El Salvador on the Brink of Economic Collapse

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 few years.

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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