2014 Elections, Partnership for Growth, U.S. Relations

Momentum Against the MCC and other U.S. Policies May be Building

On May 2nd, organizations and communities representing thousands of people from the Bajo Lempa region of Jiquilisco, Usulután held a press conference in San Salvador to denounce the Millennium Challenge Corporation (MCC), the Law on Public Private Partnerships (P3 Law), and the tourism projects they promise to support. The Salvadoran labor movement also held a press conference on May 2nd denouncing the MCC and P3 Law, which they believe will adversely affect much of the labor force.

Jose Acosta (Voices' Field Director) speaking at a press conference with Ricardo Navarro (CESTA), Jose Santos Guevara (ACUDESBAL), and Manuel Calderón (ADIBAL)
Jose Acosta (Voices’ Field Director) speaking at a press conference with Ricardo Navarro (CESTA), Jose Santos Guevara (ACUDESBAL), and Manuel Calderón (ADIBAL)

Other than opposition from the labor movement and Bajo Lempa, the MCC proposal and the P3 Law have not created the huge public outcry that other issues have in recent years – attempt to privatize health care (2002), Central American Free Trade Agreement (2006), or Pacific Rim’s efforts to mine gold (2005-present).

But momentum against the MCC and the P3 Law seemed to get a boost on May 1 when Vice President and FMLN presidential candidate Sanchez Cerén announced he and his leftist party do not support U.S. agreements like Partnership for Growth and “the project that has been presented to the Legislative Assembly.” The project Cerén was referring to is a package of laws President Funes presented to the Legislative Assembly in October 2012 and includes the P3 Law.

Cerén’s statements were qualified however, and it remains a little unclear where he and the FMLN stand on the MCC and P3 Law.

Overview of Partnership for Growth, MCC, and the P3 Law

Partnership for Growth is President Obama’s development program that is being implemented in four countries – El Salvador, Ghana, Philippines, and Tanzania. In El Salvador, Partnership for Growth identified security and low production of tradables (exports) as the two main barriers to economic development. As a result, all U.S. programs and funding in El Salvador have to address one or both of these barriers.

In 2004, the Bush Administration created the MCC as its signature development program, investing funds on infrastructure and business development in countries around the world. The first round of MCC funding for El Salvador (2007-20012) invested $463 million in a new highway that spans the northern region of the country, high school and university scholarships, and capital for small businesses. If approved, the second round of MCC funding will be worth $413 million and likely contribute to the expansion of the Litoral Highway along El Salvador’s southern coast and invest in public-private partnerships, which include as many as 30 different tourism projects.

To receive more MCC funds, the U.S. Embassy said El Salvador must pass the Public-Private Partnership Law, which has been lingering in the Legislative Assembly since last year. The bill creates favorable conditions for private investors, and would pave the way for leasing and contracting out State resources and services, including water, education, health care, prisons, air and sea ports, and much more. Critics of the bill fear it will result in the loss of thousands of public sector jobs and adversely affect wages across the labor market. They also fear it will diminish the quality of public services.

Growing Opposition?

In his remarks yesterday, Sanchez Cerén said, “with respect to Partnership for Growth, we want to say that the project that has been presented to the Legislative Assembly, we as the FMLN do not back it.” As pointed out by Diario El Mundo, Cerén was referring to a package of laws that the Funes Administration presented to the Legislative Assembly on October 18, 2012. The purpose of the laws is to implement the Partnership for Growth action plan and include the Public-Private Partnership Law that residents of the Bajo Lempa and the Salvadoran Labor Movement denounced at their press conferences.

Cerén explained that the FMLN does not support Partnership for Growth because it includes mechanisms for privatizing health, education, and prisons. The Diario El Mundo article also reports that FMLN official José Luis Merino confirmed the party’s position on Partnership for Growth adding that they want the United States to respect El Salvador’s sovereignty.

The FMLN, and Cerén, also announced they have drafted their own proposal for increasing investment and promoting public-private investments, but in a manner that will safeguard the interests of the State and ensure that important services (health social services, public security and justice, water and education, and the National University) will not be privatized. It is unclear whether their proposal will satisfy the U.S. Embassy’s prerequisites for the MCC funding. It also remains unclear whether Cerén and the FMLN would also support tourism projects in the Bajo Lempa and respect the region’s desire to protect their communities and natural resources.

During his May 1st speech, Cerén urged members of the FMLN not to abandon the party and permit the right-wing ARENA return to power. The plea was a recognition that the FMLN is somewhat divided right now, in large part over Partnership for Growth, the MCC, and the P3 Law. The FMLN can’t afford to loose the labor movement and entire regions like the Bajo Lempa and expect to defeat the ARENA candidate (Norman Quijano) in February 2014.

For now anyway, momentum against the P3 Law and the MCC seems to be growing.

Voices Developments

2012 Summer Newsletter

Over the past few months, we (the Voices staff) have focused most of our energies on programs and activities in our Salvadoran partner communities in Morazan and the Lower Lempa region of Jiquilisco, Usulutan. That focus has meant that we haven’t had as much time to post articles and updates on this blog as frequently as we have in the past.

Click here for Voices’ Summer 2012 Newsletter

To fill you in on our activities and progress, we put together a Summer Newsletter that includes some of the analysis of national issues we would normally post here.  Some of the highlights include:

–  An update on the Amando Lopez Forest Project and our work to scale that project up to surrounding communities;

– Elections in Comunidad Octavio Ortiz;

– Voices volunteers in 2012;

– Nueva Esperanza Five Months After the Floods;

– The CSM Youth participation in an Inter-Departmental Exchange;

– Standford University’s Delegations to Morazan;

– An Update on the Mining Issue;

– A Preview of the 2014 Elections;

– The Truce Between the Gangs; and

– An Update on the MCC and Partnership for Growth.

Even if you are not familiar with our work in Morazan and Usulutan, the community updates are  interesting for getting an on-the-ground perspective about how larger national and international issues  play out at the local level.

The Amando Lopez Forest Project is an example of a small, rural community struggling with the growing impacts of climate change. Their environment is changing and preserving the forest is one way they are trying to deal with this global reality. Amando Lopez is also a story about a community’s efforts to grow and survive in a globalized economy.

The Partnership for Growth and MCC are equally as interesting. Few North Americans have even heard of these U.S. “aid” programs, even in the context of other countries. In Morazan and the Lower Lempa, however, they are the topic of many conversations as people try to understand what they are and how they will impact their communities.

I hope you take a moment to read through the Newsletter. If you have any comments or thoughts, we’d love to hear them.

And of course we depend on your support to maintain this blog and continue our work with out partners in Morazan and the Lower Lempa. To ensure these programs continue, please click on the Donate Now button at the top of the page and consider signing up for a $25/month donation. It is easy and will go a long way to ensuring our partners continue to develop the skills and capacity necessary to face these global issues.

Thank you!

Partnership for Growth

Partnership for Growth: Part 1

On November 3rd, government representatives from the U.S. and El Salvador signed the Partnership for Growth Agreement with the goal of promoting economic development in El Salvador. The five-year program seeks to overcome two constraints to economic growth in El Salvador – crime and insecurity, and low productivity in the tradables sector.

Partnership for Growth “is a signature effort of President Barak Obama’s development policy, focused on economic growth as the core priority for United States development efforts.” El Salvador is, so far, one of only four countries to sign a Partnership for Growth agreement. The other countries are Philippines, Ghana, and Tanzania.

Over the next few weeks, Voices on the Border will examine what the Agreement says, what the Agreement does not discuss, and what the Agreement means for communities in El Salvador.

A fact sheet released by the U.S. Department of State lists five general goals for the Partnership Agreement:

–       Reduce the effects of the constraints to economic growth (crime and insecurity, and low productivity in tradables) over the next 5 years;

–       Provide conditions so that other countries can participate in the Partnership;

–       Demonstrate to the people of El Salvador the commitment to addressing the constraints to economic growth;

–       Increase the partnership between the government and private sector; and

–       Reinforce a bilateral relationship of mutual respect and action.

A team of economists from El Salvador and the United States spent the first few months of 2011 generating an economic report that defines the main constraints to economic growth in El Salvador. A link to the report can be found on the U.S. Embassy in San Salvador website, along with a statement of Principals and the Joint Country Action Plan. According to the report, the “shadow price” (potential GDP missed due to the constraints) of crime and insecurity and low productivity in the tradables sector is substantial.

In addition to providing a detailed review of the country’s economy, the report states,

“ the prevalence of crime represents a weakening of property rights because it demonstrates government failures to protect property from unlawful seizure and reduces the ability of economic actors to reliably recover returns on their investments.”

Citing statistics from the World Bank, the report says that small businesses in El Salvador lose an average of over 7% of their sales to crime. Medium size businesses report a 5% loss to crime. Businesses also have to pay for security, costing small and medium businesses an average of 3% of their total sales. Combined, the loss of sales and cost of security are 10% of sales for small businesses and 8% for medium size businesses.

The El Salvador Constraints Analysis (CA) determined that the effect of crime on El Salvador is between 4.8% and 10.8% of the country’s GDP, depending on whether health costs are included. Both figures are higher than the Central American average, and double the figure in Costa Rica, the only country in the region that does not have an epidemic level of crime. The report also states, “in the Global Competitive Report, El Salvador ranks last out of 139 countries under the Organized Crime Indicator, and next-to-last in Business Costs of Crime and Violence.” In coming blog posts, we will consider the Joint Country Action Plan and the activities the governments are planning to minimize insecurity as a constraint to economic development.

The CA also determined that low productivity in tradables is another constraint, suggesting that Salvadoran goods and services are less competitive internationally than those from countries such as Nicaragua, Honduras, and Costa Rica. As a result, El Salvador exports less than it could, and imports products that could potentially be made domestically. The CA calculates that the effect of low productivity in the tradables sector is “as much as 8 percent” of GDP.

The Partnership for Growth Agreement was just signed a couple weeks ago, and people and economists are still trying to fully understand its implications. Some have already begun holding it up as the most important development for El Salvador’s economy in recent history. Others are calling it the worst thing that could happen to El Salvador. In the coming weeks we will try to present a balanced analysis of the Agreement and how it fits into the larger picture of sustainable development in El Salvador.