sin ninguna restricción. El acceso desigual al agua potable es un indicador claro de la injusticia social en El Salvador.

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agriculture, Economy, Equality, Food Security

More Neoliberal Economic Policies Will Not Stop Unaccompanied Minors From Seeking Refuge

DSCF0020March 2-3, Vice President Joe Biden was in Guatemala with leaders from El Salvador, Guatemala, Honduras, and the Inter-American Development Bank (IADB). Their agenda was to “accelerate the implementation of the Plan for the Alliance for Prosperity in the Northern Triangle (the Plan).” The meeting came just a month after Vice President Biden announced that the Obama Administration would ask Congress for $1 billion in aid for the region.

The purpose of the Alliance’s Plan, $1 billion fund, and the March meeting is to address the surge of unaccompanied minors leaving the Northern Triangle for the U.S. It’s an important goal. In FY2014, more than 60,000 youth were caught trying to enter the U.S. and government officials expect more than twice that in FY2015.

While the Plan arguably contains some constructive approaches towards decreasing violence, the emphasis is on implementing neoliberal economic policies. The proposal reads more like CAFTA-DR 2.0 or a World Bank structural adjustment plan, than an effort to stem the flow of emigration. The Northern Triangle and U.S. governments are proposing that foreign investment, more integrated economies, and free trade – and a gas pipeline – will provide the jobs and opportunities necessary to keep youth from seeking refuge in the U.S.

Income inequality and violence are the driving forces behind youth seeking refuge in the U.S., but its hard to imagine how more neoliberal economic policies, which many cite as the reason for inequality over the past 25 years, will do anything except ensure the region’s rich will remain so. A skeptic might even argue that the U.S. and Northern Triangle governments are using the “crisis” of violence and emigration in order to implement policies that further their own economic interests.

Increasing Foreign Investment and Investing in Our People

The Alliance Plan and other related documents emphasize that the solution to emigration, violence and inequality has to be economic – attracting foreign investment, unifying regional economies, increasing competitiveness in global markets, and training the workforce. The Plan, which was first published in September 2014, offers four Strategic Lines of Action. The first, and most detailed, is to stimulate the productive sector. The second is to develop opportunities for our people. Of the $1 billion grant from the U.S., $400 million will support these two lines of action.

Stimulating the productive sector means “attracting investment and promoting strategic sectors capable of stimulating growth and creating jobs… we will make more efficient use of our regional platform to reduce energy costs that stifle our industries and the national treasury, overcome infrastructural and logistical problems that curb growth and prevent better use of the regional market, and harmonize our quality standards to put them on par with what the global market requires.”

The Plan identifies four productive sectors: textiles, agro-industry, light manufacturing, and tourism, none of which are new to the Northern Triangle. Textile maquiladoras, sugarcane producers, factories, and tourism have exploited the region’s labor force and natural resources for years. They have created jobs, but ones in which workers are paid a sub-poverty minimum wage and endure a myriad of human rights abuses. Saskia Sassen wrote in 1998, and other since then report that so far the global economy has produced “a growing supply of poorly paid, semi-skilled or unskilled production jobs.” That has not changed in the past 17 years. When unions and workers try to negotiate better wages or working conditions, manufactures and investors simply leave. The environmental impacts of these sectors have been equally devastating, and will get exponentially worse if large-scale tourism, a gas-pipeline, and other industries are allowed to move forward.

While CAFTA-DR pretends to address labor and environment, and the “race to the bottom”, Northern Alliance governments provide detail about the concessions they will give to foreign investors. These include lower energy costs, infrastructure, and “harmonization” of standards, which some believe means an agreement on a very low bottom.

The U.S. and Northern Alliance countries have been implementing neo-liberal economic policies since the early 1990s; the same period that crime and gang violence began to proliferate. Privatization, dollarization, free trade agreements, maquiladoras, Millennium Challenge Corporation grants, Partnership for Growth, Public-Private Partnerships, and more have all been implemented over the past 25 years. The same period that crime and violence has skyrocketed.

As academics (good articles here and here) and campesino leaders in rural El Salvador, Guatemala, and Honduras have articulated for years – globalization and neoliberal economic policies are the reason for the high rates of inequality that has resulted in the high levels of crime and violence, and lack of opportunities that have forced youth to flee. Poverty and inequality are nothing new in the Northern Triangle, but Globalization and neoliberalism is simply the latest tools the elite use to maintain and grow their wealth.

Just this week, El Faro published an article titled “The Neoliberal Trap: Violent Individuals or Violent Situations ” that is based on 2013 study in El Salvador. The authors found that communities that are more isolated from the global community and depend sustenance agriculture were less likely to experience social isolation, gangs, crime and violence. Communities that have a greater market mentality are more socially isolated and prone to crime. The article argues, “The neoliberal reconstruction has renewed and amplified the conditions of alienation. Meanwhile, some elites embrace neoliberal reconstruction as a means of assuring their position in the new “transnational capital class of global capitalism, while a large part of the population is left out and has to fend for themselves.”

Colette Hellenkamp drew a similar conclusion in her piece War and Peace in El Salvador. She concludes, “The wealthy few in [the El Salvador] do whatever is necessary to maintain their riches and quench their thirst for comfort and power. Their status and wealth will not be threatened as long as they ensure that the masses remain uneducated and in chaos.” The crime and violence in El Salvador has certainly caused such chaos that instead of opening small shops and providing services the region’s otherwise hard-working and industrious workforce is leaving en masse.

Academics also point out that proponents of neo-liberal ideologies believe their model is perfect – “everyone benefits, not just some, all.” Those that don’t are referred to as the “underserving poor or the underclass that demonstrate two characteristics – they are underserving and predisposed to unlawful behavior. Proponents argue that free market, neoliberalism is perfect and if people don’t benefit, its not the market’s fault, it’s because people are lazy and prone to violence.

The Northern Alliance Plan is to double down on the neoliberal policies that sustain the same economic inequalities they say they are want to correct. Bur more sub-poverty, minimum wages will only serve to further stratify the economic and social classes.

Albert Einstein said, “We can not solve our problems with the same level of thinking that created them.” But that’s what the Northern Triangle Plan seems to want to try and do.

Violence and Security

Instead of focusing on more neoliberal economic policies, the Plan must focus on putting an end to the high rates of crime and violence.

Analysts agree that most of the youth detained on the U.S. border were fleeing violence. A report published by the UN High Commissioner for Refugees found that 58% of the minors interviewed “were forcibly displaced because they suffered or faced harms that indicated a potential or actual need for international protection.” The report identified two sources of violence – “organized armed criminal actors and violence at home.” A report written by Fulbright Fellow Elizabeth Kennedy found, “59 percent of Salvadoran boys and 61 percent of Salvadoran girls list crime, gang threats, or violence as a reason for their emigration. Whereas males most feared assault or death for not joining gangs or interacting with corrupt government officials, females most feared rape or disappearance at the hands of the same groups.” Other reasons for leaving included the lack of economic opportunities and reunification with family members in the U.S. But of those youth, “most referenced crime and violence (the chaos) as the underlying motive for their decision to reunify with family now rather than two years in the past or two years in the future.”

The proposal for decreasing violence in the Northern Triangle is a mixed bag at best. The Plan wants to invest more money into the same heavy-handed, militarized, law enforcement policies that have been failing for 25 years. Alexander Main provides a good critic of these policies in his Truthout article, Will Biden’s Billion-Dollar Plan Help Central America.

But its not all bad. There are some proposals in the Plan that focus on alternative conflict resolution, safe schools, trustworthy community policing, modernizing the justice system, and giving civil society and churches a greater role in prevention and rehabilitation. There are also needed reforms for ensuring better governance and addressing organized crime. One of the more positive ideas is to “improve prison systems, including infrastructure based on prisoner risk profiles, the capacity of prison staffs, and rehabilitation programs, including those focused on juvenile offenders and their prison conditions.”

El Salvador has even proposed an ambitious $2 billion plan that proposes similarly progressive policies for ending violence at the national level. The plan “promises parks, sports facilities, education and training programs for the country’s 50 most violent municipalities, as well as improvements to the worst prisons where the country’s biggest gangs – Mara Salvatrucha 13 (MS13) and Calle 18 – have proliferated over the past decade.”

If implemented, these projects could help decrease levels of crime and violence, and calming the chaos that helps maintain high levels of inequality. But if academics and campesino leaders are right, and globalization is the cause of the inequality, these positive steps are unlikely to have any lasting impact. The undeserving poor will still be limited to working sub-poverty wages and have little if any social and economic mobility.

If Not More Neoliberal Economic Policies…

Stemming the flow of emigration is a complex task, and the Northern Triangle and U.S. governments are right to consider a multi-faceted approach that aims to provide economic opportunities, end violence, and address other deficiencies.

Instead of more neoliberal economic policies, the Northern Triangle and U.S. governments, and the IADB should focus their plan on making the region safe from crime and violence. There are very smart, informed civil society leaders who have put forth some very reasonable proposals. The governments should do more to work with them to implement their ideas and proposals on a large scale. The plan articulates some of these ideas, but instead of taking second place to more neoliberalism, they should be at the heart of the proposal.

The solution should include creating economic opportunities, but that does not require foreign investors or selling out the region’s workforce and environment. Salvadorans, Guatemalans, and Hondurans are known as hardworking and industrious. Instead of building infrastructure and providing incentives to multinational corporations, the governments should focus those investments on supporting and incentivizing local, small businesses. That does not mean small business loans, but it might mean making it more difficult for international corporations like Walmart to run all the mom-and-pop shops out of business. Family businesses do more than provide jobs; they build neighborhoods and social networks.

Instead of promoting agro-industry and exports, as proposed by the Plan and Partnership for Growth, governments should support communities in their efforts to promote food security and sovereignty. El Salvador’s family seed program, for example is an example of a relatively low cost government action that supports small family farmers that are trying to feed their family and contribute to their local economy. In 2013, the United Nations Conference on Trade and Development called for a “rapid and significant shift from conventional, monoculture-based and high-external-input-dependent industrial production towards mosaics of sustainable, regenerative production systems that also considerably improve the productivity of small-scale farmers.”

There are solutions. The only question is motive and whether policy makers are really interested in addressing emigration, violence, and economic inequality, or using the chaos and “crises” as means to further their own economic interests. This month, President Sanchez Cerén and the Legislative Assembly declared March 26 as the National Day of Peace, Life and Justice – a day in which all Salvadorans will unite and demand an end to the violence and chaos. But even this simple idea of bringing people together was too much for the business class. ANEP (El Salvador’s Chamber of Commerce) came out against the Day of Peace, Life, and Justice, argues that celebrating a National Day of Peace would cost El Salvador $56 million in lost economic opportunities. ANEP representatives argue, “the suspension of just one day of work will cost Salvadorans more that 56 million dollars, and could result in the loss of contracts from export businesses, and thus the employment of workers.”

Their position could be one of pure practicality. More likely it is a true reflection of their priorities – money and profits over peace, life, and justice.

agriculture, Economy, International Relations, U.S. Relations

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.

Economy, U.S. Relations

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.

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.