Center for Information, Documentation and Research Support (CIDAI)
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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

    El Diario de Hoy's suplemento "Vertice" (02/03/02) contains a feature story titled "Talents for the nation", which explains how important it is for El Salvador the promotion of young talents at the diverse scientific disciplines. The day after its publication, another feature story, "The secret for being the best", introduced the three young people who achieved the highest grades at the 2001 Learning Skills for High School Graduates (PAES, in Spanish). One of them studied High School at the Liceo Salvadoreño, the other one at the Colegio Champagnat (both of them were male students), and the third one -a young lady-  at the Instituto Nacional "General Francisco Morazan".

    Both feature stories express a healthy concern about the country's cultural development, and about the role that young people can play in it. The education authorities are also concerned. They have designed a program called "Young Talents", with the purpose of identifying those who are outstanding students -specially in the subject of mathematics- in order to support them in their professional education. It is about identifying those youngsters with "a high intellectual average" -as it is mentioned in the first one of the feature stories- with the intention of educating them in an integral way until they reach the post-secondary level education.

    The effort of the Ministry of Education deserves the highest compliments. The students who have worked also deserve those compliments. The young talents' identification and promotion is, therefore, something to be proud about. However, the following questions should be asked: What has to be done to promote the "old talents"? What happens with most of the country's young population who, because of the poverty situation, has very little possibilities (or even none) to be identified and promoted?

    The first question makes us pay attention to all of the difficulties that have to be faced -to have a professional development- by those who have reached, through their personal effort, a respectable education in the different fields of culture -natural and social sciences, and art-,  and who have demonstrated that they have enough talent to contribute with the society from their different fields of work. It is also about the "old talents", that is, not only about the ones that presently -with all the social an economic barriers of the case- carry with the responsibility to educate the new generations.

    Where is the state and the private sector's encouragement for the old talents? Where are the adequate working spaces, with the minimum resources such as specialized libraries and laboratories? Where are the research studies’ scholarships granted by the state? Where are the decent salaries for teachers and researchers? This could become a never ending list of questions, an the answer will remain the same: the state does not have a cultural policy (science-technological- or arts) that allows the older talents to have a wider cultural horizon. It is often forgotten that the younger ones not only will have to be educated by today's older talents, but that the first ones will replace them one day. And if they do not find, as their predecessors, a country that can provide them with a worthy life, it will be very probable that they go somewhere else with their talent, contributing to increase the "brain escape" rates, so particular of the countries that -like El Salvador- most of the time do not respect its intellectuals.

    There is also the thorny issue about the educational conditions of most of the country's youth. To pay attention only to the young talents' achievements (or the talents of those who achieved the highest grades at the PAES) can make us forget about the precariousness that characterizes most of the country's rural schools, and the difficulties that many youngsters face to reach the basic educational standards. One thing is the creation of a talent elite in an educational development country that includes most of the population, which would make the selection and the promotion truly competitive -based on a high average of skills.  A very different thing -which is not a competition at all- is the encouragement of a talent's elite creation in a context of educational delay: first of all,  it would be easier for that elite, since there would not be an actual competition going on; and second, it will not be the expression of a national high level education, where the only ones who will shine are those who had more advantages than others -those who go to public schools sometimes do not even have desks.

    It is clear that for a country it must be important to have geniuses and promote them, but it is much more important to raise the general level of their education, in order that the geniuses become activating agents, once they have developed their potentialities. Otherwise, they will be alone, being the best in a country full of blinds, while they do not find anything better abroad.

    It is obvious that, for advertising reasons, it is more convenient for the Ministry of Education to talk about the mathematics competition, than to discuss issues such as the schools that do not have enough teachers, furniture, or tap water, or about the schools in which the new study plans have not taken effect yet. The educational problems of El Salvador cannot be resolved with propaganda nor with math competitions, it requires a complete and sustainable effort, which would only bring results at a mid and at a long term.

    It is all right to be concerned about the promotion of young talents, but it is also necessary to look after the older ones. It is all right to worry for encouraging those who have potential as students and  above the average skills, but also -and urgently- the level of that average has to be increased. That means to pay the necessary attention to the social and the economic obstacles that most of the population has to overcome to have a basic education. When this variable is controlled -when the social and economic conditions are not an obstacle to receive an integral education-, the promotion of new talents and the search for geniuses will make sense.
 

    From Paris to Washington, including Rome, a growing concern of the public opinion is the dark relationship between certain businessmen and some political leaders. The idea that the businessmen take excessive advantage of their economic resources to have an influence on the politicians' most important decisions keeps gaining strength. The general perception is that the politicians lose their autonomy over the magnate's particular interests. In addition, that growing imposition of the economic world is made in a corrupt background context.

    In Italy's case, it is known that its first minister, Silvio Berlusconi, is not necessarily a good friend of clear explanations. The European press used to be horrified, in the past few days, because of his actions to avoid the approval of an European arrest warrant, the Euro-order, because of the menaces that the measure would bring for him. The cavaliere has unfinished business with the Spanish judge Baltazar Garzon, who suspects that he has committed crimes against Spain's public internal revenue service and that he has forged documents.

    In summary, the Berlusconi case shows very clearly the relations between business and politics, with the aggravating circumstance that he is at the same time a judge and a part of his own cause. He has become Italy's richest man, with a fortune of approximately 15,5 euro thousands of millions, in suspicious conditions. And he uses politics to extend his impunity.

    As for France, President Jacques Chirac is involved in a scandal that threatens to seal his electoral luck in the next presidential campaign, in which he expects to gain a second presidential period. Chirac, together with his party (RPR), are  summoned as the responsible ones in a fraud that concerns the sponsoring of his party, by somebody named Didier Schuler, in connivance with some businessmen at the Hauts-de-Siene region.

    Chirac is not only summoned in this case, but he is also being involved in a series of illicit acts in Paris. He has not been taken to court thanks to a recent interpretation of the Constitution by the Supreme Court, which has helped him to avoid the prosecution for alleged corruption cases when he worked as the mayor of Paris. One of the challenges of the French right-wing, whose highest rank figure is President Chirac, is to convince the citizens that he has nothing to do with the corruption and the traffic of influences' accusations that are made against an ex-official, Didier Schuler, who is related with his party.

    In the case of the United States, the most important news -together with the present war against terrorism- , are the rumors about the responsibilities that some influential figures at the White House might have in relation with the frauds that have caused the most important energy company's bankruptcy. Once again, the citizens found themselves with the news that some business leaders, taking abusive advantage of their privileged relations with certain political leaders, have prepared what already looks like the history's highest fraud caused to the public economy. Thanks to their complicity with the politicians, the ENRON directives, the American energy company, have put into their pockets the shareholders’ money and the workers' pensions.

    The President of the United States himself, a former businessman in the energy field, and personal friend of the person who is considered the main suspect in the ENRON case, is threatened by scandal. That businessman is the main sponsor of George W. Bush's political campaigns: when he ran as governor of Texas candidate, as well as when he ran as a candidate for the United States presidency. That is why it is presumed that the scandal's branches can be strong, and will threaten to involve many high rank politicians of the North American administration.

    Because of the three examples above mentioned, a question emerges about the relation that they keep if they are compared. In the first place, it is necessary to mention that both are highly developed countries, whose institutions, especially justice, play a very important role in the society's performance. An evidence is that, despite the contrary efforts -the case of the open dispute between the Italian judges and Berluscony, or the maneuvers and traps of the French right-wing against the Judge Eric Halpen, responsible for the investigation of the cases in which Chirac is involved-, the politicians have not been able to intimidate the judicial officials, whose independence is not only consecrated in the laws, but also in their countries’ legal practice. However, that has no been able to stop corruption -a product of the restless relation between the right-wing politicians and the most powerful businessmen- from nesting at the society.

    In the second place, the characters involved in the three cases are political leaders that clearly identify themselves with the right-wing's perspective, for whom the market and the elite business companies lead the political decisions. That is why it can be said that the relation between the businessmen and politics in those countries threatens to make the political system's legitimacy grow weaker. But, What is the relation that these cases have with El Salvador?

    About El Salvador, it has to be said, most of all, in reference to the Italian case, that the businessmen have taken complete control over the state's apparatus. Ever since the celebration of ARENA's last convention, the business  company's leaders have decided to have a direct intervention in the political life, without having to deal with any intermediary (who until a few months ago were ARENA's politicians). In this sense, it can be said that that the relations between the businessmen and the administration of the public institutions are becoming stronger. Could that be a prediction about a generalized corruption in El Salvador's horizon?

    The answer to this question could be found in the country's recent history, in order to determine up to what point the businessmen and the national politicians are willing to imitate the foreign experience. To understand this, it is necessary to remember the most famous corruption cases that the country has known in the last years. It is necessary to recall that some prominent characters of the governmental elite have taken advantage of their relation with the governmental party to commit a fraud against the public economy and assure their impunity.

    The Mathies Hill case and the fertilizers robbery (donated by Japan) are emblematic in this sense. In addition, to make evident the relations between politics and businessmen allow to realize that the corruption in El Salvador in not too different from the world's situation. The lack of scruples is willing to continue. And many businessmen are also willing to take advantage of the states funds and to pressure the politicians so that the laws work exclusively to defend their capital's interests. Like that, they domesticate their politicians, and they make sure that the society is not able to intervene in the course of the illicit events.

    The situation turns even more dramatic, since it is accompanied by a deficient institutional performance that makes it almost impossible to control the businessmen's activities and the corrupt politicians. The weakness of the political system turns the situation even more complicated. The risk is that the accusations might not be proven, and that impunity becomes the country's golden rule.

    This reality is not only a warning about the dangers of that union, already established worldwide, between the businessmen and politicians, but also questions many of the capitalist assumptions, especially the one that insists on the businessmen's honorability. At the national experience's light,  we have to have our doubts about that; even more, we have to prove that it is not so and that, when businessmen have more money they are more likely to become corrupted and keep the state's apparatus hostage.

    On the other hand, the former ideas question the assertions that the most powerful country's politicians usually make about the performance of democracy in the world, or about the corruption that usually characterizes the administration of its political leaders. It is not only possible to see that in most of the cases the implicated ones are business companies or representatives of those in the small countries, but also when the involved ones are presented as the state's guardians of decency, who generally are the most corrupted ones, and those willing to deceive the citizens to favor their businessmen friends.

    That is why it can be said that democracy is being threatened in the South as well as in the     North; and that the South's leaders corruption rubs elbows with the performance of their North's mentors. In other words, corruption and the lack of scruples are not a patrimony of the emerging countries' political leaders. What they have in common with the wealthiest countries are the ambitions of many of their politicians of becoming rich as fast as possible, and their disposition to defend at any price the interests of the businessmen.

    The remedy against corruption and against the control of the state by a small group must be found where the right-wing's discourses have refused to look until the present days. It is about stopping the businessmen's growing power, and opening the door to the citizenry's control over the political decisions. Only in that scenery it is possible to firmly fight against corruption, and undertake the old idea that conceives the achievement of political positions as an opportunity to defend the collectivity's interests. >From this moment on, to be a mafia businessmen should stop being a respectful status, as it is understood nowadays. On the contrary, when somebody is identified as that, this person should be condemned to ostracism.

    It is about taking all the necessary measures in order to be able to control their performance, because it is very probable that this person is willing to step over the law  to assure his profits. If it is true that there are honorable businessmen, it is also true that many of them are only concerned about corrupting the politicians, seeking their own benefit.

    Over a year after the "monetary integration", a balance of its effective results is imposed vis a vis the promises that  justified the measure. It is not enough to evaluate the achievement that most of the operations are now made in dollars, or that the macroeconomic stability could be the product of dollarization, just as the governmental officials –irresponsibly- want the people to believe. At the first step, the process' results vindicate the postures that considered the measure as "unnecessary" (for most of the population), since the Salvadoran economy did not require measures that would take it out of a non-existing shock.

    The Monetary Integration Law was understood by its apologists as a way to reduce the commercial banking system's interest rates -or at least that was the discourse that President Flores pronounced when he announced the disposition. This showed that, for the government, the reduction of the interest rates was an objective in itself, independently if that caused (or not) increases in the investments, production, employment and an improvement in the populations' life standards. However it was, according to the governmental speech, the measure had to be accepted, since the objective was to improve the economic situation, characterized by a slow economic growth, which had already been present along the last six years (and still does not seem to improve).

    Paradoxically, in the dollarization process' balance, made by the Banco Central de Reserva's (BCR) president, Rafael Barraza, almost nothing was mentioned -there are no interpretations either- about the fact that for 2001 the economic growth only reached 2%, despite that 54% of the currency was substituted by dollars, and that the interest rates kept diminishing during that year. Obviously, dollarization has not had the surprising results that were announced in the beginning; instead, the implicit costs during the process have been implacable and are already palpable as far as the public finances are concerned.

    Although the implicit benefits that dollarization could have cannot be outlined yet -if we speak about a long term monetary stability, as well as if we speak about the reduction of a macroeconomic setback risk, a product of an irresponsible administration of the monetary policy-, it is worth to remember the declared purposes and the expected benefits of the measure, as well as the actual results that came out after it took effect.

The potential benefits

    The context in which the measure is taken was characterized by a relative and continuous macroeconomic stability -with the exception of the public finances area- combined with an important reduction of the economic growth rates, after the mid nineties. Although the dollarization issue was a discussion topic since 1994, this had not find the opportunity to be implemented, especially due to the skepticism of the international financial organisms about the measure's convenience. In 2000, the measure received more international acceptance, and it was surprisingly implemented by the government, even if a lie had to be used to make believe that the system could admit the co-existence of the national currency and the dollar. At the same time, the responsibility of issuing colones was abolished from the BCR, and the dollar took effect as the legal currency.

    In that way, the "monetary integration" was nothing but the practice of an eventual dollarization of the economy, which, according to President Flores, would have three important benefits: first, it would favor a reduction of the interest rates (which would become similar to the international interest rates, that is 10%) and, with that, a reduction of the interest for those who owed money to the financial system (including the credit card companies); in the second place, it would bring a higher availability of resources to finance credits and extend the payment terms in favor of the indebted ones; and, in the third place, it would enable to finance the projects with dollars, which would encourage the international investments, since the investment agents would be able to "invest and make profits in a world quality currency". In summary, dollarization would improve the economy through the reduction of the interest rates and the attraction of the foreign investments.

The monetary and fiscal costs of dollarization

    What was not mentioned when the measure was approached and adopted were the implications that its adoption had, in terms of a monetary policy abolishment as well as for the increase of the expenses and the reduction of the fiscal income. It is important to remember that back in 1993, the practice of using the monetary policy to affect the real economic variables had already been abandoned. The dollarization opened the way to eliminate for once and for all the monetary policy -unless the present Legislative Assembly decided to revert the measure, but this is impossible considering the present political scenery.

    Ironically, the United States economy system frequently uses  the monetary policy to affect over the economic growth rates. It is enough to mention the interest rate's reduction that the United States Federal Reserve has been using since the last couple of years, and which was intensified to confront the effects of the terrorist attacks. Countries such as Mexico and Chile overcame with a better strategy the crisis stages through floating exchange models; on the contrary, countries such as Argentina and Ecuador, who adopted different versions of convertibility and dollarization, have not been able to control, without certain problems, similarly complex situations.

    The fiscal costs of dollarization also exist. However, for the government they seem to be easily "manageable", despite that the fiscal deficit is growing stronger. An estimate of the amount of money that the country had to pay during the first year of the dollarization system shows the following results: 2.1% of the GNP, since an amount of colones equivalent to $330 million were substituted with the resources of the Net International Reserves (RIN, in Spanish) and a 1.3% of the GNP which came from the reduction of the interests earned by the RIN that are used for the dollarization and from the income that the government will stop receiving year after year(which also flows from the RIN). This means that during 2001 the dollarization had an approximate cost of 3.4% of the GNP (an amount very similar to the fiscal deficit). In the future, costs of 1.3% of the GNP can be expected every year.

The effective benefits after a year

    Without the intention to say that the interest rate's reduction is not important, the truth is that the balance after a year of dollarization should have already make President Flores feel upset, since the benefits he predicted did not come true. And even if they had, they would not be enough to take the economy out of its present slow growth phase. An especially concerning aspect is the investments' little "elasticity" for the interest rates: even if they are reduced, the investments do not grow that much, as the modest 2001 GNP growth rate of 2% reveals.

    The interest rates have been reduced, but practically only for the new credits. The banking system's debtors, and the credit card holders still face relatively high interest rates, and the foreign investments have not been improved as Flores expected, who said that the monetary integration was an "enormous incentive". Only the indebted sectors re-financing did seem to be achieved, at least to judge by the monetary debt's reduction.

    According to the BCR's president, some of the benefits provided by dollarization during its first year would be: the interest rate's reduction, the stability of the exchange type, and the arrival of new investments to the country. With the only exception of the first benefit, all of the others were not actually achieved: the type of exchange's stability is the same since 1992, and it is basically a result of the family remittances flow; while the arrival of new investments cannot be an exclusive achievement of the dollarization process, since those investments have been arriving to the country during almost the complete nineties decade. It can even be said that during 2001 the environment for the foreign investment has not improved, due to the slow growth that the United States economy has been experimenting during the last couple of years.

    The most beneficiated sector from the dollarization process has been the financial system, which does not face anymore the risk that its debits are increased due to a possible devaluation decided by the political circles, and because it has been encouraged to reduce its debts. Because of that it has been able to increase its annual profits. For December 2001, it was estimated that the financial system's external debits presented a $883 million balance, distributed in $362 million of short term debits, and $521 million in obligations of a mid and a long term.

Considerations

    Neither when it was decided to take this measure, nor at the present moment, El Salvador has been suffering an economic crisis that needed such a drastic measure as dollarization. A decision of this nature would not be strange in a economic environment of recession, hyper-inflation, and/or excessively high interest rates (the interest rates had been experimenting a reduction process since the end of 1999, with the financial reserve’s reduction). This has been an odd measure to take in El Salvador.

    Setting aside the reduction of the interest rates, none of the announced benefits depends exclusively on the dollarization. The re-financing process of the debts, and the attraction of the foreign investments go beyond that measure. In the first case, it also has to do with the terms and with the payment capacity of the debtors; in the second place, it has to do with several aspects: the quality of the roads' and the sea ports infrastructure, the political stability, the public safety situation, and the labor. The foreign investments depend on the demand of the main commercial partner of El Salvador: the United States. If there is a recession in that country, there will also be a recession at the “satellite” countries, most of all if they do not count with the monetary policy instruments to face a possible shock of this kind.

    The Argentinean case, although it is very different from the Salvadoran one in many senses, has set over the discussion table the convenience to adopt policies such as the convertibility box and dollarization and, much to the displeasure of its apologists, history seems to show that, in El Salvador, dollarization has been the wrong decision. Fortunately, the door is still open to derogate it, in order to save the Salvadoran society from the high direct and indirect costs associated with the dollarization.
 
 
 

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