Tag Archives: el salvador

Yes, progress in Central America, but don’t call it ‘spring’

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Photo credit to AFP.

I write for The National Interest on Friday that, despite the progress among civil society groups in Guatemala and Honduras and the resignation of Guatemala’s president Otto Pérez Molina under a cloud of corruption charges, it’s too simplistic to refer to a ‘Central American spring’:honduras flag iconguatemala flag icon

[T]he region’s democracy didn’t suddenly spring into existence in 2015. As the former Soviet Union and the Middle East have so painfully shown us, we should by now be wary of mad-libs punditry that falsely declares a rainbow’s worth of color revolutions, always overeager to set calendars to springtime. The full story of Central American governance today is one of gradual change and the development of mature political institutions only in fits and starts – it was only in 2009 that a military coup ousted Honduras’s left-wing president Manuel Zelaya. After nearly two centuries of war, imperialism and autocracy, Central America’s countries have enjoyed relative peace, democracy and full sovereignty only for the last quarter-century.

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RELATED: Guatemala lifts Pérez Molina’s immunity
six days before vote to replace him

RELATED: Three days before elections, Pérez Molina resigns
after arrest warrant issued

RELATED: Unaccompanied minors?
Blame a century of US Central American policy

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Moreover, I argue that policymakers might be too optimistic that the current victory for civil society institutions will translate into ever-stronger gains for Guatemala: Continue reading Yes, progress in Central America, but don’t call it ‘spring’

Unaccompanied minors? Blame a century of US Central American policy.

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At a panel discussion at the Woodrow Wilson International Center with three Central American  foreign ministers, moderator Steve Inskeep, the host of NPR’s Morning Edition, began the hourlong talk with a simple question about the rise of unaccompanied minors to the United States:  USflaghonduras flag iconel salvadorguatemala flag icon

Who is to blame?

Speaking to an overflow crowd in Washington, DC yesterday, the three foreign ministers — Honduras’s Mireya Agüero, Guatemala’s Fernando Carrera and El Salvador’s Hugo Martínez — shared a half-dozen or more credible reasons for the phenomenon, which has resulted in a wave of 57,000 minors from the three countries coming to the United States since the beginning of 2014.

Borders that remain too porous and governments unwilling or unable to devote more funds to secure them.

The fearsome sway of street gangs that recruit young kids into a self-perpetuating cycle of violence and illegality, leaving the three Central American countries with some of the highest homicide rates in the world.

Coyotes that, unable to persuade Mexicans to cross the border, have now turned their sights to Central Americans.

Governments that lack the resources to provide the kind of health care, education and legal institutions that could form the backbone of viable middle-class prosperity, leaving growing numbers of Central Americans looking to the United States for a better life.

Lectures from US presidents and policymakers that go unmatched with the kind of financial assistance to build truly pluralistic democratic societies.

Today, with US president Barack Obama holding an unprecedented four-way meeting with the presidents of Honduras, Guatemala and El Salvador, US policy in Central America is making more headlines than at any time since perhaps the Cold War, and it’s the latest round in a polarizing debate over immigration to the United States, with the Obama administration now seeking $3.7 billion in funds from the US Congress to help stem the illegal flow of Central Americans across the border, often at great risk, especially among women and children.

Obviously, like any social phenomenon, the reasons for the influx of unaccompanied minors are complex, and they involve the economics of drug trafficking, the social dynamics of poverty and urban gang violence, and a lack of opportunities for growing populations aspiring to middle-class prosperity. It’s not an impossible dream because countries like Belize, Panamá and Costa Rica are largely achieving it throughout Central America.

Even more complex are the underlying conditions in the three countries that form the background to the current migration crisis, and the roots of those conditions go back decades, with plenty of US interference in the region.

Conservatives rail against Obama’s steps to provide a smoother path to citizenship for the children of migrants who have lived virtually their whole lives in the United States, and even Honduran president Juan Orlando Hernández yesterday blamed the ‘ambiguity’ of the US immigration reform debate for the surge in child migration. Texas governor Rick Perry last month blamed the Obama administration’s ‘failure of diplomacy,’ and has made a show of sending 1,000 National Guard troops to the Texan border. Liberals, meanwhile, argue that former US president George W. Bush failed to enact comprehensive immigration reform when he had the ability to do so a decade ago.

Certainly, there’s plenty of blame among both Republican and Democratic governments in the past two decades.

But so much of the current debate in the United States overlooks the background of how Central America — and especially Honduras, Guatemala and El Salvador — came to be countries of such violence, corruption, insecurity and relative poverty. It also overlooks a significant US role in the region that’s often been marked by dishonorable intentions that has its roots in early 20th century American imperialism, the brutality of zero-sum Cold War realpolitik, and the insanity of a ‘drug war’ policy that almost every major US policymaker agrees has been a failure and that, to this day, incorporates a significant US military presence. Continue reading Unaccompanied minors? Blame a century of US Central American policy.

Sánchez Cerén narrowly leads Salvadoran presidential vote

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Though El Salvador’s vice president, Salvador Sánchez Cerén, was expected to win the March 9 presidential runoff, the result was so tight that no winner has yet been formally declared, pending a recount of the too-close-to-call election.el salvador

Sánchez Cerén (pictured above, left, with running mate Óscar Ortiz, right) almost won the presidency outright in the first round on February 2, taking 48.92% of the vote, a nearly double-digit lead over his challenger, San Salvador mayor Norman Quijano, who won just 38.95%:

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Sánchez Cerén hopes to extend the rule of the Frente Farabundo Martí para la Liberación Nacional (FMLN, Farabundo Martí National Liberation Front), the one-time guerrilla group that is today El Salvador’s major leftist political party.  In 2009, Mauricio Funes, a former journalist, led the FMLN to its first-ever electoral victory, ending nearly two decades of post-civil war rule by the center-right Alianza Republicana Nacionalista (ARENA, Nationalist Republican Alliance).

On Sunday, however, provisional results show that Sánchez Cerén won just 50.11% of the vote, narrowly leading Quijano, who had 49.89% of the vote:

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How did this happen?

It wasn’t too difficult to realize, even before February 2, that the runoff vote would tighten.  That’s because in the first round, Sánchez Cerén easily consolidated the FMLN vote, while Quijano had to compete against Elías Antonio ‘Tony’ Saca, a conservative who served as president from 2004 to 2009.  Saca, following his presidency, was kicked out of ARENA, largely over allegations of corruption stemming from his presidential administration and his future presidential ambitions.  Accordingly, Saca led a third-party coalition against both Quijano and Sánchez Cerén in 2014.

Though Saca won a relatively disappointing 11.44% in the first round, it seemed clear that Quijano would win the majority of Saca supporters in the second round.  Taken together, the combined Quijano-Saca support totaled  50.39%, proving in the first round that there’s a basis for a center-right, conservative electoral coalition.  If Quijano were able to win almost all of the former Saca voters and/or win over a few first-round FMLN voters, he could leapfrog Sánchez Cerén and into the presidency.  Sunday’s provisional result seems to indicate that, though Quijano consolidated much of the conservative vote, it still wasn’t quite enough (though let’s wait for the full recount). Continue reading Sánchez Cerén narrowly leads Salvadoran presidential vote

Johnny Araya suspends campaign in Costa Rica

johnny After the February 2 first-round votes in both El Salvador and Costa Rica,  I wrote that even though the Costa Rican vote was tighter than the Salvadoran vote, it was easier to predict that Luis Guillermo Solís would defeat San José mayor Johnny Araya (despite just a 1.3% lead for Solís in the first round) in the April 6 runoff than Salvadoran vice president Salvador Sánchez Cerén (with a nearly 10% lead in the first round) would defeat San Salvador mayor Norman Quijano in the March 9 runoff.costa_rica_flag

Sure enough, while Sánchez Cerén is the favorite to win this weekend’s vote in El Salvador, the bigger news from Central America this week was Araya’s decision to suspend his campaign after a University of Costa Rica poll earlier this week showed the Solís held a staggering 44-point lead over Araya, winning 64.4% to just 20.9% for Araya (pictured above).

Though that poll included a sizable undecided vote (around 14.6%), it showed that Araya had lost ground in the past month — he won 29.6% of the first-round vote.

Facing the ignominy of leading Costa Rica’s most enduring party, the center-left Partido Liberación Nacional (PLN, National Liberation Party) through even more embarrassment, Araya suspended his campaign on Wednesday, with one month to go before the runoff.

The reasons for Araya’s decision were clear from the moment the Araya-Solís race were established — or before: Continue reading Johnny Araya suspends campaign in Costa Rica

The US whispering campaign against Sánchez Cerén

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There’s a segment of the US foreign policy community that simply doesn’t care much for the likely winner of this weekend’s Salvadoran presidential election, Salvador Sánchez Cerén — and it’s making its displeasure loud in the days leading up to Sunday’s runoff vote.el salvador

First, Elliott Abrams, former deputy national security adviser under US president George W. Bush, argued back in early January in The Washington Post that Sánchez Cerén (pictured above) represents a backslide for El Salvador, arguing further that ‘democracy and peace in Central America are again at risk’:

The likely impact of a Sánchez Cerén victory on U.S.-Salvadoran security and counter-narcotics cooperation is dangerous. The United States has a key forward operating location in El Salvador to monitor and deter drug trafficking, and the FBI cooperates with local police against trafficking by Salvadoran gangs. Could such activities continue in light of the FMLN’s ties to the FARC and to the Venezuelan government?

Yesterday, José R. Cárdenas, also a former official in the Bush administration, added his alarm in Foreign Policy, where he echoes the same kind of panic over a Sánchez Cerén victory:

What an FMLN victory means for El Salvador and the region under a Sánchez Cerén presidency is particularly worrisome. Unlike current President Mauricio Funes of the FMLN, with Sánchez Cerén there is no pretense to moderation. Beneath the democratic mask, he still adheres to the hard-line agenda of the FMLN, honed during the dirty war against the Salvadoran state in the 1980s.

Funes, as the candidate of the Frente Farabundo Martí para la Liberación Nacional (FMLN, Farabundo Martí National Liberation Front), the guerrilla group from the 1980s that transformed more than two decades ago into El Salvador’s primary center-left political party, won the presidency for the Salvadoran left for the first time in the country’s postwar history.  Sánchez Cerén is more ideologically motivated than Funes, who came to politics from journalism, unlike Sánchez Cerén, who came to politics directly from the front lines of El Salvador’s 1979-92 civil war.

Sánchez Cerén’s running mate, Óscar Ortiz, is the widely popular mayor of Santa Tecla and a moderate figure within the FMLN, and many Salvadorans believe it always should have been Ortiz leading the FMLN’s 2014 ticket.  His appeal is one of the reasons Sánchez Cerén seems like such a lock to win Sunday’s election (at least as much as the ‘masterful political ads that managed to convert a battle-hardened ideologue into a kindly, old grandfather’ that Cardenás attributes to the FMLN’s success).  Sánchez Cerén, who has served Funes loyally as vice president for five years, and Ortiz, who will want to succeed Sánchez Cerén in 2019, both have an incentive to pursue continuity with the relatively moderate Funes government.  Sánchez Cerén would not be the first Latin American firebrand to govern with a pragmatic approach in office — e.g., Peruvian president Ollanta Humala.

Following the end of the civil war, El Salvador developed a relatively stable trajectory and, until 2009, the center-right Alianza Republicana Nacionalista (ARENA, Nationalist Republican Alliance) won every consecutive presidential election.  It’s true that the Funes administration has nudged Salvadoran public policy leftward, especially with respect to social welfare, and that Funes has availed his country of some of the economic benefits of closer ties with Venezuela and other US opponents in Latin America.  But ultimately, his administration hasn’t abandoned the broad Salvadoran consensus toward neoliberal economic policy or the country’s decision a decade ago to abandon its national currency in favor of dollarization.  Funes’s leftism has been more of the pragmatic, business-friendly lulista variety than the populist, dogmatic chavista alternative: 

But as president, Funes has expanded social welfare benefits — abolishing public health care fees, combatting illiteracy, providing food and clothing to schoolchildren, granting title to disputed land claims, introducing monthly stipends and job training for the poorest Salvadorans, and signing legislation to protect women, sexual minorities and indigenous communities.  He’s also oriented El Salvador closer to the Venezuela-led Alianza Bolivariana (ALBA, Bolivarian Alliance) while retaining strong ties with the United States.

By the way, the Salvadoran business community has welcomed Funes’s outreach to Venezuela and ALBA because, as Frederick Mills wrote late last year in a great primer on the Salvadoran race, the private sector is enjoying access to new markets in addition to its long-standing access to US markets.

In the first round of the election on February 2, Sánchez Cerén won 48.92% of the vote, while center-right San Salvador mayor Norman Quijano won 38.95%.  The third-place candidate, former president Elías Antonio ‘Tony’ Saca won just 11.44%.  Saca, notwithstanding his former ties to ARENA, has so far refused to endorse either Quijano or Sánchez Cerén in the runoff — that’s a blow to Quijano, who hopes to consolidate the right-leaning vote to pull off an upset in the March 9 runoff.

But there’s some troubling revisionism in both hit pieces by Cardenás and Abrams that should leave us all skeptical about their narratives of the current election campaign.  Continue reading The US whispering campaign against Sánchez Cerén

Sánchez Cerén exceeds expectations in first-round Salvadoran vote

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With almost every vote  counted tonight, here’s where the Salvadoran election stands:el salvador

In El Salvador, vice president Salvador Sánchez Cerén commanded 48.92% of the vote against the center-right San Salvador mayor Norman Quijano, who has won 38.95% of the vote, with 99.15% of the vote reporting.

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Though Sánchez Cerén (pictured above, top) was favored in most polls to the first round of the Salvadoran presidency, he wasn’t expected to come so close to winning the entire presidency — essentially within 1.07% of nabbing the absolute majority he would need to take the presidency in a first-round victory.

That result is much better than Sánchez Cerén’s Frente Farabundo Martí para la Liberación Nacional (FMLN, Farabundo Martí National Liberation Front) could have hoped for.  It’s not only a first-round win, but it significantly outpaces polling expectations that put Sánchez Cerén equal to or behind Quijano, the candidate of El Salvador’s center-right Alianza Republicana Nacionalista (ARENA, Nationalist Republican Alliance).  It’s a vote for enhancing the social welfare programs and the turn to the Alianza Bolivariana (ALBA) in Salvadoran governance.

Though Sánchez Cerén is now favored to win the March 9 runoff against Quijano, but it’s not a certain outcome.  Third-place candidate, former president Elías Antonio ‘Tony’ Saca, who won a somewhat disappointing, 11.44% of the vote, will almost certainly back Quijano and even if he doesn’t, it’s hard to believe his voter base support Sánchez Cerén.

That means that though Sánchez Cerén outpaced Quijano by essentially a 10% margin, the runoff could be very close, and it will become a classic left/right race to determine Salvadoran economic policy, regional alliances and the best strategy to solve violent crime.  Sánchez Cerén, a former guerrilla leader for the once-Marxist FMLN during the Salvador civil war of 1979-92, is further to the left of outgoing president Mauricio Funes, a former journalist and the first FMLN candidate to win election since the end of the Salvadoran civil war. Quijano, however, has been dogged by allegations of corruption and ties to past ARENA officials who are under investigation, including former president Francisco Flores.

Triple-election weekend on two continents

Voters in three countries will go to the polls on Sunday in three very different kinds of contests on two continents:

In Thailand (population: 66.8 million), voters will elect all 500 members of the  House of Representatives, the lower house of the Ratthasapha (National Assembly of Thailand, รัฐสภา), the lower house of Thailand’s parliament.  thailand

Prime minister Yingluck Shinawatra called snap elections following growing protests that began last November, ostensibly over an amnesty bill, but which have now torn the country back into the familiar pro-Yingluck ‘red shirt’ camps and the opposition ‘yellow shirt’ camps, the same pattern that’s gripped Thailand since the election of Yingluck’s brother Thaksin Shinawatra in 2001.  Their ruling Pheu Thai Party (PTP, ‘For Thais’ Party, พรรคเพื่อไทย) seems set to win a landslide victory due to the boycott of the opposition Phak Prachathipat (Democrat Party, พรรคประชาธิปัตย์).  So the election itself is unlikely to end the political protests and growing political violence.

The Democrats and their supporters are instead calling for an unelected governing council, and there’s a chance that, if the situation escalates, the Thai military could intervene (as so often in the past).

  • Read more about what the Thai protests have in common with Ukraine’s protests here.
  • Read more about the Thai government’s disastrous rice subsidy scheme here.

In El Salvador (population: 6.3 million), three major candidates are vying for the Salvadoran presidency.  Incumbent center-left president Mauricio Funes is ineligible to run for a second term.   el salvador

Polls show a tight race between Salvadoran vice president Salvador Sánchez Cerén, the candidate of the leftist guerrilla front-turned-political party Frente Farabundo Martí para la Liberación Nacional (FMLN, Farabundo Martí National Liberation Front) and San Salvador mayor Norman Quijano, the candidate of the center-right Alianza Republicana Nacionalista (ARENA, Nationalist Republican Alliance).  Former conservative president Tony Saca is also running at the head of a coalition that includes a breakaway faction from ARENA.

If, as expected, no candidate wins over 50% of the vote, the top two candidates will advance to a March 9 runoff, which seems likely to pit Sánchez Cerén against Quijano in a race that features vastly different approaches to security, corruption, economic policy and regional alliances.

Sánchez Cerén is a former guerrilla leader during the 1979-92 Salvadoran civil war, and Quijano has been dogged by corruption charges and is linked to other ARENA figures under investigation for corruption.  Funes, a former journalist, became the first FMLN candidate to win election in 2009.

  • Read more about how, one decade on, El Salvador’s dollarization policy is going here.

In Costa Rica (population: 4.8 million), a general election will determine who will be the country’s next president and all 57 members of the Asamblea Legislativa (Legislative Assembly).   costa_rica_flag

The two leading candidates, according to polls are longtime San José mayor Johnny Araya, the candidate of the ruling Partido Liberación Nacional (PLN, National Liberation Party) and José María Villalta, the only legislator of the previously minor socialist / social democratic Frente Amplio (Broad Front).

If none of the candidates wins 40% of the vote, the top two candidates will face off in an April 6 runoff.

Araya is seeking the third consecutive term for the PLN after the presidencies of Óscar Arias from 2006 to 2010 and the incumbent Laura Chinchilla, Costa Rica’s first female president.  Chinchilla’s administration is unpopular — both for its inability to control corruption or to tackle the country’s growing debt.

Two other candidates could conceivably pull an upset, however: Otto Guevara, a conservative attorney, who is running his fourth consecutive presidential campaign, and Luis Guillermo Solís, a social democrat and former diplomat in the Arias administration.

The two Central American elections follow a general election in Honduras last November and precede a presidential election in Panamá on May 4.  Earlier this week, Nicaragua also cleared the way for Sandinista president Daniel Ortega to run for reelection in 2016.

  • Read more about Suffragio‘s coverage of the recent Honduran general elections and the  presidential inauguration last Monday of Juan Orlando Hernández here.

Three-way Salvadoran presidential election focuses on security

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Map credit to cartographer Daniel Feher. You can find more of his work here: http://www.freeworldmaps.net/centralamerica/political.html.

In the same week that conservative Juan Orlando Hernández was inaugurated as Honduras’s new president, both neighboring El Salvador and Costa Rica will vote for new presidents on Sunday, February 2, capping a whirlwind of electoral action that will continue with expected runoffs in both countries throughout the spring and the May Panamanian presidential election.el salvador

El Salvador, which lies chiefly along the Pacific coast of Central America, has less than 20% of the area of its neighbor Honduras, but it has 6.3 million residents, nearly 80% of Honduras’s population.  That makes El Salvador the densest country, population-wise, on the Latin American mainland, and that’s not counting between 1.65 million and 2 million Salvadoran Americans, many of whom emigrated north during the Salvadoran civil war and whose remittances back to El Salvador account for 28.2% of El Salvador’s gross domestic product.  Salvadorans abroad, for the first time in Salvadoran political history, will be able to vote in Sunday’s election and the widely expected runoff between the top two finishers on March 9.

Like Honduras (and Costa Rica and Panamá), the Salvadoran president is constitutionally limited to one term in office, which means that the center-left incumbent, Mauricio Funes, is ineligible to run for reelection.

It’s fairly difficult to understand Salvadoran politics without understanding that it’s still in many ways recovering from the brutal civil war from 1979 to 1992  between the US-backed Salvadoran government and the left-wing guerrilla group, the Frente Farabundo Martí para la Liberación Nacional (FMLN, Farabundo Martí National Liberation Front) that killed between 70,000 and 80,000 people.

The conservative Alianza Republicana Nacionalista (ARENA, Nationalist Republican Alliance) formed in 1981 in direct opposition to the FMLN, and it held power in El Salvador in the early 1980s and again from 1989 until 2009.  Under the administration of Alfredo Cristiani, El Salvador finalized the 1992 Chapultepec Peace Accords ending the civil war.  His successor Armando Calderón Sol worked to restore a sense of normalcy to the country through the end of the 1990s and to spearhead a series of reforms to privatize and liberalize the Salvadoran economy.  Francisco Flores, who led El Salvador from 1999 to 2004, continued ARENA’s broad center-right agenda, strongly pushed for the US-Central American Free Trade Agreement (CAFTA) in alliance with US president George W. Bush and oversaw the dollarization of El Salvador’s economy, a policy that remains controversial even today among Salvadoran economists.  Flores, however, is under investigation for misuse of public funds and, earlier this week, skipped a congressional hearing on the investigation and is accused of trying to flee the country on Tuesday.

Meanwhile, the FMLN strived throughout the 1990s and 2000s to shed its radical leftist past and is now El Salvador’s chief center-left political party with an orientation that’s more social democratic today than Marxist.  Funes’s narrow election victory (with 51.3% of the vote) in March 2009 represented the first non-ARENA government in El Salvador’s post-civil war history.  Funes, a former journalist, campaigned on a moderate agenda that largely accepted much of the neoliberal architecture of the Salvadoran economy, including dollarization.  But as president, Funes has expanded social welfare benefits — abolishing public health care fees, combatting illiteracy, providing food and clothing to schoolchildren, granting title to disputed land claims, introducing monthly stipends and job training for the poorest Salvadorans, and signing legislation to protect women, sexual minorities and indigenous communities.  He’s also oriented El Salvador closer to the Venezuela-led Alianza Bolivariana (ALBA, Bolivarian Alliance) while retaining strong ties with the United States.

Funes, however, has not been so successful in reducing the violent gang-driven crime and drug trafficking that has also afflicted Honduras, Guatemala and México in recent years.  Since a truce between the two top Salvadoran gangs, the Mara Salvatrucha (M13) and Barrio 18, fell through in 2013, Salvador homicides have been on the rise.

The 2014 election pits three candidates against each other, and it’s expected that none will win the absolute majority required to avoid a March runoff.  Though polls vary, a January 13 Mitofsky poll shows the ARENA’s candidate, former San Salvador mayor Norman Quijano leads with 35.5%, FMLN’s candidate, vice president Salvador Sánchez Cerén trails narrowly with 31.8% and former president  Elías Antonio ‘Tony’ Saca in third place with 16.0%.  Other polls in the past two months have shown Sánchez Cerén with as much as a 14% lead, and other polls have shown Saca with up to 27% support, though the trend seems to indicate that Saca’s supporters are partly flocking to Quijano, thereby making the race between Quijano and Sánchez Cerén much tighter

So how would each of the three candidates govern El Salvador?  Continue reading Three-way Salvadoran presidential election focuses on security

El Salvador’s experience in dollarization

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On the way back home from Honduras, my plane landed briefly in El Salvador at San Salvador’s airport.el salvador

Not wanting to pass up a brief opportunity to try my first Salvadoran pupusa in El Salvador*, I started looking for a cash machine to withdraw some local currency.  Within seconds, however, I remembered that El Salvador switched from the colón to the US dollar 12 years ago, so of course there was no need, and I began thinking a little more about why El Salvador adopted the US dollar and whether it has seen any benefits from doing so in the past decade or so.

That decision was among the most important of the administration of Francisco Flores, El Salvador’s president between 1999 and 2004, and a member of the conservative Alianza Republicana Nacionalista (ARENA, National Republican Alliance).  Flores became one of the top US allies in the region at a time when Hugo Chávez was cementing his control on power in Venezuela.  Not only did he stand firmly with US president George W. Bush over regional affairs, he even deployed Salvadoran troops to Iraq in support of the US invasion.

Dollarization was controversial even at the time, but the policy goal was that it would reduce El Salvador’s interest rates and facilitate trade — this was in the era before the Central American Free Trade Agreement (CAFTA), which came into effect in 2009 among the United States, the Dominican Republic and four Central American countries.**

But the broader economic benefits haven’t materialized as fully as Flores might have hoped a decade ago — El Salvador’s GDP growth rates have lagged behind even some of its poorer Central American peers in the past 12 years:

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The entire Central American economy is tied heavily to the US economy due to massive trade and remittances from family members living and working in the United State.  That’s especially true for El Salvador, because many Salvadorans migrated during the brutal civil war during the 1980s (in the Washington, DC metro region, for example, Salvadorans represent the largest Latino nationality group, outpacing even Mexicans).  With around 6.3 million people, El Salvador has over three-fourths of the population of Honduras, but less than one-fifth of the area of Honduras.***

But it’s been essentially the sick man of Central America for some time, routinely underperforming Honduras, which is struggling under the weight of political polarization, trafficking-related violence and massive corruption.  El Salvador faces those problems as well, but it’s generally believed that those problems are at least slightly less drastic in El Salvador.

What’s clear is that while dollarization may (or may not) have worked for Panamá and Ecuador, the benefits have either been too small for El Salvador to realize or, worse — and more likely, dollarization has actively hampered the Salvadoran economy.

Salvadoran central bank president Carlos Acevedo earlier this year admitted that dollarization was ‘a sack of unfulfilled promises’:

Bank President Acevedo made his most recent statements (reported by Active Transparency) following the release of a government study on dollarization, which reached some rather negative conclusions. The report found that many key economic indicators, including exports and GDP fell, while inflation and interest rates rose. Dollarization has failed to shield the economy from downturns and instead made El Salvador more susceptible to instabilities in the U.S. economy, as witnessed during the 2009 recession. The Economista published an article yesterday reaching very much the same conclusions.

In his statements this month, Acevedo said dollarization was “badly designed, improvised and lacking consultation,” and that El Salvador’s fiscal performance with dollarization was the worst in sixty years. He also said the performance was so poor that even proponents of dollarization could not ignore its negative impacts.

Prices in San Salvador’s airport do seem to be higher than prices in Tegucigalpa’s airport, though perhaps the better comparison is to the swankier airport in San Pedro Sula.  But there’s definitely a sense among Salvadorans that consumer prices rose after 2001, though the reasons for that phenomenon remain an open question, even among economists.

Another IMF report from 2011, however, indicated that dollarization had reduced interest rates between 4% and 5%, thereby contributing to savings and boosting GDP by 0.25% to 0.5% annually.

It’s tempting to argue that El Salvador is suffering from the same fate as the eurozone — i.e., that El Salvador and the United States do not comprise an optimal currency zone), Salvadorans are ‘stuck’ with US monetary policy, which may not be appropriate for the Salvadoran economy, and there’s obviously no mechanism for fiscal transfers from the US federal government to the Salvadoran government.   Continue reading El Salvador’s experience in dollarization

Chart of the day: Central American GDP per capita

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Central America holds its fair share of elections over the coming months, starting with the November 24 general election in Honduras, where voters will select a new president and all 128 legislators in the Congreso Nacional (National Congress).honduras flag iconPanama Flag Iconcosta_rica_flagel salvador

But that’s just the beginning — El Salvador holds the first round of its presidential election in February 2014, with a potential runoff in March 2014, Costa Rica holds a general election in early February 2014, and Panamá holds its general elections in May 2014.  Guatemala will hold off until autumn 2015 and Nicaragua and Belize will hold off until 2016, when president Daniel Ortega (yes, that one) may well attempt to cling to power.

What’s more, in each of the four Central American elections set to take place in the next seven months, presidential term limits prohibit the incumbent from reelection, so four countries with over 21 million people will make political transitions of some kind.

But what’s most staggering is that the issues in each of the four elections are massively different — GDP per capita varies widely.  Though you can see a slight variance in 1960 setting Panamanian and Costa Rican GDP per capita apart, Guatemala briefly overtook Costa Rica in the early 1980s and Nicaragua was also on essentially the same path as Panamá and Costa Rica before flatlining for a decade starting in the late 1970s (following the Managua earthquake and anticipating the fall of the Somoza regime) and actively falling during the 1980s and early 1990s when the Cold War-inspired civil war devastated the country.  Though El Salvador continued to growth at a slow, steady rate throughout its civil war, which raged from 1979 to 1992, its growth rate exploded in the mid-1990s, and pushed the country to appreciably higher standards of living than its neighbors.

Still, the greatest relatively gains have been made over the past two decades:

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Costa Rica, with its tourism (and its position as a regional hub for Intel microprocessors), and Panamá, with its canal revenues, banking and insurance sectors and, increasingly, also tourism, lead the way.  Panamá City long overtook Managua as Central America’s financial hub.

In short, Panamá and Costa Rica are becoming tropical extensions of North America, with GDP per capita approach $10,000, essentially equivalent to that of México, and just a little lower than Brazil, Argentina, and Chile.

The remaining four countries major countries (minus Belize) are languishing further behind, with some of the lowest standards of living in all of Latin America.

Especially in Honduras, which features the higher homicide rate in the world — a rate that’s more than doubled since 2005 from around 37 homicides per 100,000 to 91.6 in 2011.  The World Bank estimates that violence and crime levels cost Honduran economy about 10% of GDP annually.  Security dominates the election campaign, but it’s a real drag on the economy as well.

Nonetheless, the economy has grown steadily at around 3.5% for the past four years, in part due to the strength of its export economy, fueled by the passage of the Central American Free Trade Agreement (CAFTA-DR) among the United States, Honduras, the Dominican Republic and several other Central American countries.  That has boosted the maquila (assembly) industry, as well as other service and manufacturing sectors in Honduras — agriculture remains important, but bananas represent just about 3.5% of exports in the original ‘banana republic,’ and coffee amounts to just 10% of exports.  The economy remains incredibly tied to the United States — exports to the United States account for about 30% of Honduran GDP and remittances from the United States and elsewhere contribute about 20% of Honduran GDP.

But whereas economists and observers once joked that Honduras was so poor that it couldn’t even afford an oligarchy, it now has the highest Gini coefficient in Central America (57) and one of the highest in the world as inequality continues to rise.  About 60% of Hondurans live below the poverty line.  Moreover, corruption remains a real impediment to foreign investment — Transparency International ranked the country 133rd in 2012, again the lowest score in Central America (and just barely topping the more lowly ranked Venezuela).

In global terms, however, Honduran GDP per capita (around $4,600 on a PPP basis), is relatively wealthy — that’s still higher than in India, Pakistan, Vietnam, Nigeria, Kenya or Ethiopia.