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ECONOMY-EL SALVADOR: Peace Alone Not Enough

Raúl Gutiérrez

SAN SALVADOR, Jan 24 2007 (IPS) - “Conditions for workers have deteriorated, their buying power has shrunk, and marginalisation has grown. The only thing that has prevented the collapse of the economy of El Salvador are the remittances” sent home by millions of Salvadorans living abroad.

This was how Gilberto García, vice president of the Centre for Labour Studies and Support (CEAL), summed up the situation in this Central American country after three consecutive administrations of the right-wing Nationalist Republican Alliance (ARENA).

He acknowledged that advances have been made in the 15 years since a peace agreement put an end to 12 years of civil war, such as the ratification of an International Labour Organisation (ILO) convention protecting the right to unionise.

The activist told IPS, however, that over the past decade and a half, ARENA has fomented the further concentration of wealth, which has heightened the antagonism between labour and business.

Poverty and social exclusion, recognised causes of El Salvador’s 1980-1992 armed conflict, are acute problems that have not been addressed by government policies since the peace deal was signed on Jan. 16, 1992 by the government and the leftist guerrillas.

During that time, emigration has served as an escape valve and economic palliative for this country of seven million.

Figures from the Central American Resource Centre (CRECEN) indicate that more than 700 Salvadorans leave the country every day in search of work and decent wages, mainly heading to the United States, where 2.3 million of the more than 2.5 million Salvadorans abroad are residing.

El Salvador received some 3.3 billion dollars in expatriate remittances last year alone, equivalent to more than 17 percent of gross domestic product (GDP), according to the Central Reserve Bank.

The last three Salvadoran governments have spent large sums on touting the progress, modernisation and economic development supposedly brought by the peace agreement, which should have led to an improvement in living standards for the poor, according to the trickle-down theory.

But that has not happened. Official statistics still reflect a seven percent unemployment rate and 39 percent underemployment.

In 1992, the insurgent Farabundo Martí National Liberation Front (FMLN) and the right-wing government of then-president Alfredo Cristiani signed the peace treaty that ended the war, which left a death toll of 80,000, including 6,000 victims of forced disappearance, and 40,000 disabled people.

One of the most unusual protests against the Jan. 16 celebrations of the 15th anniversary of the signing of the peace accord was staged by around 200 disabled persons, who marched in underwear and with a cross painted on their chests to demand a 15 percent increase in their pensions every two years, to enable them to cover their basic needs.

Daniel Martínez, president of the Association of Armed Forces War Wounded of El Salvador (ALFAES), said the “paltry” pensions received by the disabled veterans range from 37 to 95 dollars a month, while the legal minimum monthly wage stands at 175 dollars.

A study carried out in late 2006 by the Consumer Defence Centre (CDC) found that the basic food basket cost 24.50 dollars more than the minimum monthly wage in 1992, and 63.50 dollars more than the minimum wage in November 2006.

The CDC study also pointed out that basic services absorbed 14 percent of people’s wages in 1992, compared to 37 percent last year.

That increase is explained by the rise in water, power and telephone bills, which climbed by between 170 and 1,000 percent in the period studied. This was compounded by the high inflation rate.

Even after El Salvador adopted the dollar as its local currency in 2001, with the aim of taming inflation, the inflation rate averaged 19.9 percent between 2002 and 2006 – nine percent above the 1997-2001 average, according to the CDC.

“That means purchasing power has been significantly reduced,” Armando Flores, executive director of the CDC, told IPS.

Besides bringing the armed conflict to an end, the main objectives of the peace treaty were democratisation, national reconciliation, and finding solutions to the underlying economic and social causes of the war.

To that end, the Social and Economic Settlement Forum (FES) was set up, in which representatives of the government, private business, trade unions and social organisations were to participate on an equal footing, in order to work out the longstanding differences between the various sectors. But the FES was short-lived.

“The disappearance of the FES showed that the powerful elites that have taken control of the economy and the government have supported the imposition of policies agreed on with the top government authorities and the international lending institutions,” while excluding the poor from decision-making on basic socioeconomic questions, said García.

In February 1994, the government requested that the FES be suspended until the elections were held in March that year, in order to keep the body from being politicised, but promised to have it working again a few months after the elections.

In October 1994, the governing ARENA party, which together with its allies held a majority of seats in parliament, replaced the FES with the Superior Labour Council (CST). But a major difference between the CST and the FES is that although the labour representatives are proposed by the trade unions, the executive branch has the ultimate power to choose the workers’ delegates.

This means “they end up being in line with government policy, and they don’t represent the interests of workers,” said García, with CEAL, a leading nongovernmental labour rights organisation in San Salvador.

Economist Alex Segovia said the origins of the current conditions in El Salvador lie in “the divorce between the political agenda and the economic-social agenda of the peace accord,” because the monetary, financial and trade-related measures adopted by the administrations that have governed since 1992 have failed to take into account the causes of the armed conflict.

“The war was triggered by exclusion, poverty and inequality, and these problems have not been tackled,” the prominent analyst said in a television interview.

When ARENA came to power in 1989, President Cristiani privatised the banking sector and undertook structural adjustment measures and economic reforms. Since then, the telephone and power companies, as well as the pensions system, have also been privatised, and the economy has been dollarised.

In addition, trade has been opened up through several free trade accords, including one with Mexico and another, CAFTA, signed in 2006 with the United States, four other Central American countries, and the Dominican Republic.

Although economist Héctor Vidal, a former adviser to the National Association of Private Enterprise (ANEP), acknowledged that positive economic changes have occurred in the last 15 years, he has reservations about many of the measures adopted, particularly free-market, neoliberal policies and those prescribed by the World Bank and International Monetary Fund.

“Everyone knows that after 15 years of reforms, the wholehearted adoption of the neoliberal economic model was not the most recommendable course of action, and the privatisations were not transparent in areas like telecommunications, the power industry and the financial system,” he told IPS.

In addition, “the interests of the big importers, bankers, shopping mall owners and credit card companies were privileged,” said Vidal.

That situation contrasts, he said, with the loss of jobs, the increase in inequality, and the impoverishment of the middle class, caused by “the greed of important actors who have a short-term vision that ignores the concepts of progress and equality.”

“These power groups are able to force the government to reach certain decisions, which is appalling,” said the economist.

Official statistics indicate that El Salvador posted an average GDP growth rate of just two percent between 1995 and 2004, one of the lowest in Salvadoran history and one of the lowest in Latin America that year.

The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that the Salvadoran economy grew 3.5 percent in 2006, but analysts say the increase did not necessarily imply an improvement in living standards for Salvadorans.

The United Nations Development Programme’s “Human Development Report El Salvador 2003” said the gap between rich and poor has widened in the last few years.

The report stated that in 1992, the richest 20 percent of households received 54.5 percent of the national income, a proportion that had risen to 58.3 percent 10 years later.

Meanwhile, the poorest 20 percent of households got by on 3.2 percent of the national income in 1992, and just 2.4 percent 10 years later.

García said that El Salvador is experiencing “a financial bubble with the appearance of a boom, with shopping centres, cell-phones by the thousands and a growing number of cars – the result of remittances – but we are looking at a very serious situation, a breakdown of the social fabric.”

“Efforts must be redoubled to address the economic and social questions that have been abandoned. Otherwise this country has poor prospects for the future: we are reaching a critical threshold,” he said.