The
overflow effect: An economic fallacy?
During the last
three decades, the Salvadoran economy has gone through a number of
substantial changes. El Salvador made a transition from an economic model
that fundamentally depended on the agricultural exportation of basic
products to a model based on the development of services. Here is where the
financial sector has considerably developed during the last twenty years.
This process of economic transformation is important because the country has
also suffered quite a few important social transformations.
During the seventies and the eighties, both the GNP and the agricultural
growth rates were having a similar behavior (1975-1980). However, nowadays
the agricultural sector is not playing a key role in relation to the GNP. In
other words, the development of the agricultural sector is no longer the key
factor of the Salvadoran economy. This does not mean that agriculture is not
an important factor of the society, especially because it is clear that the
production of coffee, cotton and sugar cane was once the center of the
economic activity.
During the nineties, the national economy goes through a number of
structural transformations. Throughout this decade, the ARENA administration
transforms the direction of the economy. During this period, the banking
system, the telecommunication services, and the distribution of electric
energy were privatized. There is also a fiscal policy, which restructured
the taxation system, as well as a commercial policy, which immediately
opened the national productive apparatus to the external commerce.
Nowadays we have an economy that depends from the remittances, from a
foreign currency, and we are about to establish a free trade agreement with
the United States. The government believes that the creation of maquilas and
that the consolidation of the process of commercial openness will become a
source of employment. It is important to question what has been the impact
of all the measures implemented by the government on the economic situation
of the Salvadoran population.
The structural transformation of the economy has created a series of
complicated mechanisms to generate an economic and a social development.
Presently, the agricultural sector receives a 7% of the credits granted by
the banking system. On the other hand, the economic activities connected
with commerce and services receive about 40% of the credits. To actually
improve the national economy, it would be necessary to generate wealth, and
this can only be achieved by encouraging the agricultural sector and the
manufacturing activities, since these are the factors that can “produce” –in
the strict sense of the word-.
The Salvadoran economy is now even more vulnerable to the external changes
because of the immediate commercial openness encouraged by the Executive
power. There are quite a few business companies that have been harmed by the
accelerated process of commercial openness. The most affected ones are the
small and the medium companies, which have faced a great deal of
difficulties in order to reach an adequate development. Many of these
companies are in no condition to participate in a free trade agreement with
the United States. In addition, there are certain sectors, such as the
agricultural one, which are very vulnerable to the commercial openness. No
one ever really listened to these sectors; no one consulted them when the
free trade opening process began.
The privatization process of the state’s assets has increased the price of
the electric energy and the telecommunication services. An actual
competition between the distributors has never existed. The same
privatization process generated captive markets, and these markets do not
allow a reduction of the prices. In addition, the SIGET has not regulated
the commercial behavior of the aforementioned companies in a strict way.
These economic reforms and several public policies of the government have
not been effective enough to respond to the most important needs of the
Salvadoran population. The reforms have converged in a narrow economy for
most of the families. A relative success in the macroeconomic environment
that the government mentions, such as the stability of the prices and the
low interest’s rates, can be explained through a slow economic growth. The
fluctuations do not respond to considerable variables because the
fundamental agents of the economy, the families and the companies are not
able to have an adequate development. Therefore, the positive vision of the
economic direction that the government has is very different from the
perception that the Salvadoran families have about their everyday life.
The official statistics show how incongruent it would be to compare the
official information with the reality of the population. The governmental
thermometer is to cold because it hides its responsibilities. This means
that in order to reach a certain level of development, it would be enough to
protect the macroeconomic stability and meet the requirement s of the
neoliberal laissez faire demanded by the international financial organisms.
However, the relative macroeconomic good health does not seem to have any
contact with the microeconomic environment. The welfare of the Salvadoran
situation does not seem to improve.
The statistics that reflect the former paradigm are, for instance, connected
with poverty. According to the information of the General Direction of
Statistics and Census (DIGESTYC, in Spanish) –and based on the Survey of
Homes and Multiple Purposes (EHPM)- the levels of poverty in general have
continuously decreased, especially during the period in which ARENA took
over the presidency in 1989. In addition, according to the Foundation for
the Economic and the Social Development (FUSADES) during the last five years
the price of the basic food basket dropped by 6%. The opinion of several
economists and the citizenry in general were very different from the
official information.
The superficially analyzed information could be attractive but deceitful. To
capture with precision a phenomenon such as poverty is a critical aspect,
since the methodologies and the measures to describe it are not strong
enough to understand the multiple dimensions of poverty.
It is necessary to remember that in the present circumstances, those who
live under the line of poverty are not able to purchase the basic food
basket, and those who live in a relative poverty are the people who can only
purchase the basic food basket.
This means that the lines of poverty are built over the foundations of the
basic food basket. However, here is where we find the main problem.
According to the DIGESTYC, the basic food basket is defined as “the group of
the essential amount of products –which provide energy and proteins- to
satisfy the nutritional needs of the average individual”.
However, poverty cannot be measured only by the nutritional needs of an
individual. There are a series of factors that characterize the poverty
issue, such as the access to the health services, housing, education, and
recreation, among other essential needs. This basic food basket does not
provide the individuals with the necessary amount of calories (a person
actually needs more than 2,200 calories to survive in an environment where
hard work is required).
In addition, there is another fallacy. The basic food basket might cost 6%
less than it did five years ago and, therefore, the line of poverty will
move and indicate that the level of poverty has been reduced, however, this
is a questionable topic.
According to FUSADES, the reasons to consider the reduction of the poverty
levels are:
- The fall of the international prices of the basic grains
- The absence of natural disasters
- The arrival of the foreign competitors
However, it does not mention the fact that the fall of the real prices paid
to the agricultural producers reflects a substantial loss in the purchasing
power of those producers.
How positive is the reduction of the basic food basket’s price if the people’s
purchasing power has been reduced as well?
According to what the director of the Foundation for Development (FUNDE)
said, Roberto Rubio, it would be necessary to examine the methodology
employed to measure what happened to the value of the basic food basket,
since the cost of life has increased in general terms. The prices were
increased by the dollarization process, and the sectors that live in poverty
are more affected by this problem than any other sector.
It can be said that the economic reality of El Salvador is far from being
healthy, contrary to what the governmental spokespeople affirm. In this
sense, the Salvadoran families have the last word to assert if the country
has found the way to reach a real social and an economic development.
|