Democracy and Governance in El Salvador
The Development Challenge: In the span of 13 years, El Salvador has implemented reforms from the Peace Accords that ended a long civil war; endured a devastating hurricane and two powerful earthquakes; and suffered the combined impacts of declining coffee prices, loss of apparel industry jobs, and high petroleum prices. In the face of these problems, El Salvador continues to make substantial progress along a path of transformational political, economic and social development. While much of Latin America has experienced negative growth rates during this decade, the Salvadoran economy has maintained a positive average annual growth rate of slightly below 2%. In March 2004, the country held presidential elections deemed transparent, free and fair, with a voter turnout of 67%. The newly-elected government faces the daunting task of delivering on its promises of economic and social reform.
Economic growth projections for 2005 are expected to be about 2.5%, given several factors. In 2004 the inflation rate, while modest by international standards, more than doubled to 5.3%, due to the high price of petroleum. In addition, 10,000 apparel industry jobs were lost as a result of new competition from China. Broad-based growth continues to be a challenge, with highly unequal income distribution, where the poorest 20% of the population receive only 3.1% of the nation's income. This translates to more than one million people who do not earn enough to take care of their families' basic needs. Remittances from Salvadorans in the United States are expected to reach $2.5 billion in 2004.
To contend with the social and economic issues that could hamper the country's progress, the Government of El Salvador (GOES) plans to increase social investments in rural regions where poverty rates are the highest in order to improve the quality of education and health care delivery. To increase social investment, the GOES recognizes that it must push ahead with implementation of key fiscal reforms that will stimulate increased tax collection. Other items on the GOES agenda include security, transparent and responsible governance, economic competitiveness, and increased job creation and economic opportunities through trade and micro, small and medium enterprises. It is an integrated agenda with each part affecting another.
El Salvador's strategic location and strong ties to the United States make its political and economic stability a vital U.S. interest. The political and economic liberalization encouraged by the United States and adopted by El Salvador has made the country a model for post-conflict developing countries. The United States is El Salvador's most important trading partner, receiving 64.4% of exports and providing 46.7% of imports. Approximately two million Salvadorans reside in the United States, many of them illegally. By promoting prosperity in El Salvador through USAID programs and opportunities such as the Central America Free Trade Agreement (CAFTA), the United States can help strengthen the economy, thereby reducing the flow of economic migrants to the United States and reducing U.S. vulnerability to transshipment of narcotics and trafficking in persons.
(Excerpted from the 2006 Congressional Budget Justification for El Salvador)
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