Center for Information, Documentation and Research Support (CIDAI)
E-mail: cidai@cidai.uca.edu.sv

Central American University (UCA)
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     Proceso is published weekly in Spanish by the Center for Information, Documentation and Research Support (CIDAI) of the Central American University (UCA) of El Salvador. Portions are sent in English to the *reg.elsalvador* conference of PeaceNet in the USA and may be forwarded or copied to other networks and electronic mailing lists. Please make sure to mention Proceso when quoting from this publication.
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INDEX

Editorial:  A double confusion for the consumer
Politics:  Corruption goes on
Economy:  An unsuccessful conduction of the economy
 
 
 
 

EDITORIAL

     The price of the electric energy has been increased in the last few months. The electricity distribution companies, the Superintendence, the Economy Ministry or even the press have not explained the reasons of such increase, which represents an additional $2 million expense for the consumers. It is important that this aspect is clear, since a free market regime is supposed to keep the consumers informed about these topics.

     The electric energy distribution companies allege that the successive increases obey to what they call the “system regulation market”. According to this, the companies would not have any responsibility over this issue; therefore, the market —an abstract entity— is the only responsible for the increase. Differently from this opinion, according to the Ministry of Economy, the increase would be explained by the formula modification to calculate the prices, which would have come into effect without a previous consultation; obviously, there have not been satisfactory results in regard to this subject. However, the distribution companies allege that the increase would have taken effect with or without a formula modification.

    If distributors, just like they assure, are strictly attached to the law, then how do they explain the price increase? The sector’s Superintendent agrees with the distribution companies. The formula has not changed, only the method has, but none of these aspects is related with the price, which is decided by the so called “system regulation market”. What is confusing is that neither the distributor nor the authority responsible for supervising the service can explain what is happening.

     According to the Superintendent, the method change was necessary, because the former method contradicted the law. In addition, he accepted that the operations were negotiated only through verbal agreements. This means that an extremely important service would have been administrated contrary to the law, and through the good will of the elite companies which take part in this kind of business. Then again, this case was obviously exposed to all kinds of manipulation to favor the companies and not the consumer. On his defense, the Superintendent asserts that he had not realized that his calculations were not reflecting the behavior of the market with the rigor determined by the law. The method change, which will not have a direct influence on the price, respects the law; however, according to the Superintendent the method change is not fair to the final consumer, whose interests are now defended by the Economy Minister.

     That is the reason for the differences between the Minister and the Superintendent. One of the basic services for the population -and the economy- is administrated with an instrument that, according to the Superintendent, could be unfair; but that according to the Minister of Economy, it is unfair without a doubt. It could be very simple to clarify this outrage; an executive decree by President Flores would be enough. However, it is very difficult that something like this happens, because in the end everyone prefers the market over the justice.

     The Superintendent is freeing himself from any responsibility, emphasizing that he is a technician who complies with all the established technicalities; to arrange the market and the electric energy service, realizing the final consumer’s interest is a political decision that would not concern him. But to decide upon the market to the detriment of justice is, in fact, a political and an ethical decision. The mission of the market would be to charge the consumers the energy’s real value; however, it is not as simple as it seems, because the distribution companies charge the final consumer with the highest price. By doing so, these companies increase their profits in a considerable amount.

    The consumer is not only charged for the cost of the service, but also for the additional profits. Therefore, it is not true that these operations are transparent, like the Superintendent and the distributors assure. The Superintendence, with its technicalities, is on the elite companies’ side, not on the consumer’s, where the national interest that should formally represent its supervision is located. It is difficult to achieve transparency when it is the Superintendent himself who asserts that he has no obligation to explain these changes.

     Another confusion comes from the press, which does not know how to explain the facts. None of the morning papers, where the news about this subject appear, take the time to explain this situation, they even give different versions of the same fact. One of the newspapers says that the Superintendence, without consulting the Economy Ministry, would have modified the formula to calculate the price. Apparently, the Superintendent would have said that with such modification he intended to “charge the consumers with the most competitive prices”, a statement that makes no sense in this context. It only shows that either the Superintendent does not know what he is talking about or that the paper did not understand what the Superintendent was saying, and something that was at least out of context was published as a fact.

    The other newspaper published a totally different idea. According to this version, the Superintendence would have modified the formula in such a way that its prices would not match with the ones of the distribution companies. Therefore, the Economy Ministry believes that the increase is automatically annulled. To make the news even darker, the distribution companies assure that the method was elaborated by the Superintendence and an international consultancy office, which also advises the Ministry of Economy. If this is true, what sense do the Minister’s declarations or the Superintendence’s explanation make? Both of them should know how to calculate the price of the energy for the final consumer. However, for the morning written press, everything is quite clear.

     From here, both newspapers do not make a specific statement; they talk about the time, the seasons, the energy consumption, the hydroelectric and thermal generation, formulas and calculus, using incomprehensible terms for the average reader, such as “system regulator market” and “transaction’s unit”, without realizing that their versions are different and that they cannot explain the reason for such a drastic price increase on the electricity. What is indeed evident is that the consumers, since two months ago, are paying more without exactly knowing why. It is because of this inability to truthfully and objectively inform that the Salvadoran press has no moral solvency to watch the public life, nevertheless the private one. Neither during the war nor now says the truth, or maybe it is that it just does not know what it is informing about.
 

     Ever since the government plan of the former candidate for the presidency, Francisco Flores, was made public, many national observers said that it lacked a perspective of the corruption situation that prevails in the public administration. The ARENA followers reduced the importance of this subject, making an emphasis only on the ethical compromise of the president against corruption. Back in those days, the candidate for the vice presidency, Carlos Quintanilla, expressed his compromise to fight against this endemic illness of the national institutions, he even proposed a debate forum to discuss this problem.

     A few days away from achieving his second year in the government, we have not seen any clear signs of a combat against corruption. Instead, corruption seems to be turning even more disturbing, strengthening its roots in the different governmental institutions. Each day, there are more signs that the members of the governmental party take advantage of their privileged situation —in this dangerous combination between the ARENA party and the government— in detriment of the society.  The favors and the political influences prevent us from moving forward and fight against corruption, and to prosecute those who abuse of the national patrimony.

     This is the case of the last corruption denunciation, which recently has come out to the public light. A few weeks ago, a robbery of some 571 tons of fertilizer  —at the warehouse of the Banco de Fomento Agropecuario (The Bank of Farming Encouragement, BFA, in Spanish)— that the Japanese government had donated to favor small farmers was revealed. This situation gives a lot of reasons to consider this case and its implications.

     The denunciation is made public in a moment when the former authorities of the BFA were being questioned for presumed acts of corruption. It seems as if ex public officials would have obtained credits under suspicious conditions. According to press sources, this situation has turned into a millionaire loss for the government. Just when a convincing explanation about this case’s audit was expected, the robbery of the fertilizer was made public a month after the BFA authorities had denounced the situation in the Attorney General’s Office.

    While we await for the Attorney General’s Office investigation results, it is convenient to reflect over the following aspects. Most of all, despite the officials and congressmen’s attempts to minimize the importance of the situation, there are enough signs to think that corruption is a generalized practice of the government officials. And, what is worst, the responsible ones for such actions protect themselves under their relation with the right-wing parties, to assure their impunity. Cases such as those are the ones of the FEDEFUT, and the blurry administration of the Comptroller’s Office. In both cases, a dangerous match between political influence and corruption activities has been detected.

    However, in the present case of the BFA’s fertilizer robbery, the situation is even more flagrant.  In this case it is reasonable to think that whoever took the decision to subtract 11,428 sacks of fertilizer from the bank’s warehouse is not a common thief. The ability to move such a large amount of that product is something that should make us think about the economic level and the connections this person or group of people count with inside the bank. In addition, it is logical to believe that whoever subtracted those fertilizers must have come up with a mechanism to feel protected. Or must have thought that he counts with enough political or economic support to assume that nothing could happen to him or them. And since, traditionally, in our country the great political influences and the corruption acts in the public institutions have always walked hand in hand, there are plenty of reasons to worry about.

    There are also new elements that add up to this robbery. The investigations have revealed that some members of a farmers cooperative hold in their possession an astonishing amount of fertilizer, contrary, however, to the conditions of the donation that the Japanese government made. Certainly, the initial conditions foresaw that, in order to favor the small farmers, there should be no more that 400 sacks of fertilizer per farmer. In that sense, we do not only have to determine if the 11,000 fertilizer sacks stolen are in the possession of the cooperative members who have more fertilizer sacks than the others; but we also have to ask ourselves what was the mechanism the cooperative members used to ignore the Japanese donation conditions.

    This is an explanation that is owed not only to the Japanese government, just like it has been demanded in the last few days, but to the small farmers who have been the laughing stock of the External Affairs Ministry. In this situation, the ARENA Congressman Juan Dutch -former president of the Congress, and vice president of the cooperative involved- declarations are not enough to understand what really happened. It is not enough to say that the fertilizers had been obtained at the stock exchange, and that if donations come with conditions is better not to receive them. It is an attitude that increases the doubts about the relation between the cooperative members —some of them are also members of the official party— and the irregularities in the fertilizer sales.

    However it might be, we have to wait until the Attorney General’s Office, through its investigations, throws some light over this issue to punish the people responsible for the robbery. In addition, it is convenient that the motives to alter the conditions of the donation are satisfactorily explained. There are many evidences that point at the implication of more than one member of ARENA. Will we be able to get to the bottom of this situation? That is the question that remains to be answered.

    In any case, there are serious elements to doubt of the investigation. The not so respectable reputation of the Attorney General’s Office makes an echo in the issues that involve the powerful characters of this country. For instance, we are still waiting for the results of the investigation on the telephone espionage case. The way that certain ARENA members have referred to this issue does not predict satisfactory results. If this was not enough, experience has demonstrated that the result of the investigations that are made about crucial problems depend on the relations of the people involved. Since in this case there are signs that important people are involved, it is almost certain that we might not get to the bottom of it.

       In the beginning of his government, Francisco Flores announced that the objectives proposed for the economic field were: the reactivation of the farming sector; the elimination of the monetary exchange risk; the strengthening of the public finances; and the encouragement for the micro, small and medium business competitiveness. This first offer was followed by several specific measures such as the elimination of the IVA from the basic grains, milk vegetables and medicine; the credit lines for the coffee growing sector, and dollarization.

    There is no doubt that the most important challenge that president Flores had to face have been this year’s January and February earthquakes and disasters. These events meant important changes for the government priorities and, therefore, marked a reflection point in the public policies. However, setting aside the impact of the disasters, and two years after the presidential offer, it is difficult to say if Flores has delivered what he promised and —even more important— if the government’s economic policy is contributing to the economic reactivation.

    Not just because of the disasters’ impact, but also because even before them it was already noticeable that we were not accomplishing the goals offered at the beginning of the third ARENA government, with the exception of the elimination of the monetary exchange risk (dollarization). An approach to the Flores’ administration in the economic field shows that, besides not having accomplished most of its offers, it has not made it any easier to control chronic economic problems, such as the low growth rates, the trade balance, the economic dependency on the family remittances, and the growing deficit in the public sector. On the other hand, this approach also shows that with the January and February disasters the economic scenery has become even more complex, without a perspective of the adjustments required in the economic issue.

    Once the main strategic lines had been identified, president Flores announced a series of measures to accomplish his goals, among which can be mentioned: the elimination of IVA exemptions; reorientation of the BFA (Farming Encouragement Bank; Banco de Fomento Agropecuario, in Spanish) credit, and the farming extent; a reduction of the public expenses; the simplification of the IVA to incorporate the formal sector, and the creation of farming information centers. Out of all those measures, only the elimination of the IVA exemptions, and the dollarization have been implemented. As for the rest, the government does not seem to have been interested in taking definitive measures to solve the fiscal deficit problem, reactivate the farming sector or increase the micro-business competitiveness.

    Consequentially, when we examine the behavior of the main micro economic variables during the first two years of this governmental administration, we do not find major changes: the Gross Domestic Product (PIB, in Spanish) was increased in a 2.4% in 2000, while in 1999 it was increased in a 3.4%; the farming PIB decreased 0.8% in 2000, after that in 1999 it increased 6.9%; the commercial balance was $1,956 millions in 2000, while in 1999 it was $1,587 millions; and the fiscal deficit —excluding donations— went from 3% to 3.9% of the PIB. In summary, during the year 2000, the indicators show an even slower growth rate, emphasizing on the macro economic unbalances. The fact that these do not turn into more inflation, poverty and social discontent is only due to the already traditional lifesaver of the government: family remittances.

    The elimination of the IVA exemptions to basic grains, milk and vegetables intended to stimulate the farming sector’s growth and, at the same time, to increase the tax collecting. Technically, we already saw that the farming sector did not react to this measure (it contracted itself during the year 2000), while the tax income grew only in a 6% during that same year.

    Of all the measures impelled by the government, dollarization has been the most aggressive one, but at the same time the least necessary. President Flores intended to eliminate the monetary exchange risk through dollarization, and to induce reductions in the interest rates, but the truth is that the monetary exchange has been stable since 1992, while the interest rates were already reducing since the second half of 2000. In this context, dollarization has only become a way to eliminate both the possibilities to develop a monetary policy and the possibility to manage economic crisis such as the one we presently confront.

    The proposals to reactivate the farming sector were —and still are— necessary, but they have not been effective, just like the already mentioned contraction of the farming production experimented in 2000. The most advertised measure for this matter has been the creation of credit lines for the coffee land renovation, something that will not do much to counteract the sector’s lack of profitability, derived from the coffee international prices fall, since 1989.

    After the January and February disasters, the situation became even more complicated for the government: the total loss was increased in a 12% of the PIB, a reduction in the growth rates, an increase in the public expenses (and debts) to finance the reconstruction, a reduction of the fiscal collecting projections and an increase in the importation of tools and even in raw reconstruction materials are expected.

    Before this reality, the government must redefine its development program to face the new post earthquake challenges. However —and even if it seems paradoxical— this does not affect much the definition of the economic policy. This is neatly reflected in the plan “United to reconstruct. Damage recuperation plan for the 2001 January and February earthquakes”, which the president presented to the international community to ask for financial cooperation. This plan establishes that “the conditions that have allowed us to enjoy economic stability should be maintained, since they are extremely necessary to get external resources, favor the development and guarantee the population’s well being”.  It is not necessary to reason much to demonstrate that, throughout the nineties, these “conditions” have not promoted development, and are not meant to do so in the future either.

    Another evince, and even a pitiful one, is the “Integral rescue and conservation program of the coffee land conservation”, that president Flores made public after the recent disasters, but which is no more than a second version of the “Coffee land renovation”, which had been already announced by mid 2000. The measure is questionable, because it ignores that the most affected ones by the disasters are not coffee growing farmers, it does not have an economic viability either because of the irreversible fall down of the grain’s international prices.

    While the government kept going as if his economic administration was on the right track, and it should be therefore respected, the economic results of 2000 revealed a totally different perspective. The disasters complicated even more the economic administration’s possibilities of success.

    There is no doubt that the first two years of Francisco Flores’ government have not been good to the economy; it is clear that the situation is now worst than it was before, even if we compare it to the former administration, when the situation was already somber. The challenge of the government is to realize the limitations of the present economic policy, and to take the necessary measures to correct it. Otherwise, at the end of his presidential period he will hand back to us a country buried under a permanent state of slow growth and deep macro unbalances, that will depend even more on the family remittances.