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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

    The congressman Orlando Arévalo has been getting, since a few weeks ago, the attention of the news media. From his intervention in favor of the demobilized troops, through his lecture to the bus owners, to his alleged implication in a millionaire fraud against the government of Japan: everything is a motive of divulgation and public ridicule. Arevalo, however, does not seem discouraged at all. On the contrary, he knows how to use –to appear once and again in the media claiming his innocence and denouncing the persecution he is being subjected to- all the things that are said against him.

    In the case of congressman Arevalo, it is convenient to separate the straw from the wheat, that is, it is convenient to examine with a minimum doses of  objectivity whatever is illegal or irregular in his conduct as a congressman. It is also necessary to examine if there are bad intentions or revenge purposes in those who intend to sit him in the seat of the accused. Until now, both situations have been mixed up in a confusing way, therefore, it is difficult for the population to have a reasonable idea about these matters. And what is even worse, Arevalo himself, as well as his detractors, are trying to take advantage of the confusion, which makes everything even darker. The right-wing’s printed media has not actually helped to understand the problem better, since it has only echoed the interests of those who have a clear intention to make a common delinquent out of Arevalo.

    To this point, someone would have to be blind not to realize the attack that Arevalo is being subjected to. Systematically, his steps are being followed from the National Civilian Police’s Direction (PNC, in Spanish), and from ARENA. The reasons are diverse, but maybe the most important one is the challenge that Arevalo announced to ARENA when he denounce the presence of a mafia inside that political party. “Mafia” is a strong word, because it refers to serious crimes and, the way it seems, some important ARENA and PNC members are not completely unrelated to this accusation.

    A confrontation of this kind, obviously cannot be forgotten, and sooner or later, the one that caused it will have to pay the consequences. Everything leads to suspect that the slogan of ARENA’s direction, as well as the one of the PNC, is that Arevalo has to be destroyed at any cost. To destroy Arevalo means, from that perspective, to publicly discredit him –that is, to make him seem as a wretch that does not deserve any social consideration- and, later, take him before justice accused of a crime that might be relevant enough so that he cannot easily avoid it and be punished for it.

    In that way, the ARENA party and the PNC’s direction want to sit Arevalo on the seat of the accused, no matter what it takes. And, precisely for this “no matter what it takes” is that so many mistakes have been committed. They have not only misused the country’s basic legality, but they have also built a self-promoting platform for Arevalo. For now, he can feel satisfied with the achievements: he has ridiculed the PNC’s director, he has gained a space in the national news media that many politicians would like to have, and he has made everyone doubt about the evidences that the judicial authorities claim to have against him in reference to his alleged illicit activities.

    It has to be considered that the authoritarian outrages of the PNC’s director or that ARENA’s revenge objectives should not lead to think that Orlando Arevalo is their innocent victim. As a congressman and as a citizen, Arevalo leaves a lot to be desired with his public behavior. The bad intentions or the authoritarian attitude of those who have him between the eyes, should not lead to ignore his performance and his professional background, which are not exemplary nor completely transparent. In other words, apart from the intentions of those who want to erase him from the political scene, in his professional background and his performance there are enough elements that could allow an exhaustive  investigation of his activities.

    It is clear that an investigation of that nature not only has to respect the country’s basic legality, but it also has to gather the necessary evidence –if there is any- to determine the penal (or ethic) responsibility of congressman Arevalo. Otherwise, his judicial (or his moral) solvency must be publicly established, because it is not about tarnishing names and reputations for free. Here, the rest of the congressmen have a key role to play: they must be willing to open a file for Arevalo, without participating in questionable activities to obstruct or favor the case.

    The spokes people from the National Attorney General’s Office have said in more than one occasion that they have proofs of Arevalo’s illicit activities. However, that evidence has to be backed up, so that it can effectively determine Arevalo’s penal responsibility. If there are no such proofs, the best thing that the Attorney General’s Office should do is to be quiet, because with its unfounded accusations it is playing a part in the dirty game in which the PNC’s direction, ARENA, and Arevalo himself are all involved. A game of accusations, counteraccusations, and abuses that, at least for the moment, Arevalo is the only one that has won at it.

    At some point Arevalo has to respond for his actions. Until now, some people’s obsession to end, at any cost, with his political career, has been an obstacle for the necessary investigation of his conduct as a citizen and as a congressman. At the moment, he can be relatively at ease, since a serious investigation against him about his conduct will always be seen as a part of a conspiracy against him. That was the favor that the ones who attempt to end with his political career and see him behind bars made him. To have an obsession about an issue, sometimes leads to commit unforgivable mistakes; to this point, those who have sworn to end with Arevalo should know well what they have done.
 

    Reunited at the United Nations, in New York, for four days in September, 2000, the Presidents and the Governments of the world consigned the already well-known “Declaration of the Millennium”, in which they acknowledged that 1,000 million of human beings –one sixth of the humanity- lived in a extreme poverty condition. At the same time, they compromised themselves –among other things- to “reduce that amount in half for 2015, the percentage of the planet’s inhabitants whose income are inferior from a dollar per day, and the percentage of the people who are starving”.

    The CEPAL’s document, “The Social Perspective of Latin America”, in its 2000-2001 edition, takes note of the dilemmas of the governments at the Millennium’s Summit, and offers a diagnosis of the social and the economic situation at Latin America in the dawn of the new century. Evidently, the information compiled over five fundamental topics (poverty, income distribution, employment, social expense and families) constitute a reference from where the possible solutions might be approached to face the enormous social and economic challenges of Latin America.

    The document offers a retrospective vision of the nineties. During that period of time, the social situation was characterized by the “deceleration and volatility of the economic growth”. By the end of that decade, poverty affected more people than it did before, the unequal distribution of the income persisted, and the labor market had been relatively incapable of reincorporate the hand laboring sector to the formal economy, opening the gate to informality and unemployment. All of the former situations took place despite that the social public expense was increased and the life standards of the Latin American population had a relative improvement. Each one of the factors necessary to understand this situation have to be closely examined, in order to have a more accurate appreciation about the social and the economic situation of Latin America along a whole decade.

1. Poverty
    According to the same document, “by the end of the nineties, the poverty situation in Latin America affected 35% of the homes, while homelessness and extreme poverty reached a 14%”. In 1999, the records show that there were more than 211 millions of people living in poverty, out of which, approximately 89 millions were homeless. The incidence of poverty was different from country to country: Argentina, Brazil and Colombia experimented a higher incidence of poverty; while in Mexico, El Salvador and Panama had significant reductions. Finally, according to the CEPAL, the reduction in half of the extreme poverty index –planned for 2015 during the Millennium Summit- would come true in the region only if they can get “the product per capita increased in a yearly average of at least 2.3%”.
 

2. Income distribution
    Latin America is considered the most unequal region of the world. Such consideration is not a mere observation if the income’s distribution tendencies are examined. In fact, with the exception of Costa Rica, Uruguay and Cuba, in the rest of the countries, 10% of the homes with higher resources concentrate more than 35% of the income. Contradictorily, 40% of the poorest homes receive between 9% and 15% of the total income. In summary, despite the achievements made with the expansion of the economies –as in the Chilean economy, for example-  and despite the growing social expense, the income’s distribution has not been positively modified. With a generalized increase of the population, whose income per capita is lower than 50% of the average, there are no substantial advances at sight as far as the income’s distribution is concerned. Brazil and Guatemala are the countries with the most unequal income for the decade.

3. Employment and unemployment
    During the nineties, the Economically Active Population (PEA, in Spanish), annually grew in a 2.6% rate. The laborers’ average –that in 1990 was 212 millions of people- grew with 44 millions more along the decade, representing in 1999 a 42% of the total population. However, unemployment also grew, and the job demand did not satisfy the important growth of the laboring force. More than 10 millions of people were unemployed, the urban population was specially affected by this problem. However, in the Central American countries, unemployment was reduced. Even if so, the high unemployment level in Latin America was steady during the following years.

4. Social expense
    During the nineties, a higher effort was made in order to assign more public resources to the society. This effort turned itself into an increase of the social expense per capita in up to a 50%. In general terms, the expenditure of the resources was due to the recuperation of the economic growth during the first half of the decade, and to the increase of the fiscal priority granted to the social expense. El Salvador, Guatemala, Paraguay, Peru and the Dominican Republic had a very low level of social expense per capita. As a whole, social expense has been highly redistributed in all of the countries; in other words, the poorest homes have been more beneficiated from it. However, despite the increase recorded along the decade, the expense has not been enough.

5. Families
    The central role granted to the families in the governments’ speeches and at the civilian and religious institutions contrasts with the disregard of the public policies. The general perception is that the demographic transformations, the increase of the mothers as the heads of the home, and the participation of women in the labor market have been the most relevant changes of the family’s structure along the decade.

    The authorities in charge of the family (ministries, secretariats, and other institutions) have their share of responsibility for the problems that the families suffer: family violence, unemployment, economic crisis, and the deterioration of the living standards, the lack of health and education services, and the family disintegration. In summary, the policies oriented to the family do not have an specific definition, they lack legitimacy and continuity, and they have a reduced field of action. The CEPAL’s document recommends that it is necessary to “emphasize the basic criteria to design these policies is to count with an adequate diagnosis that considers the variety of situations and the recent changes that the Latin American families have gone through”.

    That is how things have developed along the decade. Evidently, because of its nature, the CEPAL’s diagnosis does not fully visualize the aspects that came along in 2000, which had a definite influence in the present social and economic global situation and particularly in Latin America. The present world’s situation, marked by a permanent economic deceleration, and a hostile social and political environment (and terrorism), many aspects have to be updated.
The configuration of the world’s scenery has changed rapidly since the new millennium started. And although the old problems are still valid, it seems as if the governmental strategies need to change, facing the complexity of the international surroundings. The social perspective for Latin America has showed that the increase of the public expense in the social sectors has not been enough to reduce poverty in that region, since it has not been accompanied by a better distribution of the income, no coherent public policies have been designed, and the employment markets have not satisfied the job demand.
 
 

    Ever since The United States’ President, George W. Bush, announced his disposition to subscribe a free trade agreement with Central America and, later, with the announce of his visit to El Salvador, many positive expectations have arisen in the area among the business and the governmental sectors. It would be expected that with the free trade, the Central American products can have an easy access to the United States’ market and that, in addition, the North American investments increase.

    In the middle of the euphoria, it has also been said that it is important that Central America negotiates a possible free trade agreement as a block, an integrated one, and not individually or disregarded, as the recent approach has been. It would not be the first time that Central America seeks the economic integration, but it is given in a very different context from the ones that prevailed during the middle of the 20th century., just to mention the closest period. If at that moment there was an international market with high prices for the exportation products, now everything is completely the opposite.

    The serious crisis that the coffee’s international market faces since 1989, and that has increased in the last couple of years has affected all the countries of  the area. The Central American countries have not achieved a qualitative progress that might allow them to consolidate a productive sector that substitutes the traditional agricultural exporting sectors. The textile maquila, and even the electronic one, do not represent a solution for the external and the fiscal deficit; this is evident when the main Central American macroeconomic indicators (which belong to the 2001 Preliminary Balance of the Latin American and the Caribbean Economies, prepared by the Economic Commission for Latin America and the Caribbean –CEPAL) are examined.

Costa Rica
    The growth of the GNP in Costa Rica was only 0.3% during 2001, due to a reduction in the external demand of electronic and textile products, and the tourism services. That percentage was also the result of  a fall in the coffee’s international prices. This is exceptionally low, if it is considered that during 1999 the Costa Rican economy experimented a growth of 8.1%. The available unemployment rates indicate that in the urban environment this percentage was increased from 5.3% in 2000, to 5.8% in 2001.

    The inflation rate for 2001 would have reached 11% -the highest rate of Central America- which coincides with a gradual “sliding” process of the currency exchange, in order to ignore it and ignore the loss of competitiveness as well. During the year, the Costa Rican workers received important salary adjustments: the minimum wage was increased in 5% in January, and in 7.7% during June, while the public sector’s employees received a salary increase of 6.6% along the year. Consequentially, Costa Rica did not report any deterioration in the real salaries.

    The external sector did experiment an important deficit, when the regular account’s  balance was deteriorated due to an important reduction of 10% in the total exportations. The central government’s reached a 3.2% of the GNP since, despite  that the real income grew in 5%, the expenses increased in a 5.7%.

El Salvador
    The economic growth in this country, according to the appreciation of the CEPAL, reached  1.5% (although according to an official estimate it would have been 2%). This low growth rate has as a five year period background in which the economic growth was reduced, affected by the impact of two earthquakes during the first months of the year. Additionally, the fall of the coffee’s international prices and the fall of the external demand also affected this situation, as well as the reduction of the textile maquila activities.

    There are no available data about the behavior of the real salaries, but it is important to notice that since 1998 the minimum wage has been frozen. If this situation is added to the inflationary tendencies of the last years, it shows a deterioration of the real salary. During 2001, the inflation was estimated in 3% -the lowest one in Central America-, mostly because of the exchange rate policy, which was practically in effect since 1992, and which later transformed itself into the dollarization of the economy, since 2001.

    The deficit of El Salvador’s commercial balance would have been 2,200 millions of colones; however, the balance of the regular account ($500 million) was not so negative, thanks to the permanently growing tendency of the family remittances. The fiscal deficit reached a 3.9% of the GNP because there was not an increase in the regular incomes in real terms.

Guatemala
    This country’s GNP grew in a 2%; this intensifies the growth’s  reduction tendency that has been expressed in the subsequent reductions of the growth rates (between 1999 and 2000, it fell from 3.9% to 3.1%). This can be the result of  a situation similar to the ones of Costa Rica and El Salvador. Only a deterioration of the business climate is left to be added, which is a result of the dispute between the government and some businessmen due to the important tax reform and the rearrangement of the financial sector (the private investment was reduced in 4%).

    The growth of the prices, on the other hand, would have reached a 10%, mostly due to the price increase caused by the increase of the Value Added Tax (IVA, in Spanish), as well as for the depreciation of the exchange type registered along the year.

    The velocity of an aggressive tax reform could not stop the growth of the fiscal deficit (by the end of the year, it reached up to 2.5% of the GNP), partly because of an increase of the expense on support funds for the coffee-growing sector and the payment of obligations, but also because the revenue was not expanded as it had been planned. The main tax measures contemplated: an increase on the IVA from 10% to 12%, an increase of the taxes on the business assets, an increase on the fuel oil, and on the circulation and the importation of vehicles and other articles.

    Guatemala’s commercial balance was $1,641 million, a slightly superior balance to the $1,540 million obtained during 2000. In the end, the payment’s balance showed a positive balance of $400 million, a product of a strong flow of capitals for an amount equivalent to $1,359 million.

Honduras
    This economy grew 2.5% especially due to an expansion of the consumption, and despite a contraction in the growth rate of the agricultural sector due to a reduction of the coffee’s international prices, and the impact of a dry season over the basic grains’ production. This contraction was compensated by the highest growth of the industry and an expansion of the maquila. The information available showed an unemployment rate of 3.3% in 1999, and 4.2% in 2001, just as an increase on the invisible underemployment from 23.7% to 35.9% in the same year.

    The inflation reached a 9.1%, partially due to the  type of exchange’s “sliding” policy, while the minimum salary was increased in a nominal 16%,and in a real 6%. The public employees’ salaries were increased in a nominal 19.5%, and in a real 6%.

    The fiscal deficit reached a 5.5% of the GNP –the second at being the highest one of Central America after Nicaragua- due to a reduction of the government’s income in relation to the GNP, and to a larger public expense for the reconstruction of the damaged infrastructure and for the combat against poverty. This deficit is produced despite that the recollection of the income tax was increased close to an 18%. Finally, the commercial balance’s deficit was $1,024 million, the regular account’s deficit was $356 million, and the one of the payment’s balance was $98 million.

Nicaragua
    Here, the GNP’s growth would have been 2%, a relatively low rate if it is consider that in 2000 it was 4%. In part, this is due to a reduction of the public and the private investment on housing construction, and on the reconstruction of infrastructure that been taking place ever since the impact of the Mitch hurricane, in 1998. In addition to that, unemployment increased from 9.8% in 2000, to 10.7% in 2001.

    Inflation would have also been reduced if compared with the one of 2000, and it would have reached 6%, a fact that can be related to a lower added demand, as a product of the investment’s reduction and a relative stabilization of the basic services. If this is added to a 12% increase on the minimum wage, it allows a real appreciation of the salaries of approximately 5%.

    The fact that the state’s income was frozen contributed with the growing deficit, which reached a 8.5% of the GNP, the highest one in the Central American region. The external sector revealed a reduction of the exportations –again due to a reduction of the coffee’s prices- and a relative stability of the importations that turned into the commercial balance’s deficit of $1,052 million. The regular account deficit reached a $976 million amount, and the payments’ balance reached $280 million.

The regional chimeras
    It is clear that, politically, Central America has important tendencies and common vulnerabilities: the reduction of the economic growth, the increasing unemployment rates, the enlargement of the fiscal deficits, the payments’ balance deficit (excepting Guatemala), and the dependency of products with a questionable viability, such as coffee and the textile maquila products. Probably, the only aspect that might be important to underline in 2001 is the reduction (or at least the contention) of the inflationary process, and the appreciation of the real salaries (excepting El Salvador and Guatemala).

    The economic and social Central American models have their limits in their inability to reorient the economies for products (or services) with larger demands and international prices. The free trade agreement with the United States, which seems to be coming along in the near future, could be an opportunity, but it can only become an advantage if the Central American countries take the globalization challenge, not only by looking outside, but also inside, where the policies to encourage the productive abilities and support the productive diversification are needed.

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