COVID 19, Economy, El Salvador Government, International Relations, News Highlights

Los Números Rojos de la Economía Salvadoreña

English Version

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Por décadas la economía de El Salvador ha navegado en aguas turbulentas; las medidas de ajuste estructural a inicio de los noventa; la dolarización en 2001; el impacto de terremotos, huracanes y tormentas tropicales; y la corrupción han sido grandes dificultades que han generado pobreza y llevado al país a incrementar su deuda pública hasta el límite de lo insostenible. En febrero de 2020 la deuda era de 19,845.54 millones de dólares[1], ubicándose como el cuarto país de América Latina con más endeudamiento, solo precedido por Venezuela, Argentina y Brasil. Con estos números la deuda pública de El Salvador, antes de la pandemia alcanzaba el 71.8 %, con respecto a su Producto Interno Bruto[2].

Como es de suponer, la deuda se debe pagar, aproximadamente una sexta parte del presupuesto anual del Estado se destina a este propósito, solo para el segundo semestre de 2020, El Salvador deberá pagar 400 millones en concepto de amortización de diferentes prestamos. El impacto económico del COVID19 agrava la situación, por ejemplo: al inicio del año se tenía una proyección de crecimiento por el orden del 2.5%, los nuevos cálculos establecen que habrá un decrecimiento de menos 5%. Por otra parte, se estima una caída de las remesas del 17%, significa que el país dejará de percibir en concepto de ingresos un total de 990 millones de dólares[3].

El presupuesto para el ejercicio fiscal 2020, aprobado antes de la pandemia, fue de $ 6,426 millones, el cual presentaba un déficit del 11.7%, es decir que según las proyecciones del gobierno los ingresos no serían suficientes para cubrir todos los gastos y habría necesidad de gestionar créditos por $755.9 millones[5]. Con la nueva realidad el déficit se incrementa a $1,745.9 millones, sin considerar todos los gastos extraordinarios que está demandando la atención de la emergencia.

Para enfrentar esta situación el Parlamento ha autorizado al gobierno central para contraer deuda por 3,000 millones de dólares, pero debido a la crisis, el acceso a los mercados internacionales para colocar deuda se vuelve mucho más difícil y a intereses más altos; sin embargo, el gobierno ha comunicado como buena noticia el aval de un crédito por $550 millones con el Banco Interamericano de Desarrollo, BID y otro por $389 millones con el Fondo Monetario Internacional, FMI[6].

Una desventaja consiste en que estos organismos condicionan el financiamiento a exigencias de política fiscal para el futuro. En opinión de la reconocida economista Julia Evelyn Martínez, El Fondo Monetario Internacional no concede préstamos para ayudar a los pueblos en momentos de crisis, sino más bien aprovecha las crisis para que los gobiernos se comprometan a poner en marcha medidas fiscales y financieras que comprometen el futuro de los pueblos y que evitan que futuros gobiernos sucumban a la tentación de romper con el neoliberalismo.

Según Martínez el FMI ha recomendado al gobierno medidas como la disminución del gasto público en $900 millones a partir del año 2021, aumentar los impuestos a la gasolina y al diésel, aumentar el Impuesto al Valor Agregado, IVA y las contribuciones fiscales especiales, como el impuesto a las telecomunicaciones y reducir el pago de salarios en el sector público, por medio del congelamiento de plazas, suspender nuevas contrataciones y prohibir las jubilaciones anticipadas de empleados públicos.

Independientemente que el gobierno asuma estas recomendaciones, un hecho concreto es que con estos y otros préstamos adicionales de los que ya se escucha hablar, la deuda pública podría llegar hasta el 90% del Producto Interno Bruto; dicho en otras palabras, de cada dólar que se produzca en el país, ya se deben noventa centavos; lo que llevará al Estado salvadoreño a una situación fiscal crítica y por tanto, la inversión en educación, salud, vivienda, agua potable y cualquier tipo de subsidio a los sectores más empobrecidos, será extremadamente limitada.

[1] https://diario.elmundo.sv/deuda-publica-llego-a-20533-millones-en-el-primer-trimestre/
[2] PNUD, COVID19 y Vulnerabilidad: Unamirada desde la pobreza multidimensional en El Salvador, San Salvador 2020,Pág. 12
[3] Nelson Fuentes, Ministro de Hacienda, entrevista, Frente a Frente, Tele corporación salvadoreña, 12 de mayo de 2020.
[4] https://www.elsalvador.com/eldiariodehoy/presupuesto-2020-es-de-6426-millones-y-requiere-creditos-por-755-millones/645093/2019/
[5] Nelson Fuentes, Ministro de Hacienda, entrevistaFrente a Frente, Tele corporación salvadoreña, 12 de mayo de 2020–
[6] https://www.diariocolatino.com/neoliberalismo-disfrazado-de-ayuda/
 


El Salvador in the Red

For decades, El Salvador’s economy has sailed in troubled waters;  structural adjustment measures in the early 1990s;  dollarization in 2001;  the impact of earthquakes, hurricanes, and tropical storms;  and corruption have been huge challenges that have generated poverty and led the country to increase its national debt to an unstainable limit.

In February 2020, the country’s debt was $19,845 million ranking El Salvador the fourth country in Latin America, after Venezuela, Argentina and Brazil, with the highest national debt.  Before the pandemic even began, El Salvador’s dept reached 71.8%, with respect to its Gross Domestic Product (GDP).

As expected, this debt must be paid and approximately a sixth of the State’s annual budget is destined for this very purpose. For the second half of 2020, El Salvador will have to repay $400 million in different loans.

Unfortunately, the economic impact of COVID19 has only aggravated the situation. For example, at the beginning of the year, the economy was projected to grow by 2.5%, now new calculations project a decrease of -5%.  On top of that, a drop in remittances by an estimated 17%, means that the country will stop receiving a total of $990 million in annual income.

The 2020 fiscal budget, of $6,426 million was approved before the pandemic, and already presented a deficit of 11.7%. According to government projections, the income wouldn’t have been sufficient enough to cover all the year’s expenses and there would be a need to find and manage at least $755.9 million in loans.  With the new reality of a worldwide pandemic, the deficit has been increased to $1,745 million, this without even considering all of the extraordinary expenses that COVID19 related emergency care is currently demanding.

To face this situation, Parliament has authorized the central government to take on a $3 million loan, but since the crisis started, access to international market loans have become much more difficult and carry much higher interests rates than normal. Despite this, the government recently announced the endorsement of a loan for $550 million from the Inter-American Development Bank (IDB) and another for $389 million from the International Monetary Fund (IMF).

One disadvantage of being backed by these institutions, is that they make financing conditional on fiscal policy requirements for the future.  It’s the opinion of renowned Salvadoran economist, Julia Evelyn Martínez, that “the International Monetary Fund does not grant loans to help people in times of crisis, but rather takes advantage of crises so that governments commit to implement fiscal and financial measures that compromise both the nation’s future and prevents future governments from succumbing to the temptation to break with neoliberalism.”

According to Martínez, the IMF has recommended to the government measures such as: the decrease in public spending by $900 million starting in 2021, increasing taxes on gasoline and diesel, increasing the Value Added Tax (VAT) and other special tax contributions, such as the   telecommunications tax. It also proposes to reduce the payment of public sector wages, by way of freezing positions, suspending new hires and prohibiting early retirement for public employees.

Regardless of whether the government assumes these recommendations or not, a concrete fact is that with these and other additional loans that we are now hearing about, the public debt could reach 90% of our GDP.  In other words, for every dollar produced in the country, ninety cents are already owed. This will lead the Salvadoran State toward a critical fiscal situation that will result in extremely limited investments in education, health, housing, potable water and any type of subsidy previously offered to our most impoverished sectors of society.

agriculture, Agua/Aqua, Climate Change, COVID 19, Economy, El Salvador Government, Food Security, Public Health, Water/Agua

LA OTRA CRISIS EN EL SALVADOR

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“El Salvador Soberano Libre de Agrotoxicos y transgénicos”

A la desigualdad económica, violencia social y vulnerabilidad ambiental que se vive en El Salvador desde hace décadas, ahora se suma con toda su intensidad, el impacto en la salud pública y en la economía de la pandemia por el covid19.

El Banco Mundial estima que la economía de El Salvador se contraerá 4.3% y la pobreza aumentará 4% en 2020. El último dato publicado por el gobierno, indica que el 26.3% de los hogares ya viven en condición de pobreza; es decir que el covid19 puede hacer que la pobreza suba al 30% de los hogares salvadoreños, lo que equivale a más de 66 mil hogares que caeran en la pobreza.1

La razón principal de esta realidad es que las medidas impuestas por el gobierno para contener la pandemia ha afectado al 95% de las empresas y por lo menos el 60% reportan que ya no cuentan con dinero para pagar salarios, por lo que 350,000 empleos estan en riesgo inminente de perderse.2 Adicionalmente hay que tener en cuenta que el 72% de la economía salvadoreña es de carácter informal,3 y que este sector es el más golpeado por la pandemia.

Sumandose a la ya complicada situación, está la dependencia del país con respecto a las remesas. Más de 300 mil hogares, la sexta parte de la población, reciben remesas; en 2019 estas representaron el 21.3% del producto interno bruto de El Salvador. Para el 2020 se estima una caida por lo menos del 14% en este rubro,4 ya que Estados Unidos está registrando un récord histórico de desempleo en sectores donde laboran salvadoreños: restaurantes, comercio y construcción.

Sin duda la primera y más profunda manifestación de la crisis económica será en la alimentación. Sobre este tema el Director Ejecutivo del Programa Mundial de Alimentos, de la Organización de las Naciones Unidas, ONU. David Beasley, recientemente dijo: “si no nos preparamos ahora podríamos enfrentar múltiples hambrunas de proporciones biblícas en unos pocos meses”.5 En El Salvador, Guatemala, Honduras y Nicaragua, incluso antes de la pandemia, la inseguridad alimentaria y nutricional se había incrementado y alcanzaba los 4.4 millones de personas; a consecuencia de la pandemia se estima que esta cifra podría duplicarse.6

Para el caso específico de El Salvador la seguridad alimentaria se ha visto afectada por diferentes factores, desde políticas de apertura comercial que arruinaron la agricultura campesina en décadas anteriores, hasta impactos del cambio climático que en los últimos años se ha manifestado en consecutivas y profundas sequías. En 2019, la falta de lluvias dejó pérdidas de producción del 61% y 55% en los cultivos de maíz y frijol. La disminución y en algunos casos la pérdida completa de los granos básicos dejó en crisis a muchas familias, sobre todo aquellas en donde la agricultura es la única fuente de ingresos para subsistir. Resultando en que 277,769 familias, especialmente del oriente del país, antes de la pandemia, ya se encontraban en graves problemas alimentarios.7

Esta situación puede agravarse, también porque El Salvador depende en muy alto grado de las importaciones de alimentos; por ejemplo, el 90% de las frutas y verduras provienen de países centroamericanos y de Estados Unidos. La carne de res, harina de trigo, arroz, maíz amarillo y lácteos, son otros de los productos que se importan en grandes proporciones. Un riesgo potencialmente grave es que los países productores restrijan sus exportaciones para enfrentar la caída de su producción y la alimentación de sus propios pueblos.

En tal sentido, es de extrema importancia asegurar la disponibilidad de alimentos básicos especialmente para la población más vulnerable, de lo contrario los indices de desnutrición se verán aumentados y el covid 19 será más fatal debido a la carencia de una alimentación adecuada.8

De momento, el gobierno salvadoreño está entregando dinero en efectivo para suplir la alimentación básica de un millón y medio de familias, además ha anunciado una serie de medidas económicas de beneficio a la empresa privada con el fin de aliviar los impactos en el empleo. Aunque se están tomando algunas medidas positivas, lamentablemente no son sostenibles porque su financiamiento depende de los préstamos y la capacidad de endeudamiento del estado salvadoreño que está llegando a su límite.

Todo parece indicar que la alternativa más viable es la producción agrícola familiar, de forma masiva en todo el país, cualquier espacio de tierra disponible, sea en la zona rural o urbana, en la costa o la montaña, debería utilizarse para producir alimentos saludables, de lo contrario, en el corto plazo, la comida comenzará a escasear, de forma realmente temible.

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A family farm in Morazán

THE OTHER CRISIS IN EL SALVADOR

Economic inequality, social violence and environmental vulnerability have been experienced for decades in El Salvador. Added now to this reality however, in all its intensity, is the impact that the current pandemic is having on public health and the economy.

The World Bank estimates that El Salvador’s economy will decrease by 4.3% and poverty will increase by 4% in 2020. The latest data published by the government indicates that 26.3% of households already live in poverty; that is to say that COVID19 can increase the rate to 30%, which is equivalent to more than 66,000 households, all falling into poverty.1

This is happening in part because the measures imposed by the government to contain the pandemic have affected 95% of companies and at least 60% of them report that they no longer have the money to pay wages, this means 350,000 jobs are at an imminent risk of disappearing.2 Also, what must be taken into mind is the fact that 72% of El Salvador’s economy is informal,3 the informal sector of course being the most affected during this pandemic.

Adding to this already complicated situation, is the country’s dependence on remittances. More than 300,000 households, or one-sixth of the population receive them. In 2019, these money transfers represented 21.3% of El Salvador’s GDP. For 2020, since the US is registering a historical record of unemployment in sectors where Salvadorans work i.e restaurants, commerce and construction, a drop in remittances of at least 14% is estimated.4

Undoubtedly, the first and most profound manifestation of the economic crisis will be the issue of food. On the subject, David Beasley, Executive Director of the UN World Food Program recently said, “If we don’t prepare now we could face multiple famines of biblical proportions in a few months.5 Even before the pandemic, 4.4million people in El Salvador, Guatemala, Honduras and Nicaragua, were already experiencing an increase in food and nutritional insecurity, and as a result of COVID19 this figure is estimated to double.6

In the specific case of El Salvador, food security has been impacted by distinct factors, from trade liberalization policies that ruined peasant agriculture in previous decades, to the impacts of climate change that in recent years has manifested itself in consecutive and deep droughts. In 2019, the lack of rains left production losses at 61% in corn and 55% in bean crops. The decrease and in some cases the complete loss of these basic crops left many families in crisis, especially those where agriculture is their only source of income. Last year’s drought resulted in 277,769 families, many from the eastern part of the country, experiencing serious food problems.7

Things can get worse because El Salvador depends to a very high degree on food imports; for example, 90% of fruits and vegetables come from other Central American countries and the US. Beef, wheat flour, rice, yellow corn, and dairy are other products that are imported in large quantities. A potentially serious risk is that the producing nations eventually restrict their exports to go and deal with their own reduction in production and to be able to feed their own people. In this sense, it is extremely important to ensure the availability of basic foods, especially for the most vulnerable populations, otherwise malnutrition rates will increase and COVID19 will prove more deadly due to an inadequate access to food.8

At the moment, the Salvadoran government is giving out cash aid to supply the basic needs of one million and a half families, and has also announced a series of economic measures to benefit private companies in order to alleviate the impact on employment. Although positive measures are being taken, they unfortunately are not sustainable because their financing depends on loans and the debt capacity of the Salvadoran state which is reaching its limit.

Everything seems to indicate that the most viable alternative is family agricultural production on a massive scale throughout the entire country. Any available land space, be it in rural or urban, coast or mountain, should be used to produce healthy food, otherwise, in a short period of time, food will become scarce in a really frightening way.


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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.

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: