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

Central American University (UCA)
Apdo. Postal 01-168, Boulevard Los Próceres
San Salvador, El Salvador, Centro América
Tel: +(503) 210-6600 ext. 407
Fax: +(503) 210-6655
 

     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.

     Subscriptions to Proceso in Spanish can be obtained by sending a check for US$50.00 (Americas) or $75.00 (Europe) made out to 'Universidad Centroamericana' and sent to the above address. Or read it partially on the UCA’s Web Page: http://www.uca.edu.sv
     For the ones who are interested in sending donations, these would be welcome at Proceso. Apdo. Postal 01-168, San Salvador, El Salvador.

INDEX

EDITORIAL

    It is no secret that the Salvadoran state does not count with the necessary resources to respond for its different economic engagements. Governmental economists and high rank officials have insisted, as it has been the rule during the nineties, on how urgent it is to alleviate the states’ financial dry season in the fastest and less problematic way. The middle sectors as well as the popular ones have been contemplated as targets, destined to carry on their backs, by a bureaucratic command, with the states’ fiscal needs. The last attack against both the middle and the popular sectors is the application of the income tax payment and the tax applied on each purchased gallon of gasoline  —the famous FOVIAL—, to generate resources in order to improve the quality of the country’s roads.

    The situation is not new, the tax reform and the increase on the Value Added tax, which emerged from the sadly celebrated “San Andres Pact”  —subscribed by the former president Armando Calderon Sol and the people who supported his decisions at that moment, the leaders of the already extinct Democratic Party— was also aimed to make the middle and popular sectors assume most of the public administration’s costs. The way these aspects work is very serious if it is examined in the privatization measures’ context taken by the ARENA administrations, and the subsequent increases on the electric energy, the telephone and utilities in general.

    Another example is the low blow that the AFP’s creation represented for the Salvadorans, which make a profitable business only by administrating the money that others make. Along the nineties, these measures all together have systematically and permanently affected the middle class and the popular sectors, and this situation has only deteriorated their life standards, this is not making any easier their struggle to survive decently. The tendency does not seem to end, on the contrary, the new taxation decisions are oriented to take even more advantage from the same people that have been abused for over a decade.

    Therefore, it does not seem as if the taxation system’s regressive character will be abandoned by the present governmental administration. Because of this, those who make the lower incomes are condemned to pay more taxes  —proportionately with their earnings— than those who make more money. Obviously, people with a much higher income  —or their spokes people from the economy and the politics fields—   will say that they pay taxes, such as the IVA or the FOVIAL, just like all the other consumers, which is true. The fact is, however, that it is the same charge for all the citizens who have very unequal and different incomes. For instance, to pay $0.20 cents per gallon of gasoline does not have the same impact on the family budget of a banker than it does on a person who makes a living by transporting merchandise in his vehicle, and who day by day is earning his sustenance.

    The same criteria is applied to the income tax payment: the business companies, the people, or the societies that make more money  —and we can talk not only about thousands, but about millions of dollars here—  are less affected than those who make less money, although the important businessmen insist on that if somebody compares what they pay to what a bank teller pays, their contribution to the national treasury is a lot more. The one thing that businessmen forget to say is that they, as important company owners or associates, have a much higher income than the ones who help them behind the window of a bank when they make their deposits and that, proportionally to their income, have the privilege to pay less taxes than the kind bank teller, whose monthly income might be around $300 or $400.

    It is true that the state has to obtain funds to finance its national and international engagements. But to turn the middle and the popular sectors into the main target to obtain those resources is something that cannot be accepted just like that, despite the popular phrase that says that “we all should contribute to the country’s reconstruction”. There is no doubt that all Salvadorans should collaborate for the country’s recovery; however, some people —those who have more resources and economic benefits— should and can give more than others. An unequal society  —and the Salvadoran society is extremely unequal, to judge by its richness and poverty concentration poles— should have unequal contributions, not over those at the foundations of such society  —as it has been until now—, but over the ones that are placed at the top of the social pyramid.

    It is about a matter of justice and equity, but it also is about social and political viability. The balanced societies of our time are characterized by having consolidated a relatively prosperous middle class, which means on the one hand, an increase of the education, health and employment opportunities for those who are less fortunate; and, on the other hand, a control over the excessive incomes, so that these ones are not concentrated in just a few hands and at the expense of most of the society’s members. In other words, it is not easy to build stable societies there where misery strikes most of the population and where the elite businessmen, together with the state, know no limits because of their mercantile voracity.

    In El Salvador, the ARENA governments have gone against the basic demands to achieve a minimum social stability. Far from favoring the growth of the middle class sectors, they have been asphyxiating them with decisions that are aimed to favor an economic power group at the expense of the rest of Salvadorans. By choking the middle class, they have put insurmountable obstacles for the development, the economic growth, and the well being of the poorest social sectors. This situation turns itself into a dangerous time bomb that, if it explodes, it will cause very serious social conflicts.

    For now, the middle class and popular sectors have passively endured the state’s onslaughts. The taxes, the increasing prices and dollarization have been assimilated without any open demonstration of discontent. Abusing of this social passiveness, as well as of the lack of mechanisms to express the citizenry’s discomfort —generally expressed in a quiet way— the ARENA governments keep (and they will probably continue) doing whatever they want with the pockets of those who are not a part of the economic power elite.

    The first week of November the legislative and presidential elections were celebrated in Nicaragua, and one more chapter about this Central American country's winding electoral history was closed, in this new post-Sandinista democratic consolidation stage. The worst predictions  —that would have taken place with Daniel Ortega's triumph, against whom different right-wing Salvadoran analysts did not skimp on efforts to warn the local public opinion about—  did not come true. The elections were won, "as it was expected", by Enrique Bolaños, the Liberal candidate. In the meantime, his opponent is turning into the eternal candidate, always destined to lose, from the FSLN. The fear factor was stronger than reality. In summary, the Nicaraguans voted massively, without any major inconveniences, in favor of "the most qualified candidate for the international combat against terrorism", contradicting all the predictions of violence between the two most important contenders.

    However, not all of the observers would give the same answer if they were asked about how much of a fear campaign against Sandinismo influenced those results. The political sensibilities will have different ways of interpreting the decisive intervention of certain diplomats from the United States, who declared themselves unconvinced about Ortega's moral qualification to support Washington's fight against terrorism. The revolutionary past of the Sandinista candidate, and the suspicion about the diabolic "Habana-Managua-Caracas Triangle" that he was about to establish, is enough reason —without considering the present ghost of the "piñata"— to explain and celebrate his defeat. About that, just as it can be read at the diplomatic congratulations sent to the elected president, "the Nicaraguan people have behaved at the height of the circumstances".

    The Salvadoran right-wing's reactions about the electoral results in Nicaragua go along the same line. According to President Flores, the Sandinismo era is "one of the most dramatic examples of the abuse of power, [...] it is what the Nicaraguans have rejected". On the other hand, Ortega's electoral defeat would have a more important meaning: it is about the Central American rejection to communism. Decisively, according to the conviction of the Salvadoran President, "a Cuban style project, a communist project, a project that seeks to restrict freedom will not find its place in Central America anymore".

    In the same way, when the opinion polls revealed a possible triumph for the Sandinista Front, a local newspaper prayed to God to exorcise such possibility. Because it considered that "if the elections were lost, everyone already knows that their purpose will not be contributing to overcome the under development situation and the population's misery, but to make everything even worse". That is why the editorial of another local newspaper, two days after the elections, insisted on the idea that "respectability was imposed", which expresses very well the relief that the national right-wing was experimenting after they found out about the presidential elections' result at Nicaragua. And that is because "for the present Central American stability -considers the newspaper-, the Nicaraguan elections' result is a relief".  The main reason seems to be that "we are going through a very complex international moment, and it is not convenient for us to go back to any kind of suspicion".

    At the national left-wing party, instead, the news about the Sandinista defeat have not been taken very well. From cautious comments to declarations that expressed a certain deception, the left-wing leaders did not hide the possible effects that the Nicaraguan results might have over the Salvadoran voters. For some people, the problem is that the candidates have not been renovated. Others, on the other hand, examine the fact that "the Sandinista triumph would have opened the possibility to experiment something different than the Neoliberal project". A third group, who believe that the Nicaraguans are clumsy, has said that they were confused by the pink and the yellow colors of the Sandinista propaganda.

    In summary, the left-wing as well as the right-wing sector of this country came to an agreement —as symbolic as it could be, but of a crucial importance— on Nicaragua's electoral results. Then again, can Nicaragua's electoral results decide the left-wing's future in both countries of the Central American region? Probably not. Because the main story is still the fact that El Salvador is different from Nicaragua. Each one of these countries has its own problems and its own contradictions. In addition, it is very probable that all that rhetoric from the political elite or from those who favor communism is very distant from the regular Central American voters’ worries.

    However, on the other hand, the symbolic importance that Nicaragua's electoral results could have on the Salvadoran reality, when it comes to examine the liberal triumph and the Frente Sandinista's consecutive defeats, cannot be denied. The political activities or the simplification of reality that politicians make to communicate with the voters, can be an advantage for them in one or another sense. According to this idea, it could be very probable that the right-wing is more affected in terms of image, if Ortega had won. The international rejection used to discredit the local left-wing would have started to wear out because of the Nicaraguans' decisions, who, in addition, would have elected a left-wing candidate in one of the most hostile international contexts.

    In any case, the Salvadoran right-wing is accumulating the symbolic importance of the Nicaraguan voters' decision. The constant declarations that interpret their decision as a rejection to communism, is an invitation for the Salvadorans to follow that example. Evidently, this circumstance magnifies the mistakes that the Sandinistas have committed during their government of eleven years, to enhance the anti-Communist discourse. However, on the other hand, increasing levels of poverty and corruption are forgotten, which are even more alarming than the ones reached during the Sandinista administration. According to the right-wing leaders, it is the price that has to be paid to live with democracy and freedom in a free market system.

 Both the market strategies and the battle for the symbols ignore this local reality. They also ignore the similarity it has with the poverty and corruption situation at Nicaragua. The fact that a good part of the Salvadoran population is unhappy with the right-wing's administration is also ignored. In this situation, there is nothing that can prevent El Salvador  —in a less hostile international situation, with a less naive left-wing with a renovation need—  from achieving the results that were not reached in Nicaragua.

    A change in the right-wing governments would be suitable for the democracy experiment at Central America. Despite the negative propaganda, the replacement of the Nicaraguan corrupted right-wing would have provided of some fresh air and a new hope for the poor. Possibly, this is the fear of the Salvadoran right-wing intellectuals, since they compare the Sandinistas with Satan. In any case, at this moment, the Salvadoran right-wing has to prove that it understands the meaning of the Sandinista defeat and start soaking their beards.
 

    After apparently paralyzing the Road Fund Project (FOVIAL), this one was finally approved by the Legislative Assembly on October the 31st. As it has been frequently done, the law initiative was approved without discussing it much, and as a result of a proposal made by the Executive, through the Public Works Ministry (MOP, in Spanish).

    With the FOVIAL, the government intends to create a fund for the maintenance and the reparation of the roads, through a $0.20 charge for each purchased gallon of gasoline. From the beginning, the project has found detractors not only at the opposition parties, but also among the civil society sectors due to different reasons: because of its inflation effects or  —as the representatives from the private business companies assure— because it was approved without looking for other options to obtain the income (as, for instance, the reorientation of the 800 millions of colones that have been cut off from the MOP's budget).

    However, beyond the measure itself, it is important to notice that the present situation is part of a wider strategy that intends to dismantle the state and open new economic activities for the private business companies. In addition, it is also important to notice the present government's ambiguous attitude about the petroleum derived products' market: at times it demands for a reduction of the fuel prices (even at the expense of the petroleum companies' intervention margins), but with the FOVIAL it seems to be willing to increase them without any considerations at all.

    Therefore, this new measure intends to transfer some functions that are originally performed by the state to the private business companies and, more importantly, it is intended to alleviate the fiscal, administrative and operational responsibility that the roads' maintenance and the reparation involves, an activity traditionally performed by the state.  In fact, the government is creating new taxes to pay for activities that were already contemplated in the nation's general budget. This meant that the contributors will be charged, once again, for a service that they were already paying for (although they actually do not receive, because the roads are and have been in terrible conditions); it also means that the fuel consumption will be charged even higher than it already has been, generating new inflation pressures and alterations in the petroleum derived products.

    An important element in the 2002 nation's general budget is the sensitive reduction of the MOP's budget. After receiving an amount of 1,112 millions of colones in 2001, it will only receive 230 millions of colones, which means that it will suffer a 79.3% reduction approximately. This enormous budget cut has been possible thanks to the reduction of both the expenses in salaries and the machinery’s operational costs that the MOP’s "voluntary retirement" of thousands of employees meant, and the handing over of such machinery to the Armed Forces (unfortunately, what was not transferred was the budget that was used for the operation and the maintenance of this machinery). Despite the reduction of the MOP's income, the nation's general income has been increased, with the only difference that this one does not cover anymore the maintenance and the reparation of the road net.

    It is here where the FOVIAL enters the picture, receiving the additional resources —which are paid by the contributors who buy the fuel— necessary to fill in the blanks created by the MOP's dismantling. According to the Public Works, the FOVIAL intends to obtain an annual amount of $49.8 million by imposing an specific $0.20 cents tax to the consumption of non subsidized fuels, estimated in 249 millions of gallons annually. The subsidized diesel used for the public transportation will be exempt of this new tax, which will be added to other specific taxes that were already being paid for, for instance the one that finances the public transportation's subsidy, and the one that finances the propane gas' subsidy. In addition, the petroleum derived products consumption is subjected to the payment of the Valued Added tax, just as much as other services and goods are.

    In the end, most of the fuel's final price will be taxes, and the petroleum cost as well as the gas stations and petroleum companies' intervention margins will only constitute a small part of it. That is that we would be before a highly distorted market by the intervention of the state, an aspect that defies the most fundamental ideologies of the governmental party. When it comes to examine the state's policies (and mostly the ones of the three former ARENA governments) towards the petroleum derived products market, some contradicting measures can be found: the liberalization of the petroleum derived products is promoted at the same time that the interventions of the state become more frequent through specific taxes for its consumption or through the establishment of the intervention margins. Everything seems to depend on the occasion.

    It must be remembered that the first ARENA government liberalized the importation and commerce of the petroleum derived products to favor the oil companies, however, later on its successors have performed totally opposite practices. Besides the FOVIAL, an example of this situation is in the confrontation between the Economy Minister, Miguel Lacayo, and the representatives of the petroleum companies during July 2000, when the Minister tried to regulate by a decree the intervention margins of the oil companies. The increase on the petroleum international prices and on the fuel experimented in the second trimester of 2000 motivated the Minister to take emergency measures. The main one was to propose to the Legislative Assembly a decree that would establish the intervention margins of the petroleum companies and reduce the fuel prices in the local market. The measure was not established, but the petroleum companies "voluntarily" reduced their margins in 0.21 cents after a series of negotiations with the Minister.

    However it might be, one of the immediate consequences of the FOVIAL —the government's most recent intervention in the petroleum derived products market— will be the increase on the public transportation and merchandise, as well as the increase on the transportation budget of more than 300,000 drivers all over the country. Obviously, this will not have a sensible inflation impact (gasoline will be increased in a 10%), but it will not be permanent, it would only be an initial "shock" with two components: one directly derived from the increase of almost 10% in the gasoline prices, and another directly derived from the increase on the production's cost and the goods and services commercialization. In exchange, a substantial improvement would have to be expected in the general conditions of the Road Net, something that the MOP should have achieved without the FOVIAL.

    However, even if the FOVIAL would achieve its goal, it still is a new imposition from the government’s party, and an easy way to liberate the state from its financial and functional compromises. In fact, the government obtains a double profit: it reduces the MOP's budget at the same time that it obtains new income to pay for the road net's maintenance. The most affected ones will be, as it has become a tradition, the consumers, since they will have to carry the cost of both the new tax and the increasing prices.