Macroeconomic aspects of El Salvador 1980

In this work we present the importance and relevance of the historical aspects of El Salvador in the war decade (1980-1990) and the post-war period (1991-2006); since this is related or affected in his time in the Salvadoran economy.

As an introductory part we will know the history of the armed conflict and data on the exported agricultural models with the magnitude of external resources and their performance in the Salvadoran economy.

macroeconomic-aspects-of-salvador-1

We will know the government plan with its main results and its current macroeconomic model, how the government carries out its work and how it takes into account foreign investment in our country, how companies invest in Salvadoran capital and how monetary and fiscal policies interact in the business productive sector.

OVERALL OBJECTIVE

Knowing The history of our Salvadoran economy has had in its history, with the events to achieve the current Macroeconomic model, Driven by the public and Private sector and the details that have emerged giving far-reaching changes in Monetary policies with dollarization and policy reforms.

SPECIFIC OBJECTIVES.

• Identify the Changes to Monetary and Fiscal Policy Reforms of the comparability of the past and current decades. Present the Knowledge of the Macroeconomic Study with a study focused on the Productive economy of the country.

• 1. Theoretical framework.

1.1 Armed Conflict (1980-1991).

The year 1980 was very decisive for the start of the civil war in El Salvador given the series of repressive events by the State and paramilitary organizations, replicated by violent and bloody actions by guerrilla organizations. The Salvadoran armed forces were also directly involved in the indiscriminate repression, the most notorious of these incidents being the so-called "El Mozote Massacre", in December 1981, in which around 1,009 civilians were killed. The military junta is estimated to have received $ 1 billion in military aid to combat the insurgency.

The FPL and FARN forces were unified under the Unified Revolutionary Directorate, DRU, in January. In February, Major Roberto D'Aubuisson, former Chief of the political section of the Intelligence Department (G-2) of the National Guard and director of ANSESAL, an Army intelligence agency, appeared on television linking a group of Christian Democrats with revolutionary organizations. As a result of this action, according to PDC sources, the Attorney of the Republic, Dr. Mario Zamora Rivas, was assassinated. In March the PCS founded the Armed Liberation Forces, FAL. Two more boards were put together and the third was joined by Duarte in March 1980. Immediately, Duarte implemented a government program designed by advisers from the United States with the following political reforms: an agrarian reform was implemented,the nationalization of banking, foreign trade, and the processing of coffee and sugar. Likewise, Duarte decreed the state of siege and the suspension of constitutional guarantees that lasted until the signing of the Peace Accords.

On March 24, the Archbishop of San Salvador, Monsignor Óscar Arnulfo Romero, was assassinated, after having demanded that the United States withdraw its military support for the Salvadoran regime and order the same Junta to cease the repression. Major Roberto D'Aubuisson was later charged with organizing the crime, but never tried.

The left currents formed the Coordinadora Revolucionaria de Masas (CRM), and then on April 18 formed an even wider range of social and political forces under the name of the Revolutionary Democratic Front (FDR), whose board of directors was kidnapped and later assassinated in November by a death squad linked to the Treasury Police.

En mayo el mundo fue estremecido por la violenta masacre de más de 600 personas en el Río Sumpul ubicado en la frontera con Honduras. Este crimen fue llevado a cabo por fuerzas militares combinadas de El Salvador y Honduras. En el mismo mes de mayo las fuerzas guerrilleras fundaron la Dirección Revolucionaria Unificada – Político Militar (DRU-PM), y el 10 de octubre, las mismas se organizaron bajo el nombre de Frente “Farabundo Martí” para la Liberación Nacional (FMLN); posteriormente en diciembre se une el Partido Revolucionario de los Trabajadores Centroamericanos (PRTC).

In the month of December, four American nuns were raped and killed by National Guard troops, and Duarte is elected Chairman of the board and Col. Gutiérrez its Vice President. At the end of 1980, the church counted 28 members killed (including the Archbishop) and 21 detained, in addition to terrorist actions such as 14 bombs, 41 machine-gun burst attacks, 15 robberies, and 33 church takeovers. On January 10, 1981, the FMLN called for an insurrection at the national level, which was unsuccessful in taking power, but was the inauguration of the civil war itself. In May Major D'Aubuisson is captured (and later released) for trying to stage a coup against Duarte.

In September 1981, the Human Rights Commission of El Salvador (CDHES) reported that a total of 32,000 civilians were murdered by government forces or by death squads linked to the Army since the first junta assumed power in the country. That same month, D'Aubuisson announced the founding of the Nationalist Republican Alliance party, ARENA, and subsequently, his nomination as a presidential candidate.

The FDR joined the FMLN, this time led by Dr. Ungo, and they proposed Dialogue and Negotiation to resolve the conflict peacefully. The FMLN-FDR alliance achieved recognition as a representative political force of the country by the international community with the Franco-Mexican Declaration in July 1981.

On March 28, 1982 a new Constituent Assembly was elected. In 1983, the Assembly drafted the new Constitution of the Republic. Subsequently, Álvaro Magaña Borja was named Provisional President by the Assembly. Duarte won the presidential elections in 1984 before D'Aubuisson de ARENA. According to the PDC and Duarte, D'Aubuisson and his ARENA party had direct ties to the death squads, the US Ambassador, Robert White, had described the founder of ARENA as "a pathological killer"

In 1984, Duarte held two historic meetings for dialogue and negotiation with the FMLN-FDR alliance, one in the town of La Palma, Chalatenango Department, and the second in Ayagualo, La Libertad Department. But none of these meetings gave a solution to the armed conflict. In May 1987, the FMLN-FDR alliance presented their 18-point peace proposal.

In 1989, the popular vote granted Alfredo Cristiani de ARENA the presidential election. In April 1989, the FMLN presented its platform in Washington to negotiate the end of the war. Cristiani's government meets for the first time with the FMLN in Mexico in September. On November 11, the FMLN launched its “Hasta el Tope” Military Offensive. In the early morning of the 16th, an Army unit invades the José Simeón Cañas Central American University and assassinates 6 Jesuit priests and two of their collaborators.

Although the offensive did not lead the FMLN to take power, the guerrillas showed that it was far from being defeated. Negotiations with ARENA continued with the signing of the protocol in Geneva, Switzerland, in April 1990, then the delegations of both parties to the conflict signed the Caracas Agreement in May with the mediation of the personal representative of the UN Secretary General, Álvaro de Soto.

In December 1990 the FMLN launched what would be the last national military offensive and in which the first planes with ground-to-air missiles were shot down. Immediately, the ARENA Government signed the New York Agreement on December 31, and on January 16, 1991, the negotiations ended with the signing of the Peace Agreement at the Castillo de Chapultepec, in Mexico, in 1992, ending 12 years. of internal conflict. At the end of the civil war, the death of more than 75,000 Salvadoran civilians and around 9,000 disappeared is recorded.

The United Nations Truth Commission for El Salvador, organized under the mandate of the Peace Accords, prepared its report entitled “From Madness to Hope” between 1992-93, in which it published the results of the investigation of the events. occurred between 1980 and July 1991.

10 years of civilian massacres: 1979-1989

These are some of the crimes against humanity committed by the Army (the immediate reaction infantry battalions (BIRI)) and combined forces, and paramilitary groups known as the death squads. These acts of state terrorism shook world consciousness and many people knew where El Salvador was on the map. This list does not include actions attributed to guerrilla organizations.

1. Selective execution. San José Las Flores, Chalatenango: 10 Youth. Treasury Police. (March 1979) Massacres (2): San Salvador: 86 and 29 Civilians massacred. (October 29 and 31, 1979). Massacre. Sumpul River, Chalatenango: More than 600 Civilians. (May 14, 1980) Selective execution. San Francisco Guajoyo, Santa Ana: 12 Civilians. (May 29, 1980) Summary execution. San Pablo Tacachico, La Libertad: 31 Killed by the National Guard. (July 9, 1980) Massacre. Guazapa, San Salvador: 34 Civilians Executed by the Treasury Police. (July 8, 1981) Selective execution. Armenia, Sonsonate: 27. 4 Thrown in the well and the rest in the Río Talnique riverbanks. (July 30, 1981) Total extermination of the civilian population, Cantón El Junquillo, Morazán. Hundreds dead. (March 12, 1981) Massacre. Canton "El Mozote", Morazán: 1,009 Civilians.(December 7, 1981) Selective execution. 35 Civilians in the suburbs of San Salvador. (January 19 and 22, 1982) Massacre with mortars. "El Alto", Chalatenango: 57 Civilians. (February 2, 1982) Massacre. Canton "El Calabozo", San Vicente: More than 200 men, women and children. (August 22, 1982) Bombardment. Cerros de San Pedro, San Vicente: 300 Civilians dead. (August 24, 1982) Summary execution. Canton «Las Hojas», Sonsonate: 74 indigenous people. (February 22, 1983) Aerial bombardment. Tenango, Cuzcatlán: 150 Civilians killed. (March 1, 1983) Aerial bombardment. Tenancingo, Cuzcatlán: 50 Civilians killed. (September 25, 1983) Massacre. Canton «Copapayo», Cuzcatlán: 118 Executed. (November 4, 1983) Massacre with mortars and bombardment. Canton «Las Piletas», San Vicente: 25 Civilians. (April 9, 1984). Massacre with mortars. "Los Llanitos",Cabins: 68 Dead. (July 18, 1984) Massacre. Hualsinga River, Chalatenango: 34 Executed. (August 28, 1984) Massacre. Skirts Volcán Guazapa, Cuscatlán: 17 Executed. (June 7, 1985) Operation “Fénix” of the Armed Forces: 245 women, children and the elderly killed in bombings and 1,045 displaced to “Calle Real”, Guazapa Volcano. (January 10-February 1986) Massacre. Canton "San Sebastián", San Vicente: 10 Executed. (September 21, 1986) Bomb detonation in the offices of the Federation of Trade Unions FENASTRAS and the Committee of Mothers of Disappeared, San Salvador: 13 Dead. (October 31, 1989)children and the elderly killed in bombings and 1,045 displaced to «Calle Real», Guazapa Volcano. (January 10-February 1986) Massacre. Canton "San Sebastián", San Vicente: 10 Executed. (September 21, 1986) Bomb detonation in the offices of the Federation of Trade Unions FENASTRAS and the Committee of Mothers of Disappeared, San Salvador: 13 Dead. (October 31, 1989)children and the elderly killed in bombings and 1,045 displaced to «Calle Real», Guazapa Volcano. (January 10-February 1986) Massacre. Canton "San Sebastián", San Vicente: 10 Executed. (September 21, 1986) Bomb detonation in the offices of the Federation of Trade Unions FENASTRAS and the Committee of Mothers of Disappeared, San Salvador: 13 Dead. (October 31, 1989)

Sources: - Report of the Truth Commission for El Salvador: "From madness to hope", United Nations, San Salvador - New York 1992-1993.

- Witness to Hope book with introduction by Senator Brock Adams.

Post-war period: the integration of the left into democracy

In the 1994 presidential elections, the participation of the FMLN as a political party stands out; in them the ARENA presidential candidate, Armando Calderón Sol, prevails. In 1999, the people again granted the electoral victory to the ARENA party with its candidate Francisco “Paco” Flores Pérez.

In the presidential elections of March 2004, ARENA was again favored by Salvadoran voters, this time with the candidate Elías Antonio Saca, securing a fourth consecutive term.

The electoral result also liquidated all the other small parties (PCN, PDC, and CD), so that if they had not been resurrected by decree of the Assembly, the political system would currently be bipartisan.

14 years after the Peace Accords, the democratic process in El Salvador rests on a precarious balance system since President Cristiani of the ARENA party decreed an amnesty after the Peace Accords in 1993. As a result of this amnesty, No one responsible for crimes carried out before, during and after the war has been tried.

The social phenomenon that El Salvador began to face in the postwar period is the existence of the "Maras" or gangs, generated mainly by the deportation of illegal Salvadorans in the United States. The level of crime has come to challenge the same judicial system and the same government that two programs - Mano Dura and Mano Super Dura - created to fight crime have failed. In the first four months of 2004 alone, the Diario de Hoy reported nearly 10,000 deported Salvadorans.

Currently, the greatest foreign exchange income that El Salvador has is that originated from the total of remittances - which reaches an estimated $ 2,000 million - sent by Salvadorans living abroad. The Diario de Hoy reported in November 2004 that this was the month that registered the largest amount of money entering the country: more than $ 2.3 billion. There are more than 2 million Salvadorans living abroad in countries such as the United States, Canada, Mexico, Guatemala, Costa Rica, Australia, Sweden and others.

1.2 THE END OF THE AGROEXPORTER MODEL (1970-1999)

• Three parts on which the analysis is based.

1. Characteristics of the agro-export model. Loss of importance of the agro-export sector. End of the agrarian state.

Characteristics of the agro-export model (1970-1989).

1. It required enough foreign exchange to meet import demand. The country's main currency generator. Main determinant of domestic economic activity and level of employment. Problems such as bottlenecks were overcome.

• Three problems overcome by inflation-related bottlenecks are:
  1. Price support policies. An important interregional food market among the countries of the area. It made it possible for governments to obtain food from the world sector.

1. The main determinant of financial and exchange stability. Strategies to stabilize international markets are.

1. Maintain an adequate level of foreign exchange, accumulating remittances, resorting to foreign loans, with the purpose of covering itself for periods of external deficit.

• Effect of taxes on agricultural exports (1970-1980):

1. The main source of income for the state.One of the highest in the world.The fluctuations in the international prices of primary products were vulnerable.Depending on the evolution of economic activity in that sector.Main source of capital accumulation from the economy. the surplus to generate investments. The surplus circulated through the banks.

• Aspects of the agricultural sector in the PEA were:

1. 1. Main source of work for the economically active population (PEA). It required hundreds of thousands of migrant workers annually (only in harvest period). It did not guarantee a job for the whole year. It led to the issuance of laws on day laborers and agricultural judges to recruit and control supply and labor force. configuration of authoritarian and non-participatory political systems; National Army, Treasury Police, National Guard.

Loss of macroeconomic importance of the agro-export sector (1980-1999).

• Main aspects of the replacement of the agro model:

1. A new pattern of economic growth is born. For the first time in the country's history, the primary sector ceased to be the main source of foreign exchange and capital accumulation. Agriculture ceased to be a direct source of state income. As a consequence of the war family migration occurred. The consequences of foreign migration are family remittances. The macroeconomic determinant of the Salvadoran economy is family remittances. The main source of financing for gross domestic investment is family remittances.

• Important changes in the agro-export model (1990-1999).

1. Caused by family remittances. Source of generation of national savings. The banking sector gains autonomy with respect to the surplus generated internally. Re-privatization of the banking system.

• Consequences and effects of war are (1980-1999).

1. Migration, family remittances that were increasing year by year, the destruction of cotton areas, this cultivation seriously affected investment decisions, increases in production costs due to the use of pesticides.

End of the agrarian state.

• Two important phenomena in the export sector (1990-1999)

1. Loss of importance of primary products. Rise of maquila exports.

• Main events of the end of the agrarian state:

1. Creation of the National Civil Police (PNC). Creation of the State Intelligence Agency (OIE). Creation of new reserves of the El Salvador Armed Forces regime. Reforms in the judicial and electoral system. Creation of a new state institutionality.

1.3 THE INCOME OF EXTERNAL RESOURCES AND ITS IMPACT ON THE ECONOMY OF EL SALVADOR.

The following report analyzes precisely the impact of income from external resources on the Salvadoran economy since 1980. In particular, an attempt is made to explain how the massive income from external resources contributed to ending the agro-export model and how its existence influenced economic management in the short term and in global behavior. In order to better understand this topic, it has been divided into two parts: the first focuses on studying the magnitude and nature of the external resources received. The second part is devoted to analyzing the main effects that the inflow of external resources had on the main macroeconomic variables

• Magnitude of the external resources received and their nature.

Contrary to what happened in most Latin American countries, which during most of the eighties experienced a net outflow of financial resources, El Salvador recorded in that period a net income of foreign currency equivalent, as an annual average, to the 8.3% of GDP, almost double the flows reported in the five-year period 1975/79.

The increase in external resources recorded in the 1980s is mainly explained by the increase in official transfers from the United States, which reached, on average, 5.5% of GDP in the second half of the decade and by the increase in family remittances, which averaged 3.6% of GDP in the five-year period 1985/89.

During the 1990s, the net income from external resources increased substantially, reaching 18.7% of GDP as an annual average in the five-year period 1990/94 and remaining in the rest of the decade at levels above 15% of GDP. The increase in this period was mainly due to the increase in family remittances, which reached levels higher than 10% of GDP, and to a lesser extent to the increase in capital flows, motivated by local interest rate differentials with respect to international.

The increase in remittances from 1990 has to do both with the increase in their volume, as well as with the enormous success of the policy of capturing them implemented by the government as of that year and with the improvement in the methods of calculations of said remittances.

Since most of the external resources that entered the country since 1980 took the form of transfers (official and private), in the last twenty years there has been a change in the structure of the country's external financing in favor of Said resources, in other words, the inflow of external resources from official and private transfers reduced El Salvador's dependence on external indebtedness.

• The policy nature of official donations.

The largest component of external resources that entered El Salvador in the war period were official transfers, made up mainly of official donations from the United States, which were mostly made up of fresh resources intended to directly support the balance of payments. and were channeled based on geopolitical and national security considerations of this country

This political nature of official transfers profoundly influenced the economic evolution of the country and the way in which the different governments dealt with the main macroeconomic imbalances. Firstly, and unlike official loans that were dedicated to productive activities, official donations had more relevant repercussions on consumption than on investment, since they were mainly used to finance macroeconomic imbalances and for counterinsurgency activities that involve a strong component of consumption

THE SAVIOR

EVOLUTION OF US FINANCIAL AID

It was thanks to North American aid that El Salvador was able to prevent hyperinflation and keep the economy afloat during the war.

In particular, US aid in the eighties was concentrated in three main areas: agrarian transformation, the creation of a social base for the establishment of a new economic model based on the phenomenon of non-traditional exports and their financing, and political reform.

US assistance also influenced the evolution and composition of external debt, since in addition to allowing El Salvador to avoid the external debt crisis that the rest of Latin America suffered during the 1980s, it contributed to substantially modifying its composition when contracted on exceptionally favorable terms.

According to studies, at least 20% of the North American aid granted in the period 1980-1992 was aimed at financing projects aimed at promoting transformation in the country.

At the end of 1992, the United States condoned El Salvador $ 464.0 million dollars, of the debt contracted with that country, which translated into a decrease in total debt even in absolute terms.

• The structural nature of family remittances.

In the 1990s, the main component of external resources received was family remittances, the nature of which is very different from capital flows and official transfers. First, these resources, as they depend to a large extent on the existence of family relationships and cultural factors, are characterized by their longer duration and greater stability compared to the rest of the capital flow, as well as their low elasticity to the determinants traditional capital flows, in the nineties thanks to the inflow of remittances, the level of international reserves in the country registered positive and fairly stable variations despite the fact that the price of coffee registered negative growth in several years and showed great volatility.On the other hand, remittances are distinguished from capital inflows by the use they are given, since in a significant part of them they are used to buy consumer goods, particularly non-tradable goods.

• The impact of the entry of external resources in the Salvadoran economy. The effects on income, consumption and investment.

The first direct macroeconomic effect of the income from remittances and donations has been to increase El Salvador's gross national disposable income (GNI), which in turn has translated into an increase in the aggregate expenditure of the economy. In the last two decades the aggregate spending capacity of El Salvador has increased as a result of the income from donations and remittances. The question that arises immediately is relevant if it is considered that the macroeconomic effects of a higher disposable income depend on the use that is given of it, that is, if said income is dedicated to consumption, savings or both.

1. GOVERNMENT PLAN.

2.1 Main Economic Results (2000-2006).

At the beginning of the new century, Modernization and one of the issues that impacted it in this millennium was Globalization, which has been generating transcendental changes in the Governance of the Country, where it has been necessary to make changes in terms of better technology and contribute to the infrastructure and change of mechanism to work with the help of the productive sector, which is not enough, since an increase to date has been reflected in the formation of all our GDP

The increase is being studied as a phenomenon because our banking policies have benefited the country in the issue of REMITTANCES.

In our country, Remittances from abroad are those that currently transcend a high percentage level and seeing that these are not considered as an investment, rather being only put for the consumption of each of the families, thus giving a degree of 100 % consumerism and not helping our country for the productive labor force since what they receive are fair for consumption and I do not live for a Future Investment.

In the course of time, it has been noted that the policies are aimed at promoting foreign investment since a new figure has constantly emerged that is currently of great relevance such as FREE TRADE TREATIES (FTA).

Where it is bet that it works so that the owners of the Productive forces called these entrepreneurs maintain and bring more Investors to be generators of having our Productivity.

Statistics currently maintain that inflation involves the change that the law of monetary integration had in El Salvador. The sale and purchase prices of the dollar in the country fluctuated from ¢ 8.25 to reach ¢ 9.00, these fluctuations were no more regulated than by the trends of market requirements, that is, the price was established by the free market economy, where the country's banks depending on the demand for the resource was where they established their prices; affected to some extent by the clandestine sale or "Black Market of the Dollar"informal businesses whose sole purpose was to make profit from such need, such businesses were in no way controlled by law; likewise, there were "Money Exchange Houses" where such activity was carried out, in this case in a controlled and regulated manner.

The policies that our country espouses is to keep in mind that its results will be seen for years to come, while if you work for all sectors to seek stability, everything will change taking into account that El Salvador is considered a Young Country because its population consists of children. and young people who are waiting for an Investment by Part to give their Valuable Productive Force in the Future.

2.2 CURRENT MACROECONOMIC MODEL (2004-2006)

2.3 FOREIGN INVESTMENT.

Overview:

Although companies operating in different countries have existed for several centuries, modern CMN is a phenomenon of the 20th century. Before the Second World War, direct foreign investment by CMNs was used to acquire resources, so the main objective was to ensure the supply of raw materials. The least developed countries, and those that remained colonies of the western countries, received most of the world foreign direct investment. This generated mistrust and susceptibility in developing countries, since they assumed that multinationals would stifle the development of each country's national industries..

Developed countries are the places of origin of the majority of MNCs and, above all, of the largest ones. Of the 600 most powerful CMNs, 45% were born in the United States; 16% are Japanese and 10% British. Therefore, most of the foreign investment comes from the industrialized countries. But also, contrary to popular belief, most of that foreign direct investment is invested between themselves.

What is foreign investment?

The globalization of production has been achieved thanks to investment in other countries (foreign direct investment) made by multinationals that own and manage factories and production facilities in various countries.

These multinationals (or transnational corporations) constitute the type-company of the current world economy.

• Multinational: term applied to corporations that carry out business activities in several countries at the same time. The terms 'transnational' or 'international' company are synonyms of the term multinational. PUBLIC INVESTMENT :

Public investment occurs in El Salvador and this accelerates economic growth through different factors such as:

• When there is a problem of fiscal deficit and increasing indebtedness, and the investment amounts cannot increase more rapidly and do not generate pressure on the fiscal imbalance, which limits the impact on growth.

Because the efficiency in the execution of public investment has been historically low, the country would have to make a good effort to improve the processes that slow down its agility and could be a good stimulus.

• Public investment and the facilitation of procedures in the short term, the problem of short-term growth must be advocated in a long-term perspective with a good sustained strategy to achieve good progressive productivity gains for both existing and new ones investments. FOREIGN DIRECT INVESTMENT:

The arrival of a large investment group in El Salvador marked a very high step for foreign direct investment. As a first step, they bought the Telecom company that had been a privatized acquisition, then opened two large warehouses in the Central American region, and then joined with the Poma group to make investments together outside the country.

The Roble and Slim groups are two highly competitive groups in El Salvador that support the Salvadoran economy; It is also worth mentioning that foreign direct investment has reached various sectors of the country.

We could mention that DELL came to the country installing itself with a large international Call Center to handle highly complex operations; The Calvo Spanish tuna group of the world Caribbean maintains fishing operations and processing in the union. Another large group that trusts the country is that of Colombia's Cameron, who settled in the country buying the Club Salinitas hotel and building a hotel of international projection.

Another relevant fact is that of Banco Cuscatlan, which joined with Banco Popular de Puerto Rico, one of the giants of Latin America, and comes to the country to invest 125 million dollars, increasing the corporation's capital for local and regional growth.

2.4 ECONOMIC POLICIES

• Fiscal policy:

Fiscal policy is under the responsibility of the Ministry of Finance; It is aimed at rationalizing and optimizing current spending and maintaining public investment levels, prioritizing areas related to human development.

Currently, a tax reform plan is always contemplated so that there is less and less evasion, especially in Income Tax and VAT, since there is a Special Law to Sanction Customs Infractions, which includes measures such as criminal actions and closure temporary establishment among others.

In the near future, this situation would imply the discussion of a comprehensive tax reform aimed at raising collection and increasing tax pressure. In fact, a dollarized economy with limited access to international capital markets cannot maintain a recurring fiscal deficit.

• Financial, Monetary and Exchange Policy:

The reform of the Banking Law is another fundamental aspect of economic policy. The approved reforms affect three main issues: the management of extraordinary assets, cross-border operations and the exit of banks from the market. The reform seeks to incentivize banks to dispose of extraordinary assets, received in the form of payment for loans and guarantees, and penalizes their conservation. Banks will now have to create reserves for 25 percent of extraordinary assets after one year of their acquisition and increase that reserve by 25 percent to cover 100 percent in four years.

The Money Laundering Law comes into effect.

The indicator of the effective real exchange rate, measured on the basis of the consumer price differential, shows an increasing appreciation during the last ten years. However, it is very stable in the long term, when measured on the basis of unit labor costs. This behavior of the real exchange rate indicators, which shows an appreciation trend, is a very important competitive challenge for El Salvador, given that it must face wage pressures while carrying out a process of transition towards export activities that involve greater added value and greater technological complexity.

• Goods and investment flows

El Salvador's main export products are coffee, sugar, clothing, and textiles. However, the share of coffee in exports fell from almost 38% in 1995 to 9.5% in 2001. El Salvador's chemical exports cover a wide range of products; Medications are the most important category. In recent years, El Salvador has managed to expand its exports of various manufactured products such as iron and steel, machinery and transportation equipment, and clothing.

El Salvador's merchandise imports have increased in almost all product categories. Imports of agricultural products and fuels have increased, as has a wide range of food products.

2.5 PERFORMANCE OF THE BUSINESS PRODUCTION SECTOR BY THE FOREIGN COMMERCIAL SECTOR.

• Foreign commercial sector: they are all foreign companies

Commercials that invest in our country or that are already established in the

Salvadoran Market.

• Business productive sector: We will understand that they are all the companies that produce, sell, and elaborate the final product and are part of a sector.

As examples of productive companies from different commercial sectors

Abroad We have:

• Bald group of Spanish tuna in the Caribbean:

The bald group established in the country, dreams big with an investment of

$ 60,000 million and what he wants to achieve is to capture the North American market and thus gain central and South American terrain and conquer the Salvadoran market in its entirety.

The Punta Gorda industrial fishing complex is where the fishery product is stored to prepare tuna, with a daily production of 210 tons and thus becoming the main development plant for the area and the country. And so producing 80% of tuna that goes to the Spanish factories and tuna.

El Salvador is certified to export tuna with other countries; As a job performance we can mention that the company has 1,400 workers.

• Scotiabank - Commercial Bank:

Scotiabank with more than 115 years of experience in the Caribbean and Central America, and established in more than 50 countries. The bank is dedicated to solving the financial needs of companies and individuals. It was established in the country in 2005, merging with the Commercial Bank and then forming the SCOTIABANK.

Among its benefits are: business loans, installment financing, hotel financing, international trade financing, and cash management.

• Motorola:

It is one of the manufacturers of cell phones in the world, to El Salvador the brand is positioned within the market as the best brand of foreign cell phones.

As an innovation of the brand, it is characterized by the technology that cell phones possess, it is worth mentioning that not all models enter the country, only some that cell phone companies can acquire due to their costs and their installation that provides the service.

• Carrión Warehouses:

Carrión is a Honduran warehouse formally established in the country in 2004 with a branch and later it has to open new branches such as category A, B, C that differentiate its category stores; of his visions in conquering the Central American market

In the first year in the country they did not do very well due to the fact that people

They expected another product segment and preferences for other Warehouses like the size of Siman Warehouses which is very competitive.

Carrión maintains that El Salvador is a good place for foreign investment but at the same time it has to break many barriers such as taxes and the retention of merchandise in customs, national security, and social stability.

• Slim group:

The Slim group comes to the country to invest and merge with the Poma group. The group is Mexican and the country comes with two Dorians and Sanbors mega stores located in the Multiplaza shopping center and a metro center with the Sanbors store.

El Salvador was selected as the first port of call for branch expansion projects for Slim-owned stores

The stores are by departments and the products are of the highest quality, 7 as a representative of the Sanbors group Carlos Slim Domit, owner of Mexican telecommunications.

This type of investment impacts the country in the growth of the gross domestic product with 5.6% on the consumption side and in other sectors it can reach up to 17% in its entirety.

As a macroeconomic agent, it manifests itself as a generator of investments and jobs and creating well-being for people.

• Hotel Hiltom princess:

The Hilton brand is the one that operates the Princess Hotel of El Salvador eradicated in the country in 2004 in the capital; the famous hotel chain managed by the millionaire Conrad Hilton. Whoever owns more than 500 hotels since the alliance with the brand was made, sales on reservations have grown by 15%. The Hilton franchise has been distributed throughout Central America and thus conquering with technology, room renovations and good service for its clients.

• Taca Group:

The company called Transportes Aéreos de la Continente Americano known as TACA expands throughout the entire continent, counting on its prestige and quality of service through the advertising media in El Salvador, eradicating at the Coma Lapa Airport.

Taca makes between more than 140 to 150 daily flights that move 3.5 million people a year in the world, and thus lying to all its satisfied customers.

• Toyota:

The Toyota brand produced by the Japanese and with a history of 53 years in the country who introduced it to the country was Luís poma and thus distributed in the Central American area.

It is the most sold brand of cars in 30 thousand to 500 cars marketed according to data from Toyota El Salvador where at the same time a lot of money is invested in advertising for the purchase of cars, the Salvadoran market is very small at the same time if cars buy, look for the brand Toyota.

2.6 IMPROVEMENT ACTIONS AND POLICIES

2.7 CHALLENGES AND CHALLENGES FOR THE PUBLIC AND PRIVATE SECTOR.

El Salvador after the war oriented its economic policy to promote sustained growth by reducing inflation. The expansion of the private sector and the integration of the economy in the rest of the world.

As an example we can mention that in the period from 1996 to 2002 El Salvador had a GDP growth that ranged between 1.7 and 4.4%, reaching its maximum level in 1997.

Among the activities that registered particularly high growth rates we have construction, and services such as commerce, restaurants and hotels, financial services, transport and communications, while the contribution of the agriculture sector to GDP and exports decreased considerably. GDP per capita in 2001 was approximately US $ 2,150, while, due to net transfers of workers abroad, gross disposable income per capita was US $ 2,420.

In 1998 El Salvador's economy was severely affected by Hurricane Mitch and in January and February 2001 by two major earthquakes; after the earthquakes the most important thing was the reconstruction; At the same time, in January 2001, the Monetary Integration Law came into force, which introduced the United States dollar as a legal tender that in some way disturbed the population, thus leading to the slowdown in economic activity, this it led to a decrease in the deficit, which is largely due to current transfers from Salvadorans living abroad and current accounts for foreign aid; This in turn has allowed the national savings level to be stable.

Trade plays an increasingly important role in El Salvador's economy, in 2001, exports of goods and services represented 30% of current GDP, while the share of imports was around 43%.

• Main challenges for El Salvador

The challenges that we are going to expose are based on the Declaration of Guadalajara, this declaration establishes that the social cohesion policies are oriented “To the development of human capacities through education, health, nutrition, health services, housing, basic justice and security, as well as the promotion of decent work and the creation of economic opportunities. ”

• Social challenges

Income distribution is uneven, although not more than the Latin American average, and less than in Honduras and Nicaragua. The deep gap between rural and urban poverty, in terms of income and marginality (including access to basic services), presents itself as a greater challenge, as do the issues related to childhood (nutrition and mortality), youth (crime) and gender.

El Salvador is a country with a young population (63% of the population is under 30 years of age according to the 2003 EHPM). The diagnosis of the situation of youth in El Salvador underscores the problems of drug addiction, sexual abuse, and violence with firearms, as well as the precarious health of adolescent women, and dropping out of school as they did not find incentives or connection to the labor market.

For its part, the problem of Salvadoran women is multiple: the social burden and economic conditions; the educational gap and the school non-attendance rates of girls for domestic work; intra-family violence; the lack of respect for reproductive rights, and, in particular, non-political participation.

Environmental health: The continuous degradation of natural resources leads to a worsening of living conditions. In El Salvador, many diseases are associated with poor environmental quality. Acute respiratory diseases, as well as parasitism and intestinal gastric infections, linked to the lack of availability of drinking water and environmental contamination, occupy the first places of morbidity. Given the close relationship between environmental degradation, human health and economic growth, the challenge is to achieve a development process that in turn protects natural resources, without harming economic competitiveness and discouraging investment.

• Tax challenges

The government faces the double fiscal challenge of "containing the public debt and complying with the social debt." The share of total government debt to GDP has increased in recent years, reaching 40% of GDP, which is relatively moderate, although a further increase would cause an increase in interest rates (margins) on the debt of the market. The total fiscal deficit would have to be limited to approximately 2% (after donations) to keep the debt at the current level. The level of tax revenue in relation to GDP is low, therefore there is an important space to increase taxes. Expenditures for the social sector in El Salvador are low and need to be increased in order to meet the MDG targets.

• Economic challenges

Insufficient economic growth: GDP growth has been less than 2% per year on average since 2000, and real GDP growth per capita has stagnated. Real GDP per capita is almost at the same level as in 2000, and 10% below the pre-civil war level. In the absence of acceleration, the additional progress necessary to reduce poverty cannot be achieved.

A vulnerable balance of payments: The current account deficit was 5% of GDP in 2003, and 4% in 2004, although if we do not take remittances into account, it would reach 20% of GDP. The level of remittances can fluctuate based on various reasons such as the immigration policy of the United States and the demographic evolution of the expatriate community.

Insufficient regional integration: the challenge is to: i) reinforce the process of regional integration CA implement a common market; ii) support the development and consolidation of common regional institutions; iii) promote the development of common policies and the harmonization of the legal framework.

• Political challenges

1. a) Modernization, democratization and state security:

There are several obstacles that impede the proper functioning of the political system i) a high percentage of crime ii) a tax system that needs to be strengthened iii) public institutions in initial modernization processes iv) weak local powers facing a process of decentralization of the management of public affairs.

1. b) The political dialogue: The current constitutional norms, the initiatives of the Government require in several areas the approval of the Parliament with a majority of two thirds. In the absence of a greater degree of consensus, progress on the legislative branch's agenda could be limited.c) Human rights and access to justice: Create a field of interaction between state dynamics, civil society, and the international community. Those who are in a situation of social and economic disadvantage have the Public Ministry with the possibility of receiving legal assistance from the Office of the Attorney General of the Republic (PRG) and the Office of the Attorney for the Defense of Human Rights (PDDH). D) Decentralization:it is a convenient instrument to bring government closer to citizens i) the creation of a source of income typical of municipalities to ensure a higher degree of independence from the central government, ii) the establishment of a legal framework that clearly defines responsibilities and functions of local governments iii) an electoral law with the objective of ending the political monopolies of the Municipal Councils iv) institutional support in the form of technical assistance to local administrations.ii) the establishment of a legal framework that clearly defines the responsibilities and functions of local governments iii) an electoral law with the aim of ending the political monopolies of the Municipal Councils iv) institutional support in the form of technical assistance to administrations local.ii) the establishment of a legal framework that clearly defines the responsibilities and functions of local governments iii) an electoral law with the aim of ending the political monopolies of the Municipal Councils iv) institutional support in the form of technical assistance to administrations local.

• Government Agenda

The Government Plan "Safe Country" 2004 - 2009 represents the general vision and strategy of the Government that took office in 2004. The general objectives of the Government are: a) to strengthen and modernize the institutional framework; b) generate macroeconomic stability and an equitable share in the benefits of progress; c) increase the country's productivity and competitiveness; d) increase human capital and dignity for all; e) recovery and respect for the environment. With this Safe Country program, it is committed to maintaining sound macroeconomic management and a free and open economy, supporting private activity. The Safe Country Plan indicates the Government's commitment to poverty reduction, and more generally to meeting the MDGs:“If we use the UN Millennium Development Goals on hunger, gender education, health and the environment as parameters, El Salvador is on track to meet the goals by 2015, and this should set our direction for the future.

1. HYPOTHESIS SYSTEM.

3.1 GENERAL HYPOTHESIS.

Ho: The implementation of economic political systems in the country; in their greatest opportunity, they do not affect the search for new macroeconomic mechanisms and models whose result produces the main source of capital accumulation in the state.

HI: The implementation of economic political systems in the country; they will influence in their greatest opportunity the search for new macroeconomic mechanisms and models whose result produces the main source of capital accumulation of the state.

• SPECIFIC HYPOTHESIS.

Ho: Capital accumulation, generated from a macroeconomic mechanism; it will not allow greater investment to be made to the sectors with very low growth rates and also savings by applying it to the external debt that the country is currently facing.

HI: Capital accumulation, generated from a macroeconomic mechanism; It will allow greater investment to be made to the sectors with very low growth rates and also savings by applying it to the external debt that the country is currently facing.

1. Conclusion.

In the report presented above, it can be seen in the developed topics, such as what was the economic history of El Salvador, taking up many of the important issues regarding the country's economy. All those economic events that led to the country falling into an economic crisis such as the armed conflict during the eighties, which caused a decline in the economy, reducing many factors such as agricultural production, exports with the exterior and itself with imports. As time went by, the armed conflict decreased, and at the beginning of the nineties, it gave way again to the evolution of the country's economy through new economic policies, and new economic models detailed in the work. presented.

4.2 BIBLIOGRAPHY.

1. Alexander Segovia: STRUCTURAL TRANSFORMATION AND ECONOMIC REFORM IN EL SALVADOR. Technical secretary of the presidency: MANAGEMENT SYSTEM FOR RESULTS. José Simeón Cañas Central American University: “ECA” JOURNAL CENTRAL AMERICAN STUDIES. Rudiger Dornbusch and Stanley Fischer: "MACROECONOMICS." ECONOMIC REPORT FOR THE 1ST SEMESTER 2006 (BCR) EUROPEAN COMMISSION "EL SALVADOR CONCEPTUAL NOTE" CONSULTATION WORKSHOP WITH CIVIL SOCIETY (San Salvador 04/13/2005). METHODOLOGY AND CALCULATION AND IMPORTANCE OF FAMILY REMITTANCES IN EL SALVADOR (BCR). METHODOLOGY OF "GDP" (1990) "BCR".

Download the original file