El Salvador on the Brink of Economic
by Alex Modotti
Z magazine, May 2005
El Salvador ended 2004 with a series of
grim economic records, including a significant rise in the cost
of living that is straining the already tight pocketbooks of working
and middle class Salvadorans. The statistics around inflation
in the cost of basic food staples and transportation were so significant
that they made headline news in January. However, for all but
El Salvador's wealthiest, these statistics only corroborate the
economic squeeze they've been struggling to survive for the past
Aracely Lopez works as a secretary at
a local NGO in San Salvador and her husband works as an accountant
for Pepsi distribution. As the mother of two, Lopez constantly
cuts more corners to make her and her husband's paychecks cover
all her families needs.
"Just four years ago I could take
100 colones ($11.40 U.S.) to the market and buy most of the foods
we needed for the week," says Lopez. "Now, though, I
have to take 25 or 30 dollars and it is still a stretch to buy
the basics." In a country where $154 a month is the minimum
wage and where a secretary might earn between $150-300 dollars
a month, $30 a week is a significant amount.
Carmen Martinez, another mother working
in San Salvador, adds the ever increasing cost of transportation
to the discussion. Martinez commutes to and from a rural community
three times a week to work in San Salvador. A year ago she paid
$1.14 round-trip, but because of a government-approved increase
in bus fare in mid-2004, her trip now costs her $1.50. "Each
year, our paychecks cover less and less," says Lopez.
Lopez and Martinez's situations, in many
ways, are better than that of most Salvadorans. Both women and
their husbands have formal employment, something far from usual
in a country with only 30-35 percent of the population having
formal employment, and all of their jobs pay above minimum wage.
They live far above the one dollar a day with which more than
half of the people of El Salvador must survive.
This reality for working class Salvadorans
is a sharp contrast to the idyllic portrait of a healthy economy
that El Salvador's leaders paint in their speeches. In visits
to the UN and press conferences with George Bush, El Salvador's
rightwing presidents and their economic ministers wax eloquent
about reducing poverty and increasing democracy, padding the numbers
to back up their claims.
This façade of economic prosperity
that business and government elites have worked so hard to create
is now threatening to come crumbling down. After 16 years of ARENA
(National Republican Alliance) led governments loyally implementing
the International Monetary Fund-model of privatizations and opening
of markets, El Salvador's economy shows many signs of being on
the brink of collapse.
Inflation in El Salvador in 2004 was a
record in recent years, with the average cost of basic foods calculated
to have gone up as much as 7.6 percent, although beans and some
other basic staples of the Salvadoran diet are calculated to have
gone up as much as 50 percent. However, the cost of living has
actually risen dramatically since 2001, when then-President Francisco
Flores took advantage of
Foreign loans are only a piece of the
life preserver momentarily keeping El Salvador's economy afloat.
The real mainstay of the Salvadoran economy-remittances from Salvadorans
living and working abroad-has nothing to do with macro-solutions.
As Salvadorans face an ever shrinking labor market, more and more
see emigration to the United States as the only option for their
family's survival. Current estimates are of between two and a
half and three million Salvadorans living abroad, primarily in
the U.S., while six million Salvadoran remain at home. Approximately
600-700 Salvadorans leave each day for the United States.
Salvadorans working abroad are constantly
sending more and more money back to their families in El Salvador,
most of which is spent on basic things like food, education, and
clothing. In 2004 Salvadorans sent 2.5 billion dollars to El Salvador,
significantly more than in 2003. Instead of being concerned about
the dependence on this large quantity of money-remittances as
a percentage of the gross domestic product in El Salvador are
one of the highest in the world-conservative Salvadoran politicians
and their backers in the financial sector support emigration.
They see it not only as an economic escape valve, but also as
a source of profits; banks skim off large percentages in service
charges for wiring money from the U.S. to El Salvador. Remittances
are so much a part of the economic reality for Salvadorans that
one can wait many hours in line at banks around the first of the
month, as hundreds of people line up to withdraw the money their
families have sent. Of course, with the dramatic rise in the cost
of living, remittances also don't cover as much as they used to.
Thus, the strain of the economic crisis is felt not only by those
living in El Salvador, but also by Salvadorans working in the
U.S., who now must send more money to cover their families' needs.
While the cost of living and remittances
continue rising in El Salvador, its economic growth in 2004-estimated
between 1.3 and 1.8 percent-was the lowest in Central America
and the second lowest in all of Latin America, higher only than
Haiti. As all economic indicators point toward further economic
crisis in El Salvador, and possibly an economic collapse, people
are making alarming predictions. FMLN deputy, Salvador Arias,
El Salvador's 2001 Economist of the Year, has been warning about
the coming economic crisis for years. Yet as the situation gets
worse and ARENA shows no willingness to discuss proposals for
changing course, he and others are comparing El Salvador's current
situation to the months leading up to Argentina's economic collapse
in December 2001.
FMLN leaders point out that the economic
crisis is not coincidental, nor is it the result of poorly-implemented
free market reforms, as institutions like the World Bank argue.
The economic difficulties facing El Salvador are the result of
16 years of loyal implementation of a U.S. -backed neoliberal
model that has resulted in increased wealth for the wealthy-for
multinational corporations that can buy off privatized telecommunications
or for El Salvador's economic oligarchs who own the financial
sector-and increased poverty for the rest of the nation. Jose
Valencia, a national social movement leader, explains, "The
challenge to the FMLN and all the social organizations working
to build a more equitable society is to help bridge the gap between
people's understanding of their own difficult economic situation
and the role the government has played in creating those problems."
The social movement's work to change the
course and move El Salvador out of this foretold economic crisis
must come soon if the predictions of economists like Arias are
accurate. Salvador Arias says, "Everything points toward
economic growth in 2005 not passing 1 percent, and that is being
optimistic .... Furthermore, CAFTA will only accelerate the economic
damage to the agriculture, the maquiladora, and the micro, small,
and mid-sized business sectors." With the Bush administration
pushing hard in the U. S. for CAFTA this spring or early summer,
the future of this failing economic model is in the hands of Salvadorans
and activists throughout Central America and the United States
who are working to stop CAFTA and any other further imposition
of economic strangleholds on El Salvador.
Alex Modotti is a writer and solidarity
activist, currently working in El Salvador with the Committee
in Solidarity with the People of El Salvador (CISPES).
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