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Proceso 1127
December 22, 2004
ISSN 0259-9864
Editorial: 2004: A somber year for the Salvadoran society
Politics: The political balance
Economy: The economic balance
2004: A somber year for the Salvadoran society
Altogether, the year has left a negative balance for the
Salvadoran society. Do not let the Christmas shopping days turn the context into
a confusing scene: behind the splurge of those who –with the remittances sent by
their relatives from abroad, or with their credit cards- invade the enormous
shopping malls; the reality of many Salvadorans is hidden away, those people who
barely manage to get some bread to celebrate the holidays and the arrival of the
new year. Those who spend the little money they have, and those who would want
to do the same but they cannot, all of them, without any exceptions, have been
systematically affected by the actions of the political, the economic, and the
religious circles, as well as by the actions of the news media. To realize the
negative social effects that emerge from those circles is only the first step to
face them; to be consciously aware of this situation and to have an organized
answer to it are the following steps.
The political scene has had a critical year. It would be enough just to mention
a few of the problems of the society:
1. The incompetence of the politicians. There is nothing new about this
situation, because since 1992 it has been actually a rule to behave
incompetently. However, the deficient performance of the politicians reached an
alarming level in 2004. Practically nothing of what they did favored the
situation of most Salvadorans. In fact, the contrary happened: almost everything
that the political parties did was to favor themselves and not the society. This
incompetence of the politicians has intensified the separation between the
society and the political system, and this is an enormous threat for the social
and the political stability of the country.
2. Corruption. At some point certain people were under the impression that
corruption would disappear with ARENA at the head of the State. It looked like
the members of this party had plenty of money, and many assumed that wealthy
individuals have no need to steal. The revelations of the ANDA case –as well as
the case of Romeo Majano Araujo in the ISSS- threw away the illusions of the
most optimistic ones. There are people in ARENA who systematically take
advantage of the public resources for their own good: this is an undeniable
fact. And not just that. Such abuse is under the protection of influential
people, not only in the Legislative Assembly and the Executive organ, but also
inside the justice administration system. Therefore, this is a corruption that
always remains unpunished, the most impudent and open corruption ever.
Corruption and impunity shook hands in 2004. Thanks to that situation,
corruption has grown to a higher level in the public sector, and within the
areas where the public and the private lives meet.
3. The abuse of power, arrogance, and an authoritarian populism. It is easy to
connect the firs two vices with the former administration, but such features are
also part of the Saca administration. His “Super Iron Fist” plan is part of an
authoritarian and an arrogant logic inherited from his predecessor. Of course
that in Saca that logic is colored by a populist tint, which, so far, has helped
him to achieve a positive impact on the public opinion. The leaders of the FMLN,
on the other hand, are not far from this logic of arrogance either. The internal
disputes that shook the party during the elections in March (and after that,
their internal elections, in November), is one of the best samples. ARENA as
well as the FMLN –just not to talk about the rest of the political parties- have
both sent a signal that several politicians and public officials can do whatever
they want as long as they have enough power to do so. They can become illegally
wealthy, they can implement harmful laws for the society, and stay an eternity
in their positions… And that happens because of all the power they have.
The Salvadoran society has also been affected by the economy. With the fourth
ARENA administration, the economic model divided in three sectors, centered in
the maquilas and the remittances is following a firm process of consolidation.
This is an economic model ruled by the market and controlled by a voracious
oligarchy that has created exclusion and marginalization to the extreme.
Incapable to create an acceptable level of decent employment, the model expels
day after day dozens of Salvadorans from the country. These immigrants, with
unmentionable sacrifices, inject thousands of dollars to the economic model that
sent them away, and which stands and reproduces itself thanks to those dollars.
The society is before an apparently endless vicious circle, since the
businessmen and the politicians of the right wing are firmly convinced that
remittances are the best thing that could have happened to the country. While
this conviction remains attached to the circles of economic and political power,
it will be difficult to try out other ways to conduct the economy.
To the harmful effects created in the political and the economic scenes we can
add the perverse effect of the news media’s actions. In 2004, sensationalism,
yellow journalism, and the passion for scandal have been the dominant features
in the media’s environment. To this we can add the commitment with the right
wing that, in the context of the presidential elections, certain news media
revealed. The Salvadoran society was subjected to all sorts of tricks and
manipulations; the most important news media revived the old fears and used a
sumptuous anticommunist speech that many thought was just a thing of the past.
Ethics and professionalism were nowhere to be found in a journalistic practice
that did not hesitate when it came to using lies and manipulating the facts as
long as these actions enabled them to denigrate those that were seen as the
leading electoral threat for the official party. The great loser of this media
attack has been the Salvadoran society: its conscience became poorer, and its
capacity to have a critical perspective towards its problems was severely
weakened.
The religious influences also intervened so that the collective conscience of
the people would lose its capacity to analyze the country’s reality in a
critical fashion, overlooking those that promoted a committed religious sense
interested in the social, the economic, and the political problems, the dominant
factor here was how the important religious sectors –from a catholic as well as
from a protestant nature- supported the abuses committed by the public
officials, the business elite, and the most important news media.
Systematically, a conservative, intimate, and spiritualist preaching got to many
of the sectors of the society. In some cases, the spokespeople of such preaching
did not hide their sympathy for ARENA. On the other hand, the leaders of that
party –mainly Antonio Saca- knew how to take advantage of the open support that
several churches gave to them. A dangerous alliance was created in 2004:
religious organizations, private business companies, important news media
companies, and the official party altogether shook hands not only to legitimize
the prevailing social and economic model, but also to create a common front
against those who could try to reform such model.
In summary, in 2004, the Salvadoran society has had to live with the negative
actions of the political scene, the economy, the news media, and the religious
conservatism. The sporadic and disperse reactions have not been at the height of
the challenges. The general passivity is still the typical feature of the
Salvadoran society. The levels of organization do not seem good enough as to
articulate a social movement capable to make the economic and the political
elites check and redefine their style to conduct and administrate the country.
It is true that in this year, as before, the Salvadorans have been very active;
however, they have been active just to survive, and on an individual ground.
They have not been able to understand that their survival is connected with the
struggle for their human, their social, and their economic rights, and that
therefore such struggle goes beyond an individual aspect, since in order to be
successful it should involve others who are in either the same or in a worse
situation. The year 2005 should be, from the society’s perspective, a year
destined to brake up with this passiveness; that is, a year of an organized
social irruption into the public life. It is not clear how else politics, the
economy, the news media, and the religious conservative practices will be
compelled to stop affecting the society in a negative manner.
The political balance
The year 2004 was characterized by a very slow economic
activity, which lead the official institutions to check the growth perspectives.
At the beginning of the year, they expected that the GNP would increase by 2.3%.
However, by the end of 2004, there was only 1.8%. The economic performance was
affected by the presidential elections and by the fact that it took them a long
time to approve the General Budget of the Nation. The electoral environment,
according to many analysts, created adverse effects for the development of the
investments in the national scene. The budget for 2004 was approved after the
elections, that is why several projects were never completed. According to the
Economic Commission for Latin America and the Caribbean (CEPAL, in Spanish),
these indecisions reduced the public investment level (24%). During the last
months of the year, many events took place and they will determine the behavior
of the economy in the future. The most important ones were the implementation of
the fiscal reform, the creation of a Health Fund (FOSALUD, in Spanish), and the
ratification of the Free Trade Agreement with the United States (CAFTA).
In 2004, According to the information provided by CEPAL, remittances constituted
16.2% of the GNP, this percentage is higher than the one of 2003. In the last
few years, the growth tendency of the remittances indicates, in the long-term,
that they will become one fifth of the GNP. One of the most important aspects in
this sector was the reduction in the exportation level for the maquilas
(11.24%). In spite of this, other sectors became more active in the
international market, as for example the exportation of the non-traditional
products. Such exports reported that they grew up to 8.78%. As for the
exportation of coffee, the improvement in the cultivation prices played a key
role. By the end of the year, coffee was at a reasonable price for the growers.
It is important to indicate that with the beginning of the new administration,
as it always happens, new expectations were created in the business field due to
the new public policies promoted by the Executive power, through special
commissions, such as the policy designed to reactivate the agriculture, and the
one aimed to the coffee commission.
Production
During 2004, the perspectives of economic growth were weakened because they took
too long to approve the General Budget of the Nation and because of the
electoral context itself. That is why during the first semester of the year the
Central Bank of Reserve (BCR, in Spanish) readjusted the calculation of the
economic growth rate, which was under 2%.
In October, the sectors of the economy that had a deficient growth profile were
the manufacturing industry, the construction sector, and the financial sector.
Compared with the figures of October 2003, the manufacturing companies presented
a reduction of 2.6% in the Economic Activity Volume Index (IVAE). The financial
sector had a negative variation of 1.4%. Despite the fact that credit was
reactivated in the beginning of 2002, the activity of the banking system seems
to be growing slower. Oddly enough, and in spite of the important construction
projects (malls and urbanizations) that were completed, the construction sector
had a contraction in the percentage of its activities (13.3%). The agricultural
sector indicated that its business volume grew in reference to 2003, along with
the transportation sector. The respective variations were 3.08% and 2.16%.
According to CEPAL, one of the aspects that had a negative repercussion in the
country’s economic development was the price increase that fundamentally came
from the increase in the international price of petroleum (72%). This effect
transformed itself into an increase of the public transportation fare and the
basic grains. Since this year the salaries were not leveled, the purchasing
power dropped by 4.3%.
Prices and salaries
As for the inflation rate in 2004, the information provided by the BCR is not
encouraging: since March, the inflation rate constantly increased until it
reached its peek in October (5.5%), although it was reduced by 0.01% in
November. This can be explained by the disproportionate growth of the petroleum
prices in this year, a situation that strongly affects the purchasing power of
the people, especially in the rural areas. While the price of the Basic Food
Basket (CBA, in Spanish) during the first trimester was $134, the CBA of the
rural areas reached a price of $106. It is necessary to consider that the prices
of the products that are combined in the CBA were increased, and that they
occupy an important place in the lives of the Salvadoran population: beans and
corn. The increase on the price of the CBA, according to the Ministry of
Agriculture and Cattle-Raising (MAG, in Spanish), was due to not only the
increase in the petroleum prices, but also to the droughts, which reduced the
production of the basic grains. It is important to mention that the increase of
the prices of the CBA in the rural areas incremented the malnutrition levels,
especially among the children.
Therefore, the real salaries have been reduced, the purchasing power of the
population has been negatively affected, and the nominal salaries have not been
modified since the increase established on May 2003. According to the Ministry
of Work and Social Prevision, the monthly minimum wage for the commercial sector
and the sector of services has been kept at $158.4. For the industry, it is
$154.8, while in the textile industry and the maquila, it is $151.2. In the
agricultural sector, the minimum wage is $74.06. In this last sector there were
not any major modifications, since it is considered that it could not face a
salary increase. This affects the poverty levels in the rural areas, in the
sense that the value of the CBA cannot be covered by the inhabitants.
The external sector
According to the preliminary data of the BCR, in November, the commercial
balance showed a deficit of $2,630 million. And although the exportation level
grew by 1.9%, less than twice the increase of the imports (5.9%) for that same
period, the increase of the commercial deficit was less than 1% in reference to
the last year. This slight increase is due to the fact that the non traditional
exports’ level incremented by 8.78%. However, when the figures of 2003 and 2004
are compared, it is important to notice that the exportation level of the
maquilas was reduced by 11.24%, something due to the low competitiveness level
that the textile Salvadoran maquila has in reference to the new menace
constituted by China. The arrival of China to the World’s Organization of
Commerce (OMC) opens for this country the doors of the global market, including
the Latin American market.
Another aspect that constrained the growth of the exportation level in the last
semester was the implementation of the law against bioterrorism. This meant that
the exporters were subjected to bothersome procedures in order to send their
merchandise to the United States. They were also subjected to certain sanctions
if they did not meet the quality and the harmlessness requirements established
by the FDA. This law blocked the growth of the exportation of perishable
products (aimed to the market of the United States). Many companies were not
prepared (especially the small and the medium companies) to face with all of the
implications, the new rules of the game in matters of external commerce. On the
other hand, the Direct External Investments (IED, in Spanish) have increased
(5.32%) if the figures of 2003 and 2004 are compared. For 2004, according to the
BCR, the IED reached $2,763.50 million, while a year before it reached $2,616.50
million. This increase is not relevant enough to improve the investment level of
the country.
No one can ignore the influence of the Chinese economy. This Asian country has
filled the international market with its inexpensive products. With its arrival
to the OMC, it seems that the foreign investment level in the country –and in
Latin America- will drop. This year, the Fitch Rating company placed El
Salvador, in reference to the IED, in the category of the countries that are not
recommended for the foreign investors. Such perspective explains the decadence
of the foreign investments if compared with the “stable” rating granted to the
country by the end of 2003. In addition, the Gross International Reserves (RIN)
decreased by 8.13% in reference to 2003. Such reduction is mostly due to a
decrease in the amount of currency ($33 million), and to the low level of
deposits made abroad ($161 million, for 2004).
As for the balance of payments, the balance of the capital account by September
of 2004, according to the BCR, was $87.4 million. The capital and financial
account was $276.7 million, and the balance of the global scales was estimated
in a deficit of $54.3 million. The comparison between such information and the
former years show a gradual increase of such deficit. The gross balance of the
external debt for September was $8,773.90 million. The government has tried to
change the debt from a short term to a long term in order to respond to the
immediate needs of the population. As for the family remittances, during the
last years they have been transformed into a pillar for the Salvadoran economy.
For 2004, they increased by 8.52% (in reference to 2003).
The public sector
In fiscal matters, the information of the BCR for the month of November
indicated that there was a reduction in the regular income ($2,170 million) of
the non-financial public sector (SPNF, in Spanish). In 2003, the SPNF was $2,366
million. Out of the gross regular income of 2004, 77.56% come from the general
revenue, 11.61% come from the contributions to the social security system, 6.59%
come from other sources, and 4.19% come from the operation’s surplus. It is
important to mention that, between August and November, there are no records of
capital income for the SPNF. The donations add up to $42 million for this same
period.
On the other hand, if the structure of the income tax of the central government
is examined, based on the preliminary data of the BCR for 2004, it can be
observed that the Value Added Tax (IVA, in Spanish) represents 57.41% of the
total revenue, differently from the income taxes, which only occupy 22.22% in
that category. That is why it can be said that the taxation system is extremely
regressive, since the final consumers, that it, those people with a smaller
income, are those that contribute more, while the business companies barely
contribute with a little more than half the amount provided by the workers. When
the years 2003 and 2004 are compared, it can be observed that the behavior of
the accounts that are part of the revenue is very similar in both years, except
for a small variation.
The revenue of the State
In reference to the regular expenses of the SPNF, they added up to $1,937
million in 2004, the consumption expenses were the most important ones (75.32%)
followed by the payment of interests (15.75%), and the regular transferences
(8.98%). The expenses of capital added up to $323 million, out of which $290
million were used for the regular investments, and $33 million were used for the
transference of capital, while the gross concession of the loans’ account
reflects a negative amount. For November, the regular savings of the SPNF were
$233 million, and the global deficit (including donations) added up to $48
million.
As for the external debt, between 2003 and 2004 the limits allowed by the
International Monetary Fund (FMI, in Spanish) were exceeded. The external debt
is $5,992 million, that is 38.1% of the GNP, an amount that was increased by
1.1% when compared with the debt of the year 2003. The problem is that the
constant increase of the debts is inversely proportional to the private
investment level. In this sense, the stability level in the risk ratings,
according to Fitch, has been lost. The absence of investments clearly reflects
that any transformation that might be done in matters of fiscal policy will
affect the economy, and with this the external impacts will become more
dangerous. The negative risk ratings can be added to the terrible administration
of the country’s public finances.
In order to resolve this problem, during the second semester of the year, a new
fiscal reform was adopted, since the fiscal policy in a dollarized economy
becomes the only hope of reaction before the external impacts. This fiscal
reform does not propose to raise the taxes (neither the IVA nor the income
taxes), but to fight the tax evasion itself. According to the projections of
some economic institutions, by implementing this reform, the debt of the SPNF
would go from 40% to 36% by the end of the Saca administration.
The monetary and the financial sectors
Since 2001, the monetary policy was annulled through the Monetary Integration
Law. By the end of 2004, according to the BCR, the colones that were still
circulating represented 3.1% of the total currency, and 0.5% of the total M3
(money and quasi money). Despite the fact that this is now a dollarized economy,
the country had a considerable increase on the prices. Such increase has
developed interesting lines in the behavior of the real sector, as well as in
several monetary and financial indicators.
In general, during 2004, the active and the passive interest rates were prone to
fall. For November, the average interest rate for the loans that were to be paid
in a year or less was 5.96%. This was approximately 1% below the January
interest rate of the same year (6.8%). Those loans that were to be paid in a
term of more than one year had an average rate of 7.65%; that is, 0.37% lower
than the one of January of 2004 (8.02%). The passive interest rates were in a
similar situation, but their decrease was not as dramatic. In November, the
average deposit rates of a term of 180 days were at 3.26%, and dropped by 0.11%
in reference to the January interest rate for the same year. The contrary
happened to the one year-term deposits. The interest rate increased by 0.19%
from January (3.62%) to November (3.81%).
The interest rate of the deposits within 30 to 180 days-term was reduced.
However, the contrary happened to the one year-term deposits. In the first case,
it is necessary to notice that when the passive nominal interest rate decreases
and the inflation increases, there are negative real interest rates. In other
words, it is not profitable for the economic agents to keep their money in the
bank. This somehow explains the reduction of the amount of dollars that remained
in the banking system as term-deposits.
The amount of M3 measured in dollars increased only by 0.7%. The currency level
increased from $1,068 to $1,145 million. In order that this increase were to
take place, the growth of the deposits at sight (7.6%) played a key role. The
amount of quasi money was reduced approximately by $70 million. Such reduction
was due to the fall of the savings deposits by $34.1 million (-1.7%) and the
reduction of the term-deposits by $39.4 million (-1.3%). In November, the flow
of the credit and the investment of the private sector reported an increase of
barely $272.3 million. The loans grew by 5%, and the investments in values
dropped by 7%. Finally, for November of 2004, the BCR presented in its accounts
$1,694.2 million as gross external assets.
The year was also affected by the influence of the considerable concentrations
of capital. Among the most important ones, we have that the Banco Agricola (the
Bank of Agriculture) and the Banco Salvadoreño (the Salvadoran Bank) purchased
the Crecer Pensions’ Fund Administrator (AFP, in Spanish). In other words, the
Bilbao Vizcaya Argentaria Bank will no longer administrate the fund of pensions.
Now it belongs to the national capital. Another important event was that, by the
end of the year, Scotiabank purchased the Banco de Comercio (the Bank of
Commerce). In general terms, it can be said that the activity in the financial
market has not been encouraging at all. Even if the infusion of capital tends to
create growth expectations, there are no examples of such growth.
Perspectives
For 2005, the GNP is expected to reach a growth rate of 2.0%. In addition, they
believe that with the arrival of China to the OMC, the competitiveness inside
the textile industry will increase in a considerable manner. In fact, during
2004 the exportation level of the maquila sector decreased because the strong
presence of this Asian country was already felt in the textile field in a
world-wide level. That is why, according to the CEPAL, thousands of jobs are
expected to disappear in 2005 when the Asian giant enters the market with all
the guarantees provided by the OMC. In addition to what has been said by several
representatives of the national banking system, the types of interest will
probably increase, and that is why the requirements to grant a loan will become
more strict. This would not be positive, because if during 2004 the credit rates
slightly increased in spite of the low level of the types of interest, what can
be expected for 2005?
As far as the inflation levels are concerned, they are expected to drop, given
the stabilization of the petroleum prices in the international market. With
this, the inflation spiral of 2004 would be reduced. In the external sector, the
level of the traditional exports is expected to grow, due to a possible increase
in the prices of coffee. For some experts, the United States and the traditional
European importers of coffee could increase their demand because some of the
regions affected by the natural catastrophe that took place in Indonesia and
Africa will not be able to produce coffee for the international market. This
means that the world-wide demand must be fulfilled mostly through the production
of the Latin American countries and North Asia.
The economic balance
The year 2004 was characterized by a very slow economic
activity, which lead the official institutions to check the growth perspectives.
At the beginning of the year, they expected that the GNP would increase by 2.3%.
However, by the end of 2004, there was only 1.8%. The economic performance was
affected by the presidential elections and by the fact that it took them a long
time to approve the General Budget of the Nation. The electoral environment,
according to many analysts, created adverse effects for the development of the
investments in the national scene. The budget for 2004 was approved after the
elections, that is why several projects were never completed. According to the
Economic Commission for Latin America and the Caribbean (CEPAL, in Spanish),
these indecisions reduced the public investment level (24%). During the last
months of the year, many events took place and they will determine the behavior
of the economy in the future. The most important ones were the implementation of
the fiscal reform, the creation of a Health Fund (FOSALUD, in Spanish), and the
ratification of the Free Trade Agreement with the United States (CAFTA).
In 2004, According to the information provided by CEPAL, remittances constituted
16.2% of the GNP, this percentage is higher than the one of 2003. In the last
few years, the growth tendency of the remittances indicates, in the long-term,
that they will become one fifth of the GNP. One of the most important aspects in
this sector was the reduction in the exportation level for the maquilas
(11.24%). In spite of this, other sectors became more active in the
international market, as for example the exportation of the non-traditional
products. Such exports reported that they grew up to 8.78%. As for the
exportation of coffee, the improvement in the cultivation prices played a key
role. By the end of the year, coffee was at a reasonable price for the growers.
It is important to indicate that with the beginning of the new administration,
as it always happens, new expectations were created in the business field due to
the new public policies promoted by the Executive power, through special
commissions, such as the policy designed to reactivate the agriculture, and the
one aimed to the coffee commission.
Production
During 2004, the perspectives of economic growth were weakened because they took
too long to approve the General Budget of the Nation and because of the
electoral context itself. That is why during the first semester of the year the
Central Bank of Reserve (BCR, in Spanish) readjusted the calculation of the
economic growth rate, which was under 2%.
In October, the sectors of the economy that had a deficient growth profile were
the manufacturing industry, the construction sector, and the financial sector.
Compared with the figures of October 2003, the manufacturing companies presented
a reduction of 2.6% in the Economic Activity Volume Index (IVAE). The financial
sector had a negative variation of 1.4%. Despite the fact that credit was
reactivated in the beginning of 2002, the activity of the banking system seems
to be growing slower. Oddly enough, and in spite of the important construction
projects (malls and urbanizations) that were completed, the construction sector
had a contraction in the percentage of its activities (13.3%). The agricultural
sector indicated that its business volume grew in reference to 2003, along with
the transportation sector. The respective variations were 3.08% and 2.16%.
According to CEPAL, one of the aspects that had a negative repercussion in the
country’s economic development was the price increase that fundamentally came
from the increase in the international price of petroleum (72%). This effect
transformed itself into an increase of the public transportation fare and the
basic grains. Since this year the salaries were not leveled, the purchasing
power dropped by 4.3%.
Prices and salaries
As for the inflation rate in 2004, the information provided by the BCR is not
encouraging: since March, the inflation rate constantly increased until it
reached its peek in October (5.5%), although it was reduced by 0.01% in
November. This can be explained by the disproportionate growth of the petroleum
prices in this year, a situation that strongly affects the purchasing power of
the people, especially in the rural areas. While the price of the Basic Food
Basket (CBA, in Spanish) during the first trimester was $134, the CBA of the
rural areas reached a price of $106. It is necessary to consider that the prices
of the products that are combined in the CBA were increased, and that they
occupy an important place in the lives of the Salvadoran population: beans and
corn. The increase on the price of the CBA, according to the Ministry of
Agriculture and Cattle-Raising (MAG, in Spanish), was due to not only the
increase in the petroleum prices, but also to the droughts, which reduced the
production of the basic grains. It is important to mention that the increase of
the prices of the CBA in the rural areas incremented the malnutrition levels,
especially among the children.
Therefore, the real salaries have been reduced, the purchasing power of the
population has been negatively affected, and the nominal salaries have not been
modified since the increase established on May 2003. According to the Ministry
of Work and Social Prevision, the monthly minimum wage for the commercial sector
and the sector of services has been kept at $158.4. For the industry, it is
$154.8, while in the textile industry and the maquila, it is $151.2. In the
agricultural sector, the minimum wage is $74.06. In this last sector there were
not any major modifications, since it is considered that it could not face a
salary increase. This affects the poverty levels in the rural areas, in the
sense that the value of the CBA cannot be covered by the inhabitants.
The external sector
According to the preliminary data of the BCR, in November, the commercial
balance showed a deficit of $2,630 million. And although the exportation level
grew by 1.9%, less than twice the increase of the imports (5.9%) for that same
period, the increase of the commercial deficit was less than 1% in reference to
the last year. This slight increase is due to the fact that the non traditional
exports’ level incremented by 8.78%. However, when the figures of 2003 and 2004
are compared, it is important to notice that the exportation level of the
maquilas was reduced by 11.24%, something due to the low competitiveness level
that the textile Salvadoran maquila has in reference to the new menace
constituted by China. The arrival of China to the World’s Organization of
Commerce (OMC) opens for this country the doors of the global market, including
the Latin American market.
Another aspect that constrained the growth of the exportation level in the last
semester was the implementation of the law against bioterrorism. This meant that
the exporters were subjected to bothersome procedures in order to send their
merchandise to the United States. They were also subjected to certain sanctions
if they did not meet the quality and the harmlessness requirements established
by the FDA. This law blocked the growth of the exportation of perishable
products (aimed to the market of the United States). Many companies were not
prepared (especially the small and the medium companies) to face with all of the
implications, the new rules of the game in matters of external commerce. On the
other hand, the Direct External Investments (IED, in Spanish) have increased
(5.32%) if the figures of 2003 and 2004 are compared. For 2004, according to the
BCR, the IED reached $2,763.50 million, while a year before it reached $2,616.50
million. This increase is not relevant enough to improve the investment level of
the country.
No one can ignore the influence of the Chinese economy. This Asian country has
filled the international market with its inexpensive products. With its arrival
to the OMC, it seems that the foreign investment level in the country –and in
Latin America- will drop. This year, the Fitch Rating company placed El
Salvador, in reference to the IED, in the category of the countries that are not
recommended for the foreign investors. Such perspective explains the decadence
of the foreign investments if compared with the “stable” rating granted to the
country by the end of 2003. In addition, the Gross International Reserves (RIN)
decreased by 8.13% in reference to 2003. Such reduction is mostly due to a
decrease in the amount of currency ($33 million), and to the low level of
deposits made abroad ($161 million, for 2004).
As for the balance of payments, the balance of the capital account by September
of 2004, according to the BCR, was $87.4 million. The capital and financial
account was $276.7 million, and the balance of the global scales was estimated
in a deficit of $54.3 million. The comparison between such information and the
former years show a gradual increase of such deficit. The gross balance of the
external debt for September was $8,773.90 million. The government has tried to
change the debt from a short term to a long term in order to respond to the
immediate needs of the population. As for the family remittances, during the
last years they have been transformed into a pillar for the Salvadoran economy.
For 2004, they increased by 8.52% (in reference to 2003).
The public sector
In fiscal matters, the information of the BCR for the month of November
indicated that there was a reduction in the regular income ($2,170 million) of
the non-financial public sector (SPNF, in Spanish). In 2003, the SPNF was $2,366
million. Out of the gross regular income of 2004, 77.56% come from the general
revenue, 11.61% come from the contributions to the social security system, 6.59%
come from other sources, and 4.19% come from the operation’s surplus. It is
important to mention that, between August and November, there are no records of
capital income for the SPNF. The donations add up to $42 million for this same
period.
On the other hand, if the structure of the income tax of the central government
is examined, based on the preliminary data of the BCR for 2004, it can be
observed that the Value Added Tax (IVA, in Spanish) represents 57.41% of the
total revenue, differently from the income taxes, which only occupy 22.22% in
that category. That is why it can be said that the taxation system is extremely
regressive, since the final consumers, that it, those people with a smaller
income, are those that contribute more, while the business companies barely
contribute with a little more than half the amount provided by the workers. When
the years 2003 and 2004 are compared, it can be observed that the behavior of
the accounts that are part of the revenue is very similar in both years, except
for a small variation.
The revenue of the State
In reference to the regular expenses of the SPNF, they added up to $1,937
million in 2004, the consumption expenses were the most important ones (75.32%)
followed by the payment of interests (15.75%), and the regular transferences
(8.98%). The expenses of capital added up to $323 million, out of which $290
million were used for the regular investments, and $33 million were used for the
transference of capital, while the gross concession of the loans’ account
reflects a negative amount. For November, the regular savings of the SPNF were
$233 million, and the global deficit (including donations) added up to $48
million.
As for the external debt, between 2003 and 2004 the limits allowed by the
International Monetary Fund (FMI, in Spanish) were exceeded. The external debt
is $5,992 million, that is 38.1% of the GNP, an amount that was increased by
1.1% when compared with the debt of the year 2003. The problem is that the
constant increase of the debts is inversely proportional to the private
investment level. In this sense, the stability level in the risk ratings,
according to Fitch, has been lost. The absence of investments clearly reflects
that any transformation that might be done in matters of fiscal policy will
affect the economy, and with this the external impacts will become more
dangerous. The negative risk ratings can be added to the terrible administration
of the country’s public finances.
In order to resolve this problem, during the second semester of the year, a new
fiscal reform was adopted, since the fiscal policy in a dollarized economy
becomes the only hope of reaction before the external impacts. This fiscal
reform does not propose to raise the taxes (neither the IVA nor the income
taxes), but to fight the tax evasion itself. According to the projections of
some economic institutions, by implementing this reform, the debt of the SPNF
would go from 40% to 36% by the end of the Saca administration.
The monetary and the financial sectors
Since 2001, the monetary policy was annulled through the Monetary Integration
Law. By the end of 2004, according to the BCR, the colones that were still
circulating represented 3.1% of the total currency, and 0.5% of the total M3
(money and quasi money). Despite the fact that this is now a dollarized economy,
the country had a considerable increase on the prices. Such increase has
developed interesting lines in the behavior of the real sector, as well as in
several monetary and financial indicators.
In general, during 2004, the active and the passive interest rates were prone to
fall. For November, the average interest rate for the loans that were to be paid
in a year or less was 5.96%. This was approximately 1% below the January
interest rate of the same year (6.8%). Those loans that were to be paid in a
term of more than one year had an average rate of 7.65%; that is, 0.37% lower
than the one of January of 2004 (8.02%). The passive interest rates were in a
similar situation, but their decrease was not as dramatic. In November, the
average deposit rates of a term of 180 days were at 3.26%, and dropped by 0.11%
in reference to the January interest rate for the same year. The contrary
happened to the one year-term deposits. The interest rate increased by 0.19%
from January (3.62%) to November (3.81%).
The interest rate of the deposits within 30 to 180 days-term was reduced.
However, the contrary happened to the one year-term deposits. In the first case,
it is necessary to notice that when the passive nominal interest rate decreases
and the inflation increases, there are negative real interest rates. In other
words, it is not profitable for the economic agents to keep their money in the
bank. This somehow explains the reduction of the amount of dollars that remained
in the banking system as term-deposits.
The amount of M3 measured in dollars increased only by 0.7%. The currency level
increased from $1,068 to $1,145 million. In order that this increase were to
take place, the growth of the deposits at sight (7.6%) played a key role. The
amount of quasi money was reduced approximately by $70 million. Such reduction
was due to the fall of the savings deposits by $34.1 million (-1.7%) and the
reduction of the term-deposits by $39.4 million (-1.3%). In November, the flow
of the credit and the investment of the private sector reported an increase of
barely $272.3 million. The loans grew by 5%, and the investments in values
dropped by 7%. Finally, for November of 2004, the BCR presented in its accounts
$1,694.2 million as gross external assets.
The year was also affected by the influence of the considerable concentrations
of capital. Among the most important ones, we have that the Banco Agricola (the
Bank of Agriculture) and the Banco Salvadoreño (the Salvadoran Bank) purchased
the Crecer Pensions’ Fund Administrator (AFP, in Spanish). In other words, the
Bilbao Vizcaya Argentaria Bank will no longer administrate the fund of pensions.
Now it belongs to the national capital. Another important event was that, by the
end of the year, Scotiabank purchased the Banco de Comercio (the Bank of
Commerce). In general terms, it can be said that the activity in the financial
market has not been encouraging at all. Even if the infusion of capital tends to
create growth expectations, there are no examples of such growth.
Perspectives
For 2005, the GNP is expected to reach a growth rate of 2.0%. In addition, they
believe that with the arrival of China to the OMC, the competitiveness inside
the textile industry will increase in a considerable manner. In fact, during
2004 the exportation level of the maquila sector decreased because the strong
presence of this Asian country was already felt in the textile field in a
world-wide level. That is why, according to the CEPAL, thousands of jobs are
expected to disappear in 2005 when the Asian giant enters the market with all
the guarantees provided by the OMC. In addition to what has been said by several
representatives of the national banking system, the types of interest will
probably increase, and that is why the requirements to grant a loan will become
more strict. This would not be positive, because if during 2004 the credit rates
slightly increased in spite of the low level of the types of interest, what can
be expected for 2005?
As far as the inflation levels are concerned, they are expected to drop, given
the stabilization of the petroleum prices in the international market. With
this, the inflation spiral of 2004 would be reduced. In the external sector, the
level of the traditional exports is expected to grow, due to a possible increase
in the prices of coffee. For some experts, the United States and the traditional
European importers of coffee could increase their demand because some of the
regions affected by the natural catastrophe that took place in Indonesia and
Africa will not be able to produce coffee for the international market. This
means that the world-wide demand must be fulfilled mostly through the production
of the Latin American countries and North Asia.
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