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Economy of El Salvador

The Salvadoran economy continues to benefit from a commitment to free markets and careful fiscal management. The economy has been growing at a steady and moderate pace since the signing of peace accords in 1992, and poverty was cut from 66% in 1991 to 37.8% in 2009. Much of the improvement in El Salvador's economy is a result of the privatization of the banking system, telecommunications, public pensions, electrical distribution and some electrical generation; reduction of import duties; elimination of price controls; and improved enforcement of intellectual property rights. Capping those reforms, on January 1, 2001, the U.S. dollar became legal tender in El Salvador. The economy is now fully dollarized.

The Salvadoran Government has maintained fiscal discipline during post-war reconstruction and reconstruction following earthquakes in 2001 and hurricanes in 1998 and 2005. Taxes levied by the government include a value added tax (VAT) of 13%, income tax of 20%, excise taxes on alcohol and cigarettes, and import duties. The VAT accounted for about 49.7% of total tax revenues in 2010. El Salvador’s public external debt in December 2009 was about $11.2 billion, 53% of GDP.

Years of civil war, fought largely in the rural areas, had a devastating impact on agricultural production in El Salvador. The agricultural sector experienced significant recovery, buoyed in part by higher world prices for coffee and sugarcane and increased diversification into horticultural crops. Seeking to develop new growth sectors and employment opportunities, El Salvador created new export industries through fiscal incentives for free trade zones. The largest beneficiary has been the textile and apparel (maquila) sector, which directly provides approximately 80,000 jobs. Services, including retail and financial, have also shown strong employment growth, with about 59% of the total labor force now employed in the sector.

Remittances from Salvadorans working in the United States are an important source of income for many families in El Salvador. In 2010, the Central Bank estimated that remittances totaled $3.5 billion. UN Development Program (UNDP) surveys show that an estimated 22.3% of families receive remittances.

Under its export-led growth strategy, El Salvador has pursued economic integration with its Central American neighbors and negotiated trade agreements with the Dominican Republic, Chile, Mexico, Panama, Taiwan, Colombia, and the United States. In 2010, Central America signed an Association Agreement with the European Union that includes the establishment of a free trade area. The Central American countries are negotiating a free trade agreement with Canada. El Salvador is negotiating a partial-scope agreement with Cuba that is expected to be finalized during 2011. El Salvador also expects to begin Pacific Arc forum negotiations to reach a trade agreement aimed at creating a common production platform; forum members are Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Peru, Chile, and Ecuador. Exports and Imports both grew by 17.8% in 2010. As in previous years, the large trade deficit was offset by family remittances.

The U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), implemented between El Salvador and the United States on March 1, 2006, provides El Salvador preferential access to U.S. markets. Textiles and apparel, shoes, and processed foods are among the sectors that benefit. In addition to trade benefits, CAFTA-DR also provides trade capacity building, particularly in the environment and labor areas, and a framework for additional reforms on issues such as intellectual property rights, dispute resolution, and customs that will improve El Salvador’s investment climate. For sensitive sectors such as agriculture, the agreement includes generous phase-in periods to allow Salvadoran producers an opportunity to become more competitive.

U.S. support for privatization of the electrical and telecommunications markets markedly expanded opportunities for U.S. investment in the country. More than 300 U.S. companies have established either a permanent commercial presence in El Salvador or work through representative offices in the country. The U.S. Department of Commerce maintains a Country Commercial Guide for U.S. businesses seeking detailed information on business opportunities in El Salvador.

On November 29, 2006, the Government of El Salvador and the Millennium Challenge Corporation (MCC) signed a 5-year, $461 million anti-poverty Compact to stimulate economic growth and reduce poverty in the country’s northern region. The grant seeks to improve the lives of approximately 850,000 Salvadorans through investments in education, public services, enterprise development, and transportation infrastructure. The Compact entered into force in September 2007, and it is expected that incomes in the region will increase by 20% over the 5-year term of the Compact, and by 30% within 10 years of the start of the Compact.

Natural Disasters
Located on the Pacific’s earthquake-prone Ring of Fire and at latitudes plagued by hurricanes, El Salvador’s history is a litany of catastrophe, including the Great Hurricane of 1780 that killed 22,000 in Central America and earthquakes in 1854 and 1917 that devastated El Salvador and destroyed most of the capital city. More recently, an October 1986 earthquake killed 1,400 and seriously damaged the nation’s infrastructure. In 1998, Hurricane Mitch killed 10,000 in the region, although El Salvador--lacking a Caribbean coast--suffered less than Honduras and Nicaragua. Major earthquakes in January and February of 2001 took another 1,000 lives and left thousands more homeless and jobless. El Salvador’s largest volcano, Santa Ana (also known by its indigenous name Ilamatepec), erupted in October 2005, spewing sulfuric gas, ash, and rock on surrounding communities and coffee plantations, killing two people and permanently displacing 5,000. Also in October 2005, Hurricane Stan unleashed heavy rains that caused flooding throughout El Salvador. In all, the flooding caused 67 deaths and more than 50,000 people were evacuated at some point during the crisis. Damages from the storm were estimated at $355.6 million. In November 2008, rains from Tropical Storm Ida caused flooding and mudslides that killed at least 199 and left extensive property damage in the departments of Cuscatlan, La Paz, San Vicente, and San Salvador. In 2010 property evacuation operations by the authorities prevented a higher number of deaths. In June 2010, Tropical Storm Alex killed 5 people and damaged 349 homes, and in September 2010, Tropical Storm Matthew killed 3 people and damaged 141 homes.

GDP (2010): $21.8 billion; PPP GDP (2010): $43.98 billion.
GDP annual real growth rate (2010): 0.7%-1.0%.
Per capita income (2009): $3,429; PPP per capita income (2010): $7,300.
Agriculture (11% of GDP, 2010): Products--coffee, sugar, livestock, corn, poultry, and sorghum. Arable, cultivated, or pasture land--68% (2005).
Industry (29.1% of GDP, 2010): Types--textiles and apparel, medicines, food and beverage processing, clothing, chemical products, petroleum products, electronics, call centers.
Trade (2010): Exports--$4.5 billion: textiles and apparel, ethyl alcohol, coffee, sugar, medicines, iron and steel products, tuna, light manufacturing, and paper products. Major markets--U.S. 48.3%, Central American Common Market (CACM) 35.5%. Imports--$8.5 billion: petroleum, iron products, machines and mechanical devices, cars, medicines, consumer goods, foodstuffs, capital goods, and raw industrial materials. Major suppliers--U.S. 36.5%, CACM 19.5%.

Geography of El Salvador

Cities: Capital--San Salvador (pop. 1.4 million). Other cities--Santa Ana, San Miguel. Terrain: Mountains separate country into three distinct regions-- southern coastal belt; central valleys and plateaus; and northern mountains. Climate: Semitropical, distinct wet and dry seasons. Location: Middle America, bordering the North Pacific Ocean, between Guatemala and Honduras Map references: Central America and the Caribbean Area: total area: 21,040 sq km land area: 20,720 sq km comparative area: slightly smaller than Massachusetts Land boundaries: total 545 km, Guatemala 203 km, Honduras 342 km Coastline: 307 km Maritime claims: territorial sea: 200 nm International disputes: land boundary dispute with Honduras mostly resolved by 11 September 1992 International Court of Justice (ICJ) decision; with respect to the maritime boundary in the Golfo de Fonseca, ICJ referred to an earlier agreement in this century and advised that some tripartite resolution among El Salvador, Honduras and Nicaragua likely would be required Climate: tropical; rainy season (May to October); dry season (November to April) Terrain: mostly mountains with narrow coastal belt and central plateau Natural resources: hydropower, geothermal power, petroleum Land use: arable land: 27% permanent crops: 8% meadows and pastures: 29% forest and woodland: 6% other: 30% Irrigated land: 1,200 sq km (1989) Environment: current issues: deforestation; soil erosion; water pollution; contamination of soils from disposal of toxic wastes natural hazards: known as the Land of Volcanoes; frequent and sometimes very destructive earthquakes and volcanic activity international agreements: party to - Biodiversity, Endangered Species, Hazardous Wastes, Nuclear Test Ban, Ozone Layer Protection; signed, but not ratified - Climate Change, Law of the Sea Note: smallest Central American country and only one without a coastline on Caribbean Sea

Government of El Salvador

El Salvador is a democratic republic governed by a president and an 84-member unicameral Legislative Assembly. The president is elected by universal suffrage by absolute majority vote and serves for a 5-year term. A second round runoff is required in the event that no candidate receives more than 50% of the first round vote. Members of the assembly are elected based on the number of votes that their parties obtain in each department (circumscriptive suffrage) and serve for 3-year terms. The country has an independent judiciary and Supreme Court. Legislative and municipal elections were held in January 2009, and presidential elections were held in March 2009.

Political Landscape
Hard-line conservatives, including some members of the military, created the Nationalist Republican Alliance party (ARENA) in 1981. ARENA almost won the election in 1984 with solid private sector and rural farmer support. By 1989, ARENA had attracted the support of business groups. Multiple factors contributed to ARENA victories in the 1988 legislative and 1989 presidential elections, including allegations of corruption in the ruling Christian Democratic party which had poor relations with the private sector, and historically low prices for the nation’s main agricultural exports.

The successes of Alfredo Cristiani's 1989-94 administration in achieving a peace agreement to end the civil war and in improving the nation's economy helped ARENA--led by former San Salvador mayor Armando Calderon Sol--keep both the presidency and a working majority in the Legislative Assembly in the 1994 elections. ARENA's legislative position was weakened in the 1997 elections, but it recovered its strength, helped by divisions in the opposition, in time for another victory in the 1999 presidential race, bringing President Francisco Guillermo Flores Perez to office. Flores concentrated on modernizing the economy and strengthening bilateral relations with the United States. Under his presidency El Salvador committed itself to combating international terrorism, including sending troops to aid in the reconstruction of Iraq. El Salvador also played a key role in negotiations for the Central American Free Trade Agreement (CAFTA-DR).

Taking advantage of both public apprehension of Flores’ policies and ARENA infighting, the chief opposition party, the Farabundo Marti National Liberation Front (FMLN), was able to score a significant victory against ARENA in the March 2003 legislative and municipal elections. ARENA, left with only 29 seats in the 84-seat Legislative Assembly, was forced to court the right-wing National Conciliation Party (PCN) in order to form a majority voting bloc. However, in 2003 the PCN entered into a loose partnership with the FMLN, further limiting ARENA’s ability to maneuver in the legislature.

Despite these constraints, ARENA made a strong showing in the March 2004 presidential election, which was marked by an unprecedented 67% voter turnout. ARENA candidate Elias Antonio "Tony" Saca handily defeated the FMLN candidate and party head Shafik Handal, garnering 57.7% of the votes cast. The defeat of the FMLN’s presidential candidate rekindled an internal FMLN struggle between hardliners and more moderate members who saw the party’s 2004 defeat as a call for reform.

In January 2009 legislative and municipal elections, the incumbent ARENA party garnered 32 assembly deputies and 122 mayoralties, while the opposition FMLN won 35 legislative seats and 75 city halls (plus 21 additional mayoralties in which they participated as part of a coalition). The PCN, PDC, and CD carried 11, 5, and 1 assembly seats, respectively. The new assembly took office in May 2009. In October 2009, twelve ARENA deputies left the party to form a new movement, the Great Alliance for National Unity (GANA), and two other deputies (one each from ARENA and the PCN) left their parties to become independents. As of January 2010, the assembly was composed as follows: FMLN - 35 seats, ARENA - 19 seats, GANA - 12 seats, PCN - 10 seats, PDC - 5 seats, CD - 1 seat, independent deputies - 2 seats. In December 2009, former President Antonio Saca was expelled from ARENA for his suspected involvement in the defection of the GANA deputies.

On March 15, 2009, FMLN candidate Mauricio Funes won El Salvador’s presidential elections, defeating ARENA candidate Rodrigo Avila. Final vote totals were 51.3% for the FMLN and 48.7% for ARENA. The elections marked the first time since the 1992 peace agreement that ended the civil war that an FMLN candidate was elected president and the first left-of-center government in El Salvador’s history. President Funes was inaugurated on June 1, 2009.

Human Rights and Post-War Reforms
During the 12-year civil war, human rights violations by both the government security forces and left-wing guerillas were rampant. The accords established a Truth Commission under UN auspices to investigate the most serious cases. The commission recommended that those identified as human rights violators be removed from all government and military posts. Thereafter, the Legislative Assembly granted amnesty for political crimes committed during the war. Among those freed as a result were the Salvadoran Armed Forces (ESAF) officers convicted in the November 1989 Jesuit murders and the FMLN ex-combatants held for the 1991 murders of two U.S. servicemen. The peace accords also established the Ad Hoc Commission to evaluate the human rights record of the ESAF officer corps.

In accordance with the peace agreements, the constitution was amended to prohibit the military from playing an internal security role except under extraordinary circumstances. Demobilization of Salvadoran military forces generally proceeded on schedule throughout the process. The Treasury Police, National Guard, and National Police were abolished, and military intelligence functions were transferred to civilian control. By 1993--9 months ahead of schedule--the military had cut personnel from a war-time high of 63,000 to the level of 32,000 required by the peace accords. By 1999, ESAF strength stood at less than 15,000, including uniformed and non-uniformed personnel, consisting of personnel in the army, navy, and air force. A purge of military officers accused of human rights abuses and corruption was completed in 1993 in compliance with the Ad Hoc Commission's recommendations. The military's new doctrine, professionalism, and complete withdrawal from political and economic affairs have made it one of the most respected institutions in El Salvador.

More than 35,000 eligible beneficiaries from among the former guerrillas and soldiers who fought in the war received land under the peace accord-mandated land transfer program, which ended in January 1997. The majority of them also received agricultural credits.

National Civilian Police
The National Civilian Police (PNC), created to replace the discredited public security forces, deployed its first officers in March 1993 and was present throughout the country by the end of 1994. The PNC has about 16,000 officers. The United States, originally through the International Criminal Investigative Training Assistance Program (ICITAP) and subsequently through the Department of State’s Bureau for International Narcotics and Law Enforcement Affairs, led international support for the PNC and the National Public Security Academy (ANSP), providing about $32 million in non-lethal equipment and training since 1992.

Following the peace accords, both the Truth Commission and the Joint Group identified weaknesses in the judiciary and recommended solutions, including the replacement of all the magistrates on the Supreme Court. This recommendation was fulfilled in 1994 when an entirely new court was elected, but weaknesses remain. The process of replacing judges in the lower courts, and of strengthening the attorney generals' and public defender's offices, has moved slowly. The government continues to work in all of these areas with the help of international donors, including the United States. Action on peace accord-driven constitutional reforms designed to improve the administration of justice was largely completed in 1996 with legislative approval of several amendments and the revision of the Criminal Procedure Code--with broad political consensus.

Principal Government Officials
President--Carlos Mauricio FUNES Cartagena
Vice President--Salvador SANCHEZ CEREN
Minister of Foreign Relations--Hugo Roger MARTINEZ Bonilla
Ambassador to the United States--Chargé d’Affaires Francisco ALTSCHUL Fuentes
Representative to the OAS--Luis MENENDEZ Castro (interim)
Representative to the UN--Carmen Maria GALLARDO de Hernandez

El Salvador maintains an Embassy in the United States at 1400 16th Street NW, Washington, DC, 20036 (tel: 202-595-7500). There are consulates in Atlanta, GA; Brentwood, NY; Boston, MA; Chicago, IL; Dallas, TX; Elizabeth, NJ; Houston, TX; Las Vegas, NV; Los Angeles, CA; Miami, FL; New York, NY; Nogales, AZ; Santa Ana, CA; San Francisco, CA; and Woodbridge, VA.

Type: Republic.
Constitution: December 20, 1983.
Independence: September 15, 1821.
Branches: Executive--president and vice president. Legislative--84-member Legislative Assembly. Judicial--independent (Supreme Court).
Administrative subdivisions: 14 departments.
Political parties (represented in the legislature): Farabundo Marti National Liberation Front (FMLN), Nationalist Republican Alliance (ARENA), National Conciliation Party (PCN), Christian Democratic Party (PDC), and Democratic Change (CD).
Suffrage: Universal at 18.

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History of El Salvador

The Pipil Indians, descendants of the Aztecs , and the Pocomames and Lencas were the original inhabitants of El Salvador, The first Salvadoran territory visited by Spaniards was on Meanguera Island, located in the Gulf of Fonseca, where Spanish Admiral, Andrés Niño, lead an expedition to Central America and disembarked on May 31, 1522. In June 1524 the Spanish Captain Pedro de Alvarado started a war to conquest Cuzcatlan. His cousin Diego de Alvarado established the village of San Salvador in April 1525. In 1546, Charles I of Spain granted San Salvador the title of city. During the subsequent years, the country evolved under Spanish rule; however, towards the end of the year 1810 many people began to express discontent. On November 5, 1811, when the Priest José Matias Delgado, clang the bells of La Merced Church in San Salvador, calling for insurrection, the people began to officially band together for freedom. In 1821, El Salvador and the other Central American provinces declared their independence from Spain. When these provinces were joined with Mexico in early 1822, El Salvador resisted, insisting on autonomy for the Central American countries. In 1823, the United Provinces of Central America was formed of the five Central American states under Gen. Manuel Jose Arce. When this federation was dissolved in 1838, El Salvador became an independent republic. El Salvador's early history as an independent state--as with others in Central America--was marked by frequent revolutions; not until the period 1900-30 was relative stability achieved. Following a deterioration in the country's democratic institutions in the 1970s a period of civil war followed from 1980-1992. More than 75,000 people are estimated to have died in the conflict. In January 1992, after prolonged negotiations, the opposing sides signed peace accords which ended the war, brought the military under civilian control, and allowed the former guerillas to form a legitimate political party and participate in elections.

People of El Salvador

El Salvador's population numbers about 7.2 million. Almost 90% is of mixed Indian and Spanish extraction. About 1% is indigenous; very few Indians have retained their customs and traditions. The country's people are largely Roman Catholic and Protestant. Spanish is the language spoken by virtually all inhabitants. The capital city of San Salvador has about 1.6 million people; an estimated 37.3% of El Salvador's population lives in rural areas. Nationality: Noun and adjective --Salvadoran(s). Population (2009 est.): 7.2 million. Annual population growth rate (2009 est.): 1.7%. Ethnic groups: Mestizo 90%, indigenous 1%, Caucasian 9%. Religion (2003 est.): About 57% Roman Catholic, with significant and growing numbers of Protestant groups. Language: Spanish. Education: Free through high school. Attendance (grades 1-9)--92.4%. Literacy --86.1% nationally; 77.6% in rural areas. Health: Infant mortality rate (2006)--22/1,000 (source: UNICEF). Life expectancy at birth (2008)--72.1 years. Work force (about 2.4 million, 2009): Agriculture --21%; retail, hotels, and restaurants --29%; industry --15%; construction --5%; other services --30% (2009).