The pre-campaign of ARENA

Doubts in the third road

In electoral matters, as in any other political activity, the parties essentially depend on its results. The number of votes that an organization can achieve is what measures its importance in the public discussions. The behavior of the parties is defined according to the results, or according to the performance perspectives for the next elections. In other words, the parties are concerned about finding the way to become more efficient.

In the Salvadoran context, this need to be more efficient goes hand in hand with the demands to reach a minimum percentage that enables the parties to survive after the elections. Article 182 of the Electoral Code explains that “the inscription of a political party can be cancelled when it participates in the election of a President and a Vice-president, or in the election of Congressmen and does not obtain at least 3% of the total of valid votes in the elections in which it participates”.

This legal clause turns every election into a difficult test for the parties, especially for the smaller ones. They have to assure their political life. The PCN is looking as the “last victim” of this demand for an acceptable performance that the electoral code imposes, to the point that some people are even talking about the disappearance of this party.

It seems that, conscious of this situation, the leaders of the PCN are looking for a coalition to avoid failing during the next elections. The declarations about the alleged need to put an obstacle in the way of the parties located in the poles would only be a façade, a discourse to hide the actual objective of the craved alliance. However, this party was not able to become part of the coalition of the center, and its leaders are resigned to participate alone in the next presidential elections. That is why some people are wondering if the PCN will manage to obtain the required percentage of votes in order to remain as a political party. In addition, others are wondering if the coalition will not end up missing the PCN too much.

As for the possibilities to disappear, it is evident that nothing is definitive with the PCN. During the last couple of presidential elections, the PCN has almost disappeared with a 5.34%, in 1994; and a 3.75%, in 1999. This information reminds us that it is necessary to be prudent when it comes to predict what could happen with this party during the next presidential elections.

However, these considerations are incomplete if we do not remember that the PCN counts with an experienced organization that has stood out during the last years for its good electoral performance. This party counts with nets of support in the 262 municipalities of the country. In addition, even if it is true that there are enough elements that allow us to talk about the different behavior of the party in the municipal and the legislative national elections in reference to the presidential elections –it is clear that this party is not very attractive for the electorate when it comes to the presidential elections- , we can also speak about the existence of a stable foundation that could be used by the PCN in order to reach the necessary 3% that the electoral code placed as the minimum requirement to survive.

In any case, a hypothetical disappearance of this party would not compromise its presence in the country’s political life. The PCN counts with a well organized structure that could face an eventual defeat. It can perfectly present itself with the same or with a different name for the next municipal and legislative elections. In addition, the party counts with enough strength in the present congress to maintain a relevant presence in the public opinion until the 2004 presidential elections. In case they disappear after the elections, they will still able to compete again.

In the past, other parties have managed to modify the electoral law related with the necessary percentage to assure their life in the political arena. In this sense, even with an adverse result, the PCN will manage to keep its political weight in the system of parties. In case of being defeated during the first round, they would question the political loyalties since its support would go to those who invite the party to occupy a comfortable position in the new power scheme.

The other question that might be convenient to explore would be connected with the alleged contribution of the PCN to the coalition of the center. In this issue, the leaders of the center rejected the PCN. It seems that many leaders consider that the bad reputation of the PCN could bring a certain amount of discredit to the political center. And that is not favorable for their electoral foundations, which are generally integrated by critical middle class voters who question the performance of the system of parties, especially when it comes to discuss the situation of the PCN.

It is difficult to say if this is a clever decision or not. However, it is convenient to say that the PCN counts wit a solid foundation of voters that have been supporting the party during the last 11 years. It is important to consider that the coalition overlooked a party that had the support of more than a 19% of the voters during the last elections. Given the little electoral support that the parties of the center receive, the electoral reality would lead us to think that an alliance with the PCN would provide the center with the necessary credibility for the option they claim to lead.

Instead of building this wide alliance, the coalition prefers to talk about a proposal that can seduce the citizens who are unhappy with the performance of the political parties. The coalition expects to gain the sympathy several followers of the left wing. This intention is based on the alleged dissatisfaction that the followers of the FMLN feel about the decision to postulate Schafik Handal as the presidential candidate for the party. Some people think that the little amount of sympathy that Handal counts with, due to his irascible temper, will be enough to intensify the internal divisions of the left wing party. The right wing will be blamed for failing to deal with the social and the economic problems throughout three consecutive presidential periods.

It is possible that the right and the left wing might find it difficult to get the attention of the Salvadoran electorate. However, the bet of the political center is still a risk. ARENA and the FMLN count with a consolidated and a constant number of sympathizers, even when both parties have been questioned. That is why the intention to end with this line, and bring those followers to the center is not very realistic, at least not in the near future. In case that several followers decide to make a new choice, they will be definitively not enough in terms of votes for the coalition to go beyond one of the political extremes and have the possibility to participate in a second electoral round.

The present economic situation

The Department of Economy of the UCA has prepared a report about the economic situation in El Salvador in an article recently published in the Central American Studies Magazine (ECA, in Spanish).This article is a brief comment about that report. In global terms, the document explains the deterioration of the present administration’s fiscal policy. In this sense, a fiscal “erosion” has taken place. In other words, the government, according to the report, has not been able to “increase the revenue, and it has returned a larger proportion of the regular taxes”. This situation can be added to the slow motion of the economy, which, according to the analyzed statistics, is not enough to generate the kind of growth that could enable this administration to reach a qualitative stage for the development and the welfare of the population.. The fundamental aspects that support this vision of the country’s economy are the following:

The fiscal policy
The deterioration is frankly evident, since the levels are low if they are compared with the ones reached by the former administrations of ARENA. Basically, the average taxation during the Flores administration has been lower than the one employed by Calderon, Sol, the former president. Where is the problem? According to the report, a portion of the answers are concentrated in the influence of the patterns of the economic policies determined by the Consensus of Washington, which ARENA has faithfully followed. The result is a tax policy that favors those who make a higher income, at the same time that it is more severe with those who have less. It is true that this has also characterized the former governmental administrations: however, this problem has intensified itself during this period.

The regressive economic policies brought by ARENA can be noticed with an examination of the taxation system’s aspects. Between 1993 and 1998, the business companies contributed with 57% of the income taxes. However, during the Flores administration, this contribution was reduced (54%) by 3%. During the last year, this amount was reduced and reached a 42%. In other words, most of the total of the income taxes that arrive to the national Internal Revenue Service come from the contribution of the employees (approximately 60%). On the other hand, the public investment of the government still seems weak. In the present, it represents a 3% of the GNP, while during the last year, it represented a 3.6%, even after the earthquakes of 2001.

During the Flores administration, the economic stagnation has turned even more intense. The government has adopted a passive attitude, and it has had a negative influence on the development of a healthy fiscal policy, a policy that should be progressive. For instance, from 1993 to 1998, the balance of the debt increased, representing approximately 35.3%, with a final balance of $3,580 million. During the Flores administration, that balance has increased ($2,935 million), and this represents a growth of 82%. What kind of macroeconomic stability can be built over such tendency?

The tax pressure has always been low: it barely represents a 10% of the GNP, placing El Salvador in the unpleasant penultimate place of Latin America. However, this is not the worst problem. With a low revenue, there are no possibilities to satisfy the needs of the population through the public expense and the revenue, which keep decreasing if they are compared with the growing needs of the population. What this generates is an economic stagnation for the society.

On the other hand, the orientation of the public expense has not worked out properly. In general terms, the administrative expenses predominate over those destined to the development activities. The tendency of the public expense of the Flores administration has been the increase of its participation in the GNP. Between 1995, and 1998, there are records of an average participation of 15.1%. While between 1999 and 2002 this percentage increases and it reaches 23.42%. Nevertheless, the public investment during the Flores administration represents 3% of the GNP, while during the last period it represented 3.6%. This means that the participation of the public, the financial, and the non-financial sector has increased in the conformation of the GNP, which went from 12.6% to 13%. However, the public investment reduced its contribution to the GNP, while the one of the public consumption was increased. What is the result? When its contribution to the GNP is reduced, its influence as a catalyst of the economy is also reduced.

In summary, the fiscal deficit’s level has gone over the roof. The average annual amount increased ($430.9 million) with a participation of 3.2% in the GNP. From 1993 to 1998, it reached a 2.8% of the GNP; and in 2000, a 3%. These percentages are superior to those reached between 1993 and 1998.

The economic activity
Since the year 2000 the growth rate of the productivity level was low by the beginning of the first trimester –an annual variation of the quarterly GNP inferior to 2.5%-. In the first trimester of 2003, the GNP grew by the same percentage that it did during 2001 (1.7%), but in a smaller percentage than those of 2000 and 2002. According to the Central Bank of Reserve (BCR, in Spanish), the growth of the year 2003 will be 2.5%. This means that the growth rates of the next trimesters should be between 2% and 2.5%. However, according to the present tendencies, to reach such percentages is not an easy task. In addition, the analysis in the report indicates that several changes should take place in the international environment, mostly in the United States and in the internal conditions of El Salvador. This is a difficult task, given the pre-electoral context.

Another problem is that the annual variation of the accumulated average of the IVAE (The Index of the Volume of the Economic Activity) was negative in April 2003 (-0.98%), and it has remained like that. As a whole, the economy does not seem to improve. On the contrary, it seems less dynamic now than it did in the former periods.

How can this can be translated into employment terms? During the last year, the average number of contributors has been reduced to a number of 19,558. According to these figures, the level of formal employment has been low.

The behavior of the prices
During the first trimester of the present year, the behavior of the macro prices of the economy –the level of the prices, the interest rates, and the salaries- has been negative. The Index of the Prices for the Consumer (IPC, in Spanish), since 2002 has been concentrating its fluctuations in 2%. In 2003, the indicators shows a decreasing tendency. This can be explained through the behavior of the elements of the indicator. The variations in the prices of food, during the first semester, have been small, and this has become a part of the negative rates in the variation of the prices of clothing. On the other hand, there are the prices of housing and the miscellaneous, which have increased. Differently from the IPC, the Index of the Retail Prices (IPM, in Spanish) presents an accentuated variation in reference to the first semester of the last year. That is why it can be said that the prices of most of the final consumption products have not gone through a considerable variation. The opposite happened with the prices of several essential materials of the country.

The value of the interest rates has decreased in relation to what happened in 2001. However, they are very close to those of the first semester of 2002. These movements in the types of interests cannot be explained without considering the dollarization of the Salvadoran economy. That is why the national interest rate moves to the rhythm of both the American interest rates and the Federal Reserve Policy.

The nominal salary remained intact from 1998 to May of the present year. During the first semester, and by command of the Executive power, the salaries were increased in the following sectors:
Trade (10%), industry (7.5%), textiles and the maquila (5%). It is important to notice that in the agricultural sectors, where the deterioration of the life standards has been an alarming issue throughout the last few years, the salaries were not increased. As for the existing increases, the new minimum nominal salary is $5.31, and the new real salary is $3.10.

The external sector
There have not been any substantial changes in this sector. The performance of this sector during the first semester of 2003 has not changed. The regular accounts have a deficit that brought along a commercial deficit as well. That is why the remittances have played an important role that prevents the deficit from increasing. A positive balance of payments, thanks to a surplus in both the financial and the capital accounts is the product of the excessive indebtedness of the state.

During the first semester of the present year, the exportation level has grown by approximately 7%. The value of the exportation for the same period was $1,559 million. The branches of exportation are the following:
Traditional exportation, 6.96%; non-traditional exportation, 32.34%; and the maquila, 58.7%.

The importation level, for the same period, reached a value of $2,829.9 million, a figure that represents an increase of 14.4%. The importation branches are the following: consumption goods, 27.04%; intermediate goods, 32.88%; capital assets, 16.49%; and the maquila, 23.58%.

It can be noticed that the increase of the exportation level has not been enough to reduce the commercial deficit. This is because the importation level has had a higher growth rate during the same period. This is an obstacle to close the commercial gap of the deficit.

In March of this year, the regular account’s deficit was $213.9 million. This is due fundamentally to the increase of the commercial deficit (77%) in the last three years. The remittances, which for 2003 are about to represent 12.7% of the GNP, play an important role to mitigate the impact of the deficit. During the first semester, the remittances represented $1,006.8 million, and this means that they increased by 3.8% in reference to the last year, for the same period. The remittances played an important role because they helped to cover 35.6% of the gap left by the importation and 72.8% of the country’s commercial gap.

The financial and the capital account, for the first semester of the year, represented a surplus. There is a positive balance of payments thanks to the profits of that account. It is important to notice that, despite the country’s positive balance of payments, this is due to the indebtedness, and it is not the result of a reduction of the deficit of the commercial balance. The country is constantly asking for loans to pay for most of the internal absorption that has characterized El Salvador during the last years.

The banking system and the currency
From June 2002 to March of the present year, the deposits show a small level of growth rhythm. This behavior was due to the low profit rates that the clients of the banks perceived. By 2003, the interest rates improved for the deposit accounts in the national banking system. According to the indicators, it seems that the market of credits has been reactivated after being depressed throughout the last year. The credits became more active after October of 2002, and they were concentrated in the following sectors: construction, commerce, industry, and consumption.

It is important to notice the improvement of the banking system in the field of the loan arrears and in the provisions for the accounts that are not kept up to date. This is a key element, since it represents a higher level of stability for the country’s banking system. The national banking system can be portrayed as a market of oligopolies, in which the five most important banks of the country concentrate 88.96% of the assets of the accounts, while the rest of the banks only hold 1.57%.

Conclusions
The report ends with a set of important considerations about the country’s economic activity. According to the authors, during the last years, the country has been going through a chronic commercial deficit that attempts against the steadiness of the regular account of the balance of payments. The relative equilibrium of the balance of payments is fundamentally achieved through a couple of alternatives:
The outstanding role of the remittances as the “external lifesavers” and the increasing balance of the financial account, and the capital of the balance of payments. According to the authors, the surplus of the capital account, even if it contributes with the stability of the balance of payments, is built over the foundations of a debt. With that observation, the authors intend to get the attention of the public eye, so that the “virtual” stability of the balance of payments can be noticed.

In relation to the external sector, the report explains that it is important to observe how the country is increasing its commercial deficit, fundamentally through a larger importation of consumption goods, intermediate goods, and the maquila. Given the weak competitiveness and the country’s low productivity level, it would be a relief if the financial assets had a solid weight.

If the former aspects are connected, the conclusion is that by getting into more debts, the country is compromising its future with the expenses made to pay for the present loans. The government should increase the productivity level through a more rational selection of the imported goods, in order to increase the financial assets and reduce the importation of consumption goods.