The defense of the generals

The battle for San Salvador

If everything keeps going according to the plans, in the 2003 municipal elections the Salvadorans who reside in the city will have to decide if Hector Silva, the present Mayor of San Salvador, deserves to receive a third period to administrate the destiny of this county. It seems that, by the end of the 15th FMLN’s National Convention, the FMLN members will not have any major inconveniences to postulate Silva. As far as the opposition (center-left?) is concerned, no insuperable obstacles are observed at the moment. Everything seems to indicate that the renovators will be ignored. The parties and the political movements (CDU, AP, Civilian Initiative) which at the time share the municipal government with the FMLN have decided to form a coalition with the former, without including the Renovator Movement (which is still preparing itself to come out).The FMLN’s members decided, in their Convention, to stay away from making alliances with this group. The other parties are not willing to sacrifice Silva because of an immature party, without any idea yet of how much support they have from the Salvadoran voters.

To govern the city has become, in the Salvadoran political context, a trophy of prestige that all of the parties would like to have, by the end of the elections that will be celebrated during March 2003. The FMLN has been six years at the head of this city hall. It longs to keep it, to dream about conquering the presidency of this country, a position that –at least during the last twenty years- most of the mayors of this city have chosen to pursue. They still believe somehow, that the main administrator of this county occupies a special place in the mind of the Salvadorans. It would have, for instance, a persuasive effect, if a person is qualified for more important tasks, just like administrating the destinies of the Salvadoran nation. The FMLN’s followers –and at some point, the entire left-wing opposition- keep betting for the impact that the media can cause, and who knows, maybe also for an alleged magical political attraction for the one who occupies the chair at the city hall.

ARENA, is not so far either from the formerly described aspirations. In its ranks, they keep considering as a confrontation of great proportions the fact that someone took away the conduction of San Salvador. With fears and anger, they fight to recuperate what they consider their property. They have not been able to digest the defeat of Mario Valiente, which took place six years ago. He was the last ARENA mayor of San Salvador. They have not been able to accept the definitive defeat that took place three years ago either, in which their “star” candidate, Luis Cardenal, intended to replace the FMLN’s mayor. They participate in the national political symbolism, which predicts a triumph for the city’s mayor and his party.

Whoever thinks that everything is the result of the economic and political independence of San Salvador is wrong. Even if this county, because of the typical centralization of the Latin American countries, probably represents the most important city of the country, it is also true that the mayor of San Salvador does not count with superior political powers. Just like any other mayor, he does not have the last word in terms of permits for the housing construction. He cannot establish the municipal taxes without the approval of the Legislative Assembly, or make loans without the permit of the Executive Power. This is why it does not matter who administrates San Salvador’s city hall: that person will end up being a prisoner of the highest political party, which will be able to decide the length of his proposals.

Many of the formerly mentioned aspects have been verified along these last two periods of mayor Silva. His intentions to reform the municipal taxes, his efforts to make an international loan with the Banco Interamericano de Desarrollo, or his initiatives to regulate the consumption of alcohol in the city, among other measures, were stopped by the right-wing coalition. ARENA, forming an alliance with the PCN and with the approval of the country’s government, has tried to avoid any spectacular performance of the mayor, which would mean to prolong the absence of the right-wing in the government of this county. To destroy this fear they have used all of their tricks, even the more vile ones. During the last years –just to have an example-, the Salvadorans have been the audience of a political battle for the garbage treatment; which, unfortunately –it would have been interesting to listen to environmental arguments that would allow to evaluate the project in its complete dimension- has not gone beyond the incapacity of ARENA to accept the success of a deal that intends to resolve the problem of the solid waste in the capital.

In that sense, the destiny of the city is attached to the decentralization issue which, however, the right-wing political parties are still rejecting. It is obvious that the counties need more economic and political independence, if they want to be considered as an important place to start with a political career. It is necessary to discuss this matter, not only to analyze the problem of the mayors’ political career, but also –and most importantly- to be able to accomplish more democracy, going through the necessary reform of the national political institutions. It is not possible that the decisions over the lives of the citizenry keep being made at the ministers’ council, without even listening to the opinion of the affected ones. The city and county halls, as it has been said in many occasions, are the political institutions that are closer to the citizenry, and they are the ones that can answer to their daily demands; to support them and make them stronger can be an important factor for the democratization of the country.

However, despite of everything, the residents of the capital city will have to ask themselves if they want Hector Silva for another three years at the head of the county. At a first glance, the question does not seem so difficult to answer. ARENA does not have yet a candidate with enough background to tarnish Silva. At the moment, the strategy seems to be connected to the organization of the next Central American and Panamanian games in the country. They are mentioning the names of some the organizers of the sports event as the possible candidates to confront the present mayor. Somehow, the ARENA strategy team seems to understand that any candidate to fight for San Salvador’s city hall must have a curriculum able to swindle the residents. Otherwise, an old popular proverb will keep making sense: “It is better to know something than to get to know it”.

All of this cannot lead us to forget that the answer to the question about Silva or the election of any other candidate to San Salvador’s city hall, has to include the issue of the governmental plans, the strategies, and the necessary resources to accomplish them. In addition, the residents of the city have to evaluate the disposition of the character to respect his promises. It is necessary to ask about the accomplishments of the present municipal council at the light of the governmental plans. For example, it would be interesting to interrogate the present mayor about some of his campaign promises that made the civilian security, the human development, and the rearrangement of the city the angular points of his municipal actions, among other aspects.

Reflections about the situation of the public finances

Despite that the officials of the economic cabinet do not openly admit it, the public finances show a tendency towards an economic imbalance. The increase of the fiscal deficit from 2% in 1998 to 3.6% of the GNP in 2001 is only the most evident indicator, since this situation is actually more complex, and it has been additionally affected by other circumstantial factors.

Without a doubt, the effect of the 2001 earthquakes over the reconstruction needs explains how the fiscal deficit increased, since the public investment has been practically duplicated. The situation of the public finances has also been deteriorated by the reduction of the economic growth rates, and its consequential effect over the taxation structure. The 6% and 7% economic growth rates, registered between 1992 and 1996, were reduced to 2% between 1997 and 2001. During the last year they only reached 1.8%.

However, there are structural reasons that reflect the crisis of the public finances, that is: the severe difference between the collected taxes and the total expenses, the low taxation, and the contraction policy of the general expenses. This problem is eventually leading to an unsustainable indebtedness, which makes even more pressure over the public finances and not only compromises the macroeconomic stability, but also the possibilities to support the sustainable development through a larger expansion of the social expense and support to the economic growth. With this reality, the government is making some efforts to reduce the general expense and the fiscal evasion, although those efforts do not seem enough to correct those problems, which in the end are more critical than they seem.

With the tax reform, implemented during the nineties, the intention was to eliminate the historical tendencies towards the fiscal deficit, and “modernize” the taxation structure of El Salvador. In the end, the results have not been so encouraging, since the taxes were not significantly increased, and they are now at relatively low levels for the international standards (10% of the GNP). This was because even if new taxes were introduced–specially the added value tax-, the final effect was neutralized by the elimination or the reduction of others which mainly taxed the private business company (for example, the exportation, income, and the taxes over the patrimony).

The amount of taxes that the government collects every year is enough to cover a 71% of the total expenses, which means that a 29% must be covered with occasional and variable incomes such as the money collected with the taxes, the capital income, donations, and, most of all, indebtedness. Evidently, this gap reflects that the government is going through an untenable fiscal problem, against which it has decided to fight reducing its regular expense.

Because of that, the Ministry of Hacienda (Internal Revenue Service) has issued certain regulations in the sense that all of the governmental institutions –with the exception of the social and the security areas- have to reduce their regular expenses. These expenses include remunerations, the acquisition of goods and services, the payment of interests and transferences; however, its main component are the remunerations, which represent close to a 52%. A first reduction of 17% was made at the time of integrating the 2002 budget, and for 2003 the projections are to cut down a 3%.

The clearest effects at the moment are the drastic reduction of the positions at the public sector, operated in the beginning of the present year, which involved a reduction of over 7,000 jobs. This represents almost a 7% of the total amount of employment generated by the state and, although it can contribute to reduce the regular expenses, it also limits the state’s institutional performance and its contributions for the development process. For example, the personnel reduction has affected the institution in charge of the investigation and the transference of the agricultural technologies, and with that, it has closed the doors for future supportive efforts in favor of the agricultural production –a crucial issue for a favorable insertion in the international economy-, the reduction of the rural poverty, and the environmental sustainability.

For the next year, the Ministry of Hacienda (Internal Revenue Service) already announced a new reduction in the “superficial” expenses. According to the Minister of this institution, Juan Jose Daboub, it is still possible to reduce 3% more of the state’s expenses, excepting the ones that were already assigned to the education, health and public safety branches. He also explained that this does not mean that the total budget (which includes not only the regular expenses, but also the investment expenses as well) will be increased due to the strong demand of resources for the post-earthquake reconstruction. For 2003 they plan to destine a total amount of $311 million, $11 million more than in 2002, when the figure was already high.

As a result of this, the government will be forced to get into debt (once more) to finance its budget, although that does not seem to be a problem for the officials at the public Hacienda. At least that can be inferred from the declarations of the Vice-Minister of Hacienda, Mauricio Funes, Who would have explained that although there will be an emission of bonds, these will be located “at a prudent level of indebtedness”. The Director of Financial Administration of that Ministry said that the amount of the debt is under control and that it is manageable in the long term.

However, the figures indicate a steady growth of the public debt, which for this year involved the creation of bonds for $470 million, an amount equivalent to approximately 18% of the total budget; besides an additional loan for $270 million. In total, El Salvador’s debt is approximately of $5,000 million, an amount equivalent to a 34% of the GNP and to a 200% of the nation’s general budget for the present year. The situation is discouraging if we consider that for the first semester of the same year the government reported a fiscal deficit of $196 million, which might involve an increase in 20% in relation to the same period of last the year.

Without denying that the reconstruction efforts have accelerated the rhythm of the debt, it is necessary to understand that these expenses are neither the only nor the most important source of indebtedness. Even before the earthquakes, the annual debt reached $300 million, something that suggests that –if the deficit remains steady and without counting the additional reconstruction efforts-, after a period of five years, the debt could be increased up to $1,500 million, to reach a total amount of $6,500 million, 30% more than the amount reached by mid 2002. The situation turns dramatic if we consider that this would be happening even if the government adopts extremely severe measures of austerity for the state.

The solution for the fiscal problem not only goes through reducing the regular expense. It also has to do with a search to obtain a higher level of income, something that the government intends to achieve by having more control (an by being more efficient) when it comes to collect the taxes. Moreover, it must be said that what a country such as El Salvador requires is a higher level of public expense, and a more effective financial administration.

No one can deny the fact that the taxes must be necessarily increased, and that requires a new tax reform. Otherwise, the apparently “controllable” situation of the debt will keep going out of proportion, because of the fiscal deficit’s constant level (a range of 3% of the GNP), while the state will eventually lose its capacity to support the economic growth, satisfy the social demands, and promote the environmental sustainability.