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.

Proceso 981
December 19, 2001
ISSN 0259-9864
 
 
 

INDEX

EDITORIAL

    The year 2001 has not been easy for the Salvadorans; mostly, it has been a year engraved by uncertainty, impoverishment, and the absence of projects as an alternative to face the social paralysis that the country suffers due to the dreadful administration of its national, social, and economic resources. Many people, from the economic and political power circles, refuse to accept how terrible the Salvadoran situation actually is. Others, even if they realize the country’s problems, they prefer to ignore them, since their acceptation would oblige them to make decisions that could go against certain interests.

    The January and the February earthquakes not only brought out of the dark the deep structural failures of the prevailing social and economic model, but they also made those failures grow worse. Politics had nothing to say about the impact of the disaster; the governmental apparatus was paralyzed in the worst moments, the business elite did not consider anything but their financial loss. In the meantime, the different social sectors, the communication media, the church, the rescue teams, and the non-governmental organizations moved quickly –with more will than resources- to help the victims. In summary, it was a paradoxical situation: those who had the constitutional command to respond to the emergency did not do so, while hundreds of affected Salvadorans went out to the streets to help others who were in a worse situation than they were. Something that was very clear at the time was the enormous potential the Salvadorans have to respond, with a determination not too often seen, and without much preparation to face disaster situations. At the same time, it was clear the little that can be done, in situations of that nature, at the state’s institutions when they act turning their backs on the citizenry.

    Once the emergency was over, a space was open to debate about the need to reconsider the country’s prevailing model. Various institutions –governmental, pro-governmental, and non-governmental- elaborated interesting diagnosis about the situations that trouble El Salvador, as well as the possible ways to face them. About the first aspect mentioned, there were many things in common between the different approaches. About the second aspect, disagreements were the characteristic feature, especially because it was evident that the governmental and the pro-governmental sides were reluctant to accept that a change of the environmental, economic and social administration, in order to be truly accomplished, it had to face the structural disarticulation of the productive apparatus, to the economic concentration, to the weakness of the different institutions, and to the low levels of social organization and participation.

    Therefore, what could have been an opportunity to thoroughly debate the fundamental problems of El Salvador was lost because of incompetence, lack of good will, and the persistence of the wrong perceptions about both the country and the needs of its inhabitants. The Flores government –insisting on defending the thesis that the country had an enviable development until it was perturbed by both of the earthquakes- did not accept the challenges of the economic and the social reorientations that were evident with the disaster situation. The governmental proposal was to go back to what we had before the earthquakes; consequentially, it was about propping up the excluding social-economic scheme, in effect ever since the first ARENA administration.

    At this point, going back has been impossible, mostly for the thousands of families who lost their homes. Most of them –despite the promises made by Flores- still live in provisional houses, with all the needs that characterize this type of shelters. It is very probable that many of those families –as it has happened with other disaster situations- make out of those temporary houses their permanent homes. With this, their poverty situation will become worse, as well as the difficulties to overcome them.

    The paradoxical aspect about this is that, by the end of the year, the Flores government seemed as if it has forgotten about the impact of the earthquake. It seems as if Flores and his collaborators believe that we have returned to the rhythm of “progress” and “development” the environment had before the beginning of the year. With this, the economic decisions that were taken after the second semester of the year threatened the middle and the popular classes, which were the most affected ones by the earthquakes.

    In fact, despite that the impact of the payment for the road maintenance fund  (FOVIAL) –a tax that is charged to each purchased gallon of gasoline- has been softened by the relative drop in the petroleum’s international prices, and by the elimination of the diesel subsidy from the public transportation bus owners. Once the prices are increased –and that cannot be controlled by the Salvadoran government- and that the public transportation prices are not controlled  -when a new transportation business group is established- the middle and popular sectors will resent in their pockets the economic measures taken by the government.

    In other words, the market’s criteria for the transportation business, does not predict anything but increases on the service’s price. This is the same way it has been with the electricity, with telecommunications, and with the retirement pensions. And the result of all this is the growing prices of not only the utilities, but of all expenses in general. If we add to this the average of the salaries, much under –for most people- the basic basket level, and the tax logic  -of a regressive character-, what follows is the damage of the life standards of most Salvadorans. This has been the rule during the nineties, and by 2001 things have not changed much, despite the earthquakes at the beginning of that year.

    How can a government take decisions that cause the proliferation of poverty, and turn the gap between the poor and those who concentrate the richness even wider than it already is? There are two answers to this question. In the first place, because of the indifference  to the inhuman conditions in which almost a half of the Salvadoran population lives in. The economic elite of El Salvador –who has the sympathy of Flores- has almost never hidden their rejection to those Salvadorans –peasants or farm laborers- who have to work to live.

    The other Salvadorans –those who do not find a job, the children that live on the streets, among others- do not count, they are not even the object of rejection: they are nothing, they do not exist, it is not relevant whether they live or die. Those who count –those who work- are the laborers of that hacienda that El Salvador is. They are important as a resource to be exploited; their dignity or their humanity is not important. Therefore, if this is a government’s perspective –a government in this case co-opted by the country’s most powerful business elite- it cannot seem odd that the impoverishment of most of the population is completely inconsequential indifferent to him.

    In the second place, the other reason not to realize the pernicious social results of the decisions that are taken from the governmental circles have to do with a distorted vision of reality. The most serious studies –before the January and the February earthquakes- showed the signs of an economic stagnation, while the government’s advisors spoke about a growing improvement.

    The worst part of all this is that this distorted way of seeing things has not only been stubbornly supported, but different important decisions have been taken from that perspective, with subsequent negative effects over the country’s most vulnerable sectors. There is no need to say that the insistence to see reality in a way that goes against evidence and reason does not only obey to the ignorance –which is obviously playing a part in all this-, but it also has to do with certain interests that oblige some people to close their eyes and reject any intention to question the compromises acquired by the government.

    From a government blind to reality, there is nothing much to expect but permanent false steps. The Flores government bumps again and again against the same stone, that is, with a growing situation of poverty. However, the economic decisions –taxes, salaries, currency, privatization, dollarization- do not change. And the worst part of all this is that there is no clue about how the society could face –without using any street violence- the governmental mistakes, imposed almost in an authoritarian way from the high circles of power. There are no viable options for a change of direction in the country, and the society does not seem to be willing to actively participate in the public life to defend their rights. This means that the mistakes of the Flores government will go on, and that the citizenry will keep suffering it. This is the bill that has to be paid for the image of “progress” and “development” –supported by the family remittances and the maquila- that Flores and his people want to show, an image that definitively does not favor anyone but the same privileged ones.
 

    During 2001, the country has been the theater of a series of events that have seriously scared the lives of the Salvadoran population. The disaster caused by the January and February earthquakes were a test for the national institutions and for the political life in general. A balance of the political activities of this year should be centered in the performance of the institutions directly involved with the construction of democracy in this country.

1. The 2000 heritage

    One of the most relevant issues in the political life of the year 2000 was the little capability of the institutions to answer to the demands of the population. To the multiple vindications of the Salvadorans, the political parties and its leaders have responded with arrogance and without the capability to reach any agreements. The dollarization implemented during the last days of the year 2000 was the clearest manifestation of this decision made by several political leaders to conduct the country without considering the opinion of the citizens.

    The year started with an authoritarian and a not consulted political decision, at the best style of president Francisco Flores. The advisors of his party, with the complicity of the National Conciliation Party (PCN), took care that the country would wake up with dollarization by the year 2001. However, on the other hand, that decision, among others, prepared the field for a confrontation between the different political tendencies. The tension among the political parties has been one of the most notorious issues for the national life during the year 2001. This is still something to feel concerned about, since the sterile polemic issues have replaced a serious debate over the main national problems.

2. The opinion of the Salvadorans and their political dissociation

    The Salvadorans closed the year 2001 with a great amount of frustration about the economy’s performance. The last opinion poll made by the Public Opinion Institute of the Central American University (IUDOP) revealed that the economic problems occupy the first place at the top of the issues that worry the Salvadorans. A good amount of them blame the earthquakes and the terrorist attacks, among other things, for the increase of  poverty in El Salvador. On the other hand, almost a quarter of the population –22.1%, according to the same opinion poll- thinks that the government’s policies have to do with the increase of poverty. According to different pieces of information provided by the opinion poll, therefore, a minority is the one that establishes a connection between poverty and the country’s administration.

    There is no doubt that the Salvadorans do not feel related with the political activities. An evidence of this is that only a 38.8% of the citizens would support one of the existing political parties, in case that the elections were celebrated during the next few days. This information confirms that the little participation of the Salvadorans in the political field is still a relevant issue for the public life. This is a result, without a doubt, of the political institutions lack of compromise to keep their promises, in order to deal with the civilian demands and the state’s institutions.

    This is a sample of the political activities along this year. The personal interests of the political party’s leaders have come before the needs of the population. From this perspective, the results of the opinion polls can be understood better, which reveal that the citizenry, despite pointing out the growing deterioration of the country’s poorest sectors, give, however, very little importance to the intervention of the politicians who make the decisions. In summary, what happens is that the Salvadorans have kept on moving further away –in a growing process since 1992- from politics and the politicians.

3.ARENA and the FMLN in the year 2001

    In this context, the activity inside the political parties has been one of the most relevant issues during 2001. The political institutions, especially ARENA and the FMLN, have experimented a sort of an internal rearrangement process in this period. In both cases, some internal dissidence movements have shaped its position in the national political scenery.

    Everything started with ARENA, the party at the government, which after the municipal and the legislative elections seemed to move towards an internal crisis. After several intents to internally readjust the party, ARENA found in Roberto Murray Meza the person that, for the moment, has managed to silence the dissident voices. Despite that the way the business elite group has been imposed inside that party can be discussed even more, the change has been successfully accomplished. The strategy has been to silence the discontent of the rest of the members, or to get out of the party, such as Gloria Salguero Gross did (she is preparing herself to create a new party).

    However, the same cannot be said about the main opposition party. Its internal crisis makes it weak in a sort of a dead end alley. Although it can be said that the left-wing party chose a democratic pathway, the one of the internal elections in order to resolve its problems; however, after those the desired success has not been accomplished. Contrary to what has happened inside ARENA, whose leaders have managed to silence the ones who are discontent, the disputes between the different FMLN tendencies have not been yet resolved without deteriorating scandals and polemic.

    The left-wing party cannot find its direction. The fight between the orthodox and the renovators has not ended, even after the internal elections that have confirmed the power of the first ones. The renovators, far from the results, have not skimped on efforts to report about what they consider an orthodox fraud to control the party.

    The election process, far from bringing tranquility, has meant more division inside the FMLN’s ranks. In this sense, the least that can be said is that the FMLN keeps sailing without direction. Because of this situation, for the next year the internal crisis might grow worse and a definitive rupture might occur, with the expulsion or the abandonment of the party’s renovators. At the moment, their strategy is to increase the sympathy that the right-wing press has for them (the right-wing press has been very hostile with the orthodox leaders).

    From this perspective, 2002 (a year before the elections) predicts a better position for ARENA; instead, the FMLN’s horizon turns even more uncertain. It is very probable, just like the last opinion poll made by the IUDOP revealed, that ARENA will keep getting stronger as the governmental party and that its aspiration to increase its amount of votes turns into a reality.

    In the meantime, if a quick solution to resolve the FMLN’s internal problems is not promptly found, it is very probable that this party will not convince the citizens that it can be a real option.  In this sense it would not be too odd to expect that during the next few months its image will keep deteriorating before the eyes of the citizenry.

    Because of the former ideas, it would not seem odd if the Salvadorans stay away from the     political parties and from the political activities in general. While no other real alternative to ARENA is presented, the Salvadorans do not have another option but to abstain themselves and to move further away from politics.

    There is no doubt that the FMLN’s internal crisis favors ARENA, while it means a setback for the country’s democratization. While an alternative is a way to measure the health of democracy, because of the parties’ political activities during 2001, it can be said that there is not one party strong enough to replace ARENA. Despite of all this, it cannot be said that everything is over for the FMLN. However, this party has worked hard to improve its image. To accomplish such task, the renovators would have to be convinced that by exposing their internal problems to the news media they are not necessarily helping their party. To renovate the FMLN’s image, the renovators as well as the orthodox have to become more mature.

    From this perspective, the formerly mentioned dissociation of politics can be understood. It is all about a double dissociation, in the first place the citizens who do not feel represented by their leaders; in the second place, the political leaders do everything they can to dissociate themselves from the population’s demands.

    The government takes advantage of this dissociation. With the help of the Presidential House press staff, the government has avoided different responsibilities to face the problems that affect the population. For instance, the informative strategy used after the January and February earthquakes. The governmental motto was that the earthquakes had been a natural event, and that no one was responsible for it. This actually meant that the government forgot about its obligation to protect the citizenry.

4. Impunity in the judicial system

    Another issue that has to be brought up to discussion is the impunity the judicial system has worked with along 2001. The least that can be said is that the judicial organ has not been able to respond to the citizenry’s justice aspirations. The corruption inside this system is the main problem that has left a scar on the national life during this year.

    Many crimes have remained unpunished. And the Attorney General’s Office, the institution responsible for prosecuting crime, remains as an organ unqualified to perform the duties that have been assigned to it by the Constitution. The way that the UCA’s massacre has been handled or Katia Miranda’s murder, both reveal the problems of this system. However, the worst part has been the politicians’ lack of will to face the problem. In this sense, it can be said that, ten years after the Peace Agreements were signed, the Salvadoran judicial system is still in debt with the Salvadorans.

5. The earthquakes from a political perspective

    The way that the earthquakes’ effects have been handled constitutes another interesting example of the national politics’ performance in regard to the problems that afflict the Salvadorans. Ever since the destructive effects of the earthquakes were known, the government did everything that was possible to avoid the involvement of the civil society and its organizations in the solutions of the problems left behind by the disasters.

    Nothing that was promised as a new way of making politics was actually accomplished. President Flores assigned the task to attend and to reconstruct to an ARENA team, a significant amount of them now are part of the present COENA. The distribution of the aid was centralized, and the first measures of the Flores government did not help to keep the country in one piece at the most critical moments.

    All of the formerly mentioned aspects -together with the inefficiency and the inability of the institutions responsible for reacting in this cases- turned the earthquakes’ effects even more dangerous than they already were, especially for the victims. Neither the National Emergency Committee (COEN) nor the other institutions involved had the capacity to respond to the demands of the Salvadoran population. The politicians could not sufficiently respond either to the challenges of those dramatic moments. Even worse, the left-wing as well as the right-wing have characterized themselves by their ineptness and their determination to take advantage of the popular desperation, and see it as a chance to increase their political acceptance. ARENA, claiming to stop politicization, the FMLN longing to play a starring role: the result was a catastrophe, showing the worst side of the national politics.

6. The communication media and politics

    The issue of the relation between the communication media and politics evidently deserves a serious analysis, for which there is no space in this balance of the political performance of the year 2001. An investigation has to be done, in this same line, about the power of the media in the political agenda, and its influence in the opinion of the Salvadorans. In any case, it is important to say that any analysis about the performance of the news media along 2001 has to include the media’s strong features and its weak ones. About the strong features, a good part of the media modernized its equipment and improved the professional skills of their reporters. However, on the other hand, the most important news media enterprises in the country have shown very questionable attitudes in regard to the performance of politics. This is a situation that casts doubts upon its capability and its will to accomplish its task. The financial relations between the owners of the different media, the government, and the national business elite have played an important role to question the performance of the media.

    More than once, its political preferences and its ideology have been shown in the treatment that the information receives. The worst aspects have been both the lack of objectivity and the lack of professionalism to decide what is the news and what has to be kept away from the public. They have not missed a chance to impose the right-wing’s perspectives. In summary, a good part of the national media works as the economic elite’s echo and the government’s as well. Very little has been done along 2001 to put an end to this situation.

7. Perspectives for the new year

    Given this perspective, along with the international situation problems, it will be difficult to expect a relevant improvement for the new year. The internal activity of the political parties, and the national situation do not allow us to think that there will be an improvement between the relations of politics and the society. Because of this, it is possible that the civilian discontent increases, and that just like the opinion polls have revealed, the abstention keeps increasing, as well as the dissociation between the citizenry and politics. The international situation has been very hard for the country. The September 11th terrorist attacks against the United States have complicated this perspective. This complicates the search for a solution to the economic problems that trouble El Salvador.

    On the other hand, during 2001, the distance between the political tendencies, especially between ARENA and the FMLN, have increased. Issues such as the government’s intransigence to discuss along with the opposition the country’s problems remains. The repeated calls to reach an agreement process have gone nowhere. All of these situations allow us to have an idea of how capable the institutions really are to respond to the national problems.

    If it was only about analyzing the political activities and procedures inside the parties, it could be said that significant changes cannot be expected along this year. The politicians have not been creative enough to answer to the Salvadorans’ demands. However, on the other hand, the activities inside the social organizations that have taken part on the national life have been different. The civil society has been playing a bit of a starring role in all this, and it has tried to reduce, in its very own way, the deficiencies of the politicians, mostly during the moments of crisis.

    On the other hand, it is necessary to rescue the change that has been made at the administration of the Human Rights Defense Office (PDDH). With the election of the new procurator, an attempt to save the image of this institution has been made. The administration of Eduardo Penate Polanco took this institution to its maximum level of discredit. This was a strategy of the right wing to get rid of an institution that was considered as a tool of the left-wing. If it cannot be said that things have completely improved with the new procurator –she was elected not too long ago-, it is expected that during this year a significant change can be made in the administration of this institution that defends the human rights.
 

    During the last five years, the performance of the economy has been relatively monotonous. It has definitively been something to worry about: low economic growth rates combined with a dynamic textile maquila sector and a growing flow of remittances, and the deficit tendencies of both the commercial balance and the public finances. The year 2001 seems like a different year, although that is not because the economic growth rates increased, but because during this year the economic growth limits, based on the family remittances and the textile maquila, are now more evident.

    However, the government’s officials keep insisting on –just like they did nine years ago- an optimistic image, which is far away from the obstacles that El Salvador has to achieve a sustainable development. The most dogmatic ones even say, with no modesty at all, that 2001 “ended as a year of opportunities and achievements for the country” (Carlos Rosales, Communications Secretary for the Presidency of the Republic). Others consider that “2001 has characterized itself by a satisfactory growth of the Salvadoran economy, despite a very unfavorable situation, which is actually a product of the earthquakes as well as a result of the world’s economic deceleration” (Rafael Barraza, President of the Central Bank of Reserve, BCR).

    The truth is that when it comes to examine the different macroeconomic fields, many obstacles     and deficits are discovered, and this leads to question the so called triumphs of the governmental administration. The production will grow just like it did in 2000, that is, just a 2% (and that is already an optimistic thought); unemployment was increased; the deficit of the commercial balance and the public finances went up again; the remittances and the maquila’s activities suffered a reduction on their growth rates.

    In summary, the interpretation of the economic indicators is not encouraging, but it is an unavoidable evidence to discuss some strong reforms for the economic policies. Most of all in the context of a new crisis in Argentina, detonated by the high unemployment rates, the impoverishment of the middle class, the growing fiscal deficit, the absence of monetary policies to heal the crisis, and most of all, the citizens’ loss of faith in the economic model. This is, without a doubt, a sign that should come to the attention of the Latin American governments, and especially the Salvadoran one, who, just like the one from Argentina, has renounced to the instruments offered by a monetary policy and trusts in a remittances flow in dollars which is not sustainable, not even in a mid term period. This article will present a quick review of the main macroeconomic indicators: production and employment, prices and salaries, external sector, public sector, and the financial monetary sector.

Production and employment

    The first predictions of the BCR about the GNP’s growth established a growth rate of 2% for 2001, a rate identical to the one obtained in 2000, but which continues to reflect the presence of a slow growth period of six years. If the governmental numbers would have been accepted, at least the economic growth rates’ tendency to reduce could have been stopped on time. However, there are two reasons to doubt about the official information. The first one has to do with the 2000 experience in this field: after the government declared that the economic growth rate had reached a 2.5%, it should have rectified that information, and accepted that it had actually been 2%.
 

    The second reason has to do with the behavior of the trimester’s GNP, since in the three first trimesters of 2001 the GNP’s growth rates would have reached 1.7%, 1.5%, and 1.6%. To obtain an annual rate of 2%, the GNP should have grown 3.2% in the last trimester of the year, something difficult to believe considering the negative economic context that surrounded it (it was expected that the attacks against the United States notoriously reduced the family remittances and the exportations). A less optimistic estimate of the growth rate could be in a line of a 1.7%, assuming a 1.6% growth for the last trimester of 2001.

    The context of this limited growth has been extremely complex, although three key aspects can be considered: the disasters caused by two earthquakes and a dry season, the collapse of the coffee’s international prices, and the reduction of the textile maquila’s growth rhythm. There is no doubt that the impact of the earthquakes in terms of an economic stock loss was very strong: with the first disaster, caused by the January 13th earthquake, almost a 12% of the GNP was lost, while with the second earthquake an estimate of a 4% of the GNP was lost, which means a loss equivalent to a 16% of the GNP generated during 2000. There is without a doubt, a strong loss that also affected at first the economic flows and, with that, it reduced the economic growth perspectives.

    The first estimate of the Caribbean and the Latin American Economic Commission (CEPAL) established that even in the worst of the cases, a growth rate up to a 3% could be expected, that is, one additional percentage point above the estimate made by the end of the year by the BCR. Even the worst predictions of the CEPAL turned too optimistic for what happened in 2001. Something that definitively has to be pointed out is that the disasters caused most of the loss, but they also generated a series of investments to replace the infrastructure that –as it was expected- caused the increase of the construction sector’s growth rates.

    This can be verified with the growth rates of the already mentioned sector during the first trimesters of 2001: 2.6%, 6.6%, and 13.5%, respectively. These numbers make a strong contrast with the first trimesters of 2000, when the rates were negative (that is that they decreased), and when by the end of the year the sector decreased in a –2.3% (see chart 2). An examination of the Economic Activity’s Volume Index (IVAE) for September also reveals that the construction sector increased its production volume in 7.96%. It also shows that the financial sector had a 6.79% increase, and that the manufacturing industry did it in a 4.47%, which is enough to consider them the most dynamic sectors of that moment.

Divisions	2000	T1 2001	T2 2001	T3 2001
1. Agriculture, hunting and fishing	-3.0	-0.9	-2.9	-2.5
2.  Industry and mining	4.4	5.7	4.9	3.0
3.  Construction	-2.3	2.6	6.6	13.5
4. Total Services	2.6	0.6	0.3	0.7
4.1  Services (excluding the government’s)	2.7	0.6	0.2	0.7
4.2 The government’s services	1.0	0.9	0.8	0.4
5. Minus: attributed bank services	3.5	7.5	3.4	1.0
6.  Plus: other GNP’s elements	2.0	3.5	4.3	3.5
GNP total	2.0	1.7	1.5	1.6

Source: BCR

    On the contrary, the sectors that had the smallest growth rates of the IVAE have been: the cattle-raising field, electricity, transportation, and even commerce. At this point, the disaster caused by the dry season enters the scenery, which was previously mentioned in this article that caused a loss between 60% and 90% in the production of the basic grains, and a loss of approximately a 10% of the cattle-raising GNP and a 1% of the total GNP. This disaster restrained the economic growth, because the loss was not only about stock, it was essentially about production.

    The loud drop in the international prices of coffee is another element that has affected the GNP’s growth, since the prices have reached levels of only $50, an amount that barely covers the costs of the production, and which implies a strong drop in the value of the coffee exportations, an issue that is examined further in this article.

    In case this was not enough, the growth rhythm of the maquila has notably been reduced  -at least according to the behavior of its exportations until the last trimester of 2001 Between September 2000 and September 2001, the maquila’s net exportations grew in a 4.9% rate, an inferior level if compared with the one observed in previous years, when the minimum amount has been a 12.1% growth for 1999. For 2000, the growth of the maquila exportations was vigorous: 20.7%, although it could not be compared with the 38.2% obtained in 1997.

    The impact over employment has also been sensible. The declarations of the Ministry of Economy’s representatives confirm that a 7% of the Economically Active Population (PEA) is unemployed; 50,000 jobs were lost because of the earthquakes, and 10,000 more because of the reduction of the coffee prices; other 2,000 jobs were lost at the maquilas. The positive part would be that 25,000 new jobs were generated, and it is expected that with the Free Trade Agreements more jobs can be generated.

    In any case, a simple arithmetical exercise shows that the unemployment rate has increased: 62,000 jobs were lost, 25,000 were generated and, therefore, in the end the result was the loss of 37,000 jobs. This is equivalent to a 1.5% of the PEA.

    Another piece of information that might be important is the elimination of 8,404 jobs in the     public sector since the year 2002, and the creation of other 905, which technically means a loss of 7,499 more jobs equivalent to almost a 7.4% of jobs at the public sector. The only branches that will experiment a significant increase in their number of employees will be the Health sector and the Judicial Organ, which will employ 643 and 112 additional people, respectively. It is important to mention that most of the layoffs were made at the Public Works’ branch, which has practically been dismantled with the transference of its machinery to the Armed Force, and with the layoff of   7,147 employees (laborer workers, fundamentally), which represent an 85.3% of the total amount of employees of the mentioned branch for 2001.

    If we add the recently presented information, we would have that a total of 47,499 jobs were lost during 2001, which are equivalent to almost a 2% of the PEA. It is not outlandish to say that unemployment, estimated in 7% for 1999, has increased up to 9%, a considerably higher amount than the one presented by the Ministry of Economy, and even the one that appeared in the averages observed along the nineties.

Prices and salaries

    The BCR’s preliminary information has established the inflation rate for 2001 in a 3%, and inferior rate to the 4.3% obtained in 2000, which was already considered as an achievement back then. This tendency reinforces the consistent tendency to the reduction of the inflation rates that has been experimented along the last eight or nine years. However, this reduction in the inflation rates hides very different patterns in the behavior of the other basic services’ prices. A cause that is very easy to identify is the elimination of subsidies, especially the one granted to the consumers of inferior amounts of electric energy.

    Another subsidy that was eliminated in December of 2001 has been the one granted to the public transportation prices. Although, technically, subsidy was delivered in the consumption of diesel at a low cost for the transportation sector, the final objective was to keep the prices steady for the transportation customer. The first increase to this prices has already been experimented, however the results of this procedure are not yet obvious. For 2002, an elimination of the potable water service’s subsidy has been announced, which will reinforce the inflationary tendency of the basic utilities’ prices.

    Even with the alleged reduction of the inflationary rhythm, the truth is that the real salaries (that is, the actual salaries once the inflation rate is deducted from them) keep deteriorating. This year, the minimum salary has been steady with no alterations at all, and to judge by the President’s declarations, the government does not intent to support an increase of the minimum salary, since that reduces the “competitiveness” of El Salvador in relation to its regional neighbors, now also specialized in the textile maquila which is not well remunerated (in the United States, the salary paid to a worker with the same job as a worker of the textile maquila is five times higher than the minimum salary paid to a worker in El Salvador).

    According to the report The Human Development in El Salvador 2001, between 1997 and 1999, the average salaries improved between 2% and 11% depending on the economy branch, but in no case the minimum salary went above 1,973 colones, a level that falls into a range of income that can be considered as relative poverty. To leave poverty behind, in this case, an average family would have to have, at least, two members of the family working and receiving the “average” salaries.

    Instead, the behavior of the minimum salaries would have not been too positive in the last years. The reports of the UCA’s Economy Department show a constant deterioration of the real minimum salaries, which between 1990 and 1999 were deteriorated in 5.12%. In the last three years alone (1998-2000) the real minimum salaries would have lost a 3.1% of its value. The situation turns worse if we consider that, according to the opinion polls of the Multiple Purpose Homes of 1998, a little over 50% of the people who answered received less than 1,000 colones, and a 66% less than 1,500 colones. That means that the average salaries can be adjudicated to not over the 34% of the people who answered.
 

The external sector

    There are very few pieces of information in this area to analyze the behavior of the public sector, since the BCR’s November report “Short term indicators” has failed to give any information that might refer to the external sector. However, the information that makes reference to September already showed an important –although predictable- deterioration in the sector: the deficit of the commercial balance was increased in a 21.1% between September 2000 and September 2001, when it went from $ 1,331 million to $ 1, 612 million, respectively. This can be the result of the highest amounts of exportations that were a result of the demand for reconstruction, caused by the earthquakes, but they also reflect the impact of the duty’s elimination and the exaggerated commercial openness that the Salvadoran economy has been subjected to. The deterioration tendencies of the commercial balance are not new, but after the mid eighties and during the nineties, this has turned into a sort of a potential illness: It has not affected the economy yet (thanks to the family remittances), but it will affect it if the necessary policies to adjust the productive apparatus are not adopted soon.
 

    As it can be noticed on the chart 4, for September the tendencies were alarming: exportations dropped to $40 million instead of increasing (the BCR estimates that by the end of the year they will only increase on a 0.3%, importations grew on $241 million, and that is why the deficit of the commercial balance grew in $281 million. The coffee exportations have gone from $275 million in September 2000 to only $108 million for the same month in 2001. This means that the amount dropped in a 60.7% for the total value of the exportations, the traditional exportations’ amount dropped to 50.9%, and the total exportations were reduced in a 7.4%.

    However, although this clearly negative tendency –and unsustainable- might seem more alarming for some economists, the politicians do not seem to care much about this issue, because of the mirage created by the massive amount of family remittances. As the chart 1 shows, the BCR’s estimate about the influence of the family remittances for 2001 show an amount of $1,900 million; an amount that could be enough to cover the 2000 deficit, but not enough to face the 2001 deficit, which is more than $2,000 million. The flow of capitals compensates and even gives solvency to increase the Gross International Reserves (RIN, in Spanish).

    However, even the family remittances growth shows a tendency to reduce: for 2002 only a 4% growth is estimated, when rates of 27.5% and 8.5% growth rates have been increasing in 2000 and 2001, respectively. Without a doubt, here we can see a slow growth tendency.

Public sector

    The year 2001 has been the witness of a series of important reforms and improvements of the tax system. Most of those reforms had the same regressive character as the three former administrations of the ARENA party: the approval of a tax code, the elimination of the income tax payment exemption that the micro-business companies with profits up to 75,000 colones enjoyed, a tax infractions’ law, both already approved by the Legislative Assembly), and a third one that intended to graver those workers of the informal sector with an income higher than 4,166 colones.  This tax, called “single tax” would have taxed a great amount of liberal occupations that to this day did not pay any taxes. Fortunately, and after many public contradictions, the governmental officials denied that they were intending to implement this last measure.

    With the measures already mentioned, the government wanted to make an additional $50 million amount. For 2001, for instance, the governmental income might have achieved (with luck) $1,400 million; however, this year’s budget went over $2,200 million; that means that the government needs a financing of approximately $800 million, which is equivalent to 57% of its income. Therefore, even if it can be said that the fiscal deficit is still at manageable levels, the truth is that the government has an immense financial gap that cannot be covered with insignificant tax reforms such as the ones adopted in 2001.

    Logically, during this year the fiscal deficit has been increased as it usually does, and also because of the expenses that were made after the earthquakes. In fact, most of the money used for the reconstruction will come from loans and external donations that will probably increase the fiscal deficit. Just like chart 1 shows, for 2001 it was estimated that the fiscal deficit would increase from a 3% of the GNP to a 3.6% of the GNP, which even if at the moment it might seem controllable, it is an evidence of a too high growth rate: an annual 20% .

    The monetary and financial sector: dollarization and interest rates
Without a doubt, the sudden dollarization announced in November 2000 has been the most daring and less fortunate economic measure that has been effective during 2001. The first approach to this situation that has become more evident, after the development of the Argentinean crisis, is the loss of the monetary policy as a shock softener instrument. In addition, the fact that dollarization intends to replace colones with dollars also means that this country also has to purchase currency (colones, for this case) which represent a loss –at least temporary- of an important amount of RIN.

    At the moment, the government is already raving about putting into circulation $272 million, equivalent to a 51.1% of the total amount of circulating cash, and equivalent to a 13.5% of RIN. It the total amount of circulating cash is replaced –as the government’s intention seems to be-  $532 million would be put into circulation, and 4,655 millions of colones –which are equivalent to the total amount of circulating cash and to a 27% of RIN- would be taken out of circulation.

    The “Monetary Integration Law” is clear with its three main objectives as a monetary policy: to establish the currency exchange type in  8.75 colones per dollar, to give a legal course to this one, and establish it as a unity of the financial system. This is important because it assumes that technically the formal economy is dollarized: no one can make banking transactions if it is not in dollars. Article #5 is clear in this sense when it establishes that “the currency in colones and the coins issued before the present law was in effect, still have unrestricted legal course in a permanent way, however the institutions of the banking system should change them for dollars at the time of the transaction”.

    However, in the apology speech for the monetary integration, president Flores exposed very different reasons. In his November 22nd  (2001) speech, Flores established that the reason to implement a monetary integration process was to achieve a reduction on the interest rates, which, for the economic logic, would only make sense if an investment, production and employment growth is pursued. Unfortunately, by the end of 2001 it has been verified that the reduction of the interest rates –that were already recorded since 2000- have not had any major effect over production.
 

    Despite that the interest rate averages have gone from 13.98 to 9.38 between the Trimester 4 of 2000 and 2001, the truth is that the growth rate has been slow for 2001. As a coincidence, in 2000 also the interest rates were substantially reduced from 16.67 to 13.98%, however, the 2000 was closed with a growth rate of only 2.0%. That suggests that neither dollarization nor the interest rates are the main determinant variables of the economic growth.

    Having the perspective of this situation, it must be said that 2001 has been a terrible year because a gradual process of dismantling the capacity to develop a monetary policy got started. This situation is especially critical in a context of repeating international crisis and the impact of the economies strongly related with the international economic flows. The recent situation of Argentina is an irrefutable evidence: Argentina did not resist the repeating international crisis because its monetary system, based on the “exchange system”, prevented it from using monetary policy measures such as devaluation, the adjustment of the monetary amount, and even the reduction of the interest rates (in fact, one of the anti-shock measures of the United States’ federal reserve were three successive reductions on the interest rates).

Perspectives

    After examining the behavior of the Salvadoran economy during 2001, there are many reasons not to be optimistic. The disasters caused by the earthquakes affected the unbalance of the commercial balance and the public finances. The economic growth was slow and mostly a result of the construction sector’s reactivation; dollarization has extended the reduction of the interest rates without any important effects over the economic growth; the lack of capability to develop a monetary policy has turned the country more vulnerable to a possible crisis as a consequence of the reduction of the remittances flow. Unemployment has increased because of the reduction of jobs available at the private and the public sector.

    A situation like this one is nothing to be proud about for any economic cabinet. However, the solvency generated by the family remittances allows the government to go on without taking any radical measures, just like his two predecessors, the present ARENA government insists on making a very little objective interpretation of the economic situation. This government even places his most important bets –for the country’s future- on the free trade agreements, on a possible increase of the investments on the maquila, and on the family remittances.

    Unfortunately for El Salvador, this government does not count with the same amount of time that his predecessors did to rave about an economic stability that must be thanked to the workers expelled of the Salvadoran labor market who send the remittances. This analysis allows us to infer that it is extremely necessary to start with a new generation of economic reforms, which are able to recover what we learned during the nineties, and that are also able to correct –before it is too late- the evident economic disasters formerly mentioned.

    The increase of the taxes, the credit and the technical support for productive activities, the substitution of imports with national production, and the preservation and the use of the monetary policy as an instrument of an economic policy are only a few examples of the remaining tasks. However, an essential starting point is that the people responsible for the economic policy make a more realistic interpretation of the national and the international situation and its challenges.
 
 

Please, send us your comments and suggestions