The politics of international loans

Under El Salvador's constitution, obtaining an international loan requires a 2/3rds vote in the National Assembly. The FMLN lacks a majority in the National Assembly, but its legislative block has more than the necessary third to stop loan approvals.

Currently the government has international organizations lined up to loan El Salvador $436.4 million. The loans, from the World Bank and the InterAmerican Development Bank, are designated for such purposes as basic education, improving rural roads, public safety, and Solidarity Net, the Saca government's anti-poverty program. The FMLN has so far blocked approval of these loans, insisting that it wants the results of audits of 16 prior international loans and scrutiny of how money which was previously borrowed has been spent.

Tony Saca is turning up the heat on the FMLN, warning that the opposition leftist party will be responsible for blocking programs designed to make investment in vulnerable sectors of society. The head of the InterAmerican Development Bank warned that El Salvador would lose the ability to receive $210.9 million of loans if the legislators did not approve the loan by early April. The head of El Salvador's prison system resigned over what he said was his frustration with the FMLN for not allowing a $100 million load designated for public safety, of which $29.7 million was designated to modernize the prison system.

The FMLN has little power to effect legislation in the National Assembly except when a super-majority vote like loan approvals is involved. By blocking approval, the FMLN gets bargaining power to perhaps advance some of its own agenda. But the party runs the risk of giving Tony Saca propaganda points by blocking programs which the ordinary Salvadoran may view as good programs for the country.


El-Visitador said…
Regarding ARENA, what a bunch of hyprocrites! If they really cared about security, building jails, and subsidizing poor families, they could self-finance such projects by merely shutting down or selling a bunch of wacky, non-performing bureaucracies such as ISTA, ISTU, ISNA, MARN, ANDA, CEPA, ISDEMU, MinTu, MinEc, CONCULTURA, PARLACEN, SC, DC, BH, etc.

Actually, I sympathize with the FMLN here. Their hearts are dark and their motives impure, but not pawning off the country is quite a great side effect of their position. Cheers to them! Don't approve a penny!
Anonymous said…
Here I come!


Most of the money the gobernment had already got from the same BID and the other mentioned in the article ( with no coments from our friend Tim ) has not being seen in the proyects they were given for.

No hospital had being constructed, the proyects of rural roads improvements had being given to inner contractors, and those companies hadn't given the value for money the had being paid for.

To the extent they ask for money to continue their own electoral campaign and other issues related to funding private sectors.

No way!

Don't touch El Salvador "cucu"!!

I disagree with el-visitadour, who always keen to privatise our institution in order to be controled by major foreign companies which don't care about nothing more than the destruction of own resources and its explotation.

No way

Don't touch El Salvador "cucu"!!

look at the institution in hands of "honorable" entrepreneus such as Hugo Barrera, who gave the permission to destroy de black Coral of the beautifull beaches of el Cobano, area that supossed to be protected by the enviromental law, but broken when convinious by those companies that don't respect it in order to get the greedy money.

The privatisation gives only the legal way to get away in cases such as these because they ( the corporation ) don't answer to any local, national laws terms.

Just look what they do in Europe, when they get away with money from the retired people, and hides behind the USA.

No way

Don't touch El Salvador "cucu"!!

Look at Nicaragua where foreign corporation had already introduced contaminated rice that is not sold even in the USA or other industrialised nations, and don't answer to any of the local local, even when those companies are prosecuted by international standards.

No way

Don't touch El Salvador "cucu"!!
Rusty said…
The public school where I work had its bono cut from $9,000 a year to $5,000 a year due to the loan situation. This bono is all the school gets to pay for food, electricity, phone bills, paper, crayons, and other teaching supplies, paint, cleaning supplies, and all other school expenses, besides the teachers' salaries. This is a school that serves nearly 400 students and has six teachers.

They've run out of crayons and don't have much paper left. The director has reached into her own salary ($550 / month) to cover some expenses.

I have mixed feelings on this, because like El Visitador, I feel the government is corrupt and inefficient, and El Frente is right to try to do something about it. But I think this isn't the best way to go about it, because it's negatively affecting real people who are in vulnerable positions (the poor are the ones served by government institutions, not the rich). It's similar to the government shutdown the republlicans pulled under Clinton's administration. It cost them politcally.
Tim said…

I try not to comment where I don't have all the facts. My point is this -- I think it is beyond arguing that the country needs to spend more on basic education, more on rural roads to connect poor rural communities, more on its criminal justice system, more on raising the economic situation of the poorest in the country.

So how do you finance this? E-V wants to shut down non-performing bureaucracies. There's probably funds to be freed up that way, but probably not enough and you have to face the political realities of what is possible. Do you increase taxes on businesses and those able to pay? There is a very good argument that El Salvador could increase taxes. Of course too high a tax load will lead to persons and businesses moving income generating activities outside of the country. Do you borrow? Debt service puts a real load on the country in the future. Servicing the debt takes away money which could be used elsewhere. Yet if you project real economic growth (perhaps not a reasonable assumption) you should have the revenue to be able to repay the loan.

You are right to demand accountability for the way past loans have been spent and for the way future loans will be spent. Corruption and inefficiency can mean that the country incurs hundreds of millions in debt, and gets nothing for it.

So let me put the question back to you -- if you agree that more money needs to be spent on education, water, health and improving the lot of the poor in El Salvador -- where do you intend to get this money? I'm not saying you have to borrow -- but you have to have a plan.
Tambopaxi said…
What's not clear in all of the back and forth on this issue is, what's Saca's answer to the FMLN's demands for audits/accountability/results on outstadning loans. Amidst all the hoo-ha, I don't see that the IDB/WB/GOES ever responded to what I feel is a reasonable request for information on results of debts already incurred by El Salvador; what did the country get for its debts?
Anonymous said…
Hello Tim:

To answer your questions - lets start with the facts of salvadoreans realities and political culture.

the fact that there is a culture of tax evasion.

fraudulent and "truculent" as it is right now. Because what we know is that salvadorean state hadn't being able to get back a great amount of money from mayor companies throughout so many years.

The only reason for trying to reduce the size of the state to reduce the money spent on those institution doesn't give a reason for not trying to make those companies paying taxes.

That is the real matter around this topic.

How can you expect to spend money on education, health and security when the core of any economy should be sustain by the very people who should paid the taxes?

The government institutions who should force the law to make those companies pay are sometimes so corrupt that they let this things happens without acting on the interest of their own estate functionality.

In so many cases working people have no choice to pay tax revenues when their salaries are rip from their bosses who don't even sent that money to the estate but keep it for themselves.

As individuals, you and I pay taxes in our own countries but demand something in return. Is a matter of collective way of life, as a Christian I'm happy to know that with the taxes I already paid someone life is save in a hospital because part of that money have being used to pay a doctor, the equipment, the creation of those structure to keep the health system running.

But my contribution to society is not enough. Everybody indifferently of social status have to paid taxes in the society since those structure serve everybody and are not only for a minority of a social strata.

We cannot afford to impose the increase of taxes in the future to paid those large bills since our economy doesn't work to create jobs, and that is what the salvadorean government is going to impose on working people, those who are lucky to have a job and those who don't even work because taxes increase means high prices on all products in the future.
I do have a plan, change the government since the actual one doesn't know how work in administration of those institutions that belong to every common salvadorean citizens. We demand the politician to work harder in these matter, they are our civil servants who got to delivered to make it fare for everybody not for a bunch of tax evators.
The recent events on last week might explain the fact why last year Tony Saca had a called on his own activities as president, when the USA ex-ambassador Barclays told Tony Saca and ANEP to pay their taxes. Most of all when later in January of this year he (Tony Saca) delivered a speech tell in everybody that the economy had growth, manipulating the economics rates to his own propagandistic end, suddenly many responsible entrepreneous started arguing that those numbers were not correct at all, since they are in the business of making money and sometimes the numbers turn red.
And then it come to the facts that the economy growth is affected by great amount of money coming from our distant brother as well.

To an extent realities differs with those indicators given by Tony Saca about the economy success in our country with numbers that sometimes are exaggerated and give the impression salvadoreans live in “a developed” power nation, which in one hand reflects high level of economic growth but doesn't even have money to make their own institutions run properly when they failed to collect the tax revenue to make it happens.
The recent events should also be look further when last year Carlos Avilés president of the Educative Foundation for the prevention of drug consumption answered Mister Barclays and denounced that the country is being used for the drugs cartels as a temporal based to pass 900 tones of cocaine event thought there is a USA military base to control planes that enters illegally to the territory and introduce the drugs and used the financial system for money laundry. Furthermore those banks were sold to foreign financial global systems in less time that I spent to go to the toilet to talk to big mouth who always listen to my own shit and other winds.
We cannot continue like this my friend, so much is lost in these criminal process many lives that deserved a change to live hadn't had the opportunity to be complete fulfil and those that we love had being lost in the system of corruption that is the core of these unrealistic economy that reflects prosperity where there is none. Live with dignity and we will have dignity in the end, live with honesty and we will have honesty at the end, live without the cancer that is eating alive the very souls and we'll have a time for a change.
Link all these factors and elements to the fact of what is the obstacle that doesn't allow to controlled the progress of running state institutions, where corruption is at high levels to stop contributions and get tax revenues and deliver nothing than violence, silent war and death, who denied health, education and life, the real issue is that salvadorean are govern by a bunch of criminals who until now they have got away with their crimes.
You have to societies in El Salvador, the one that are worried every time who go out to work to make their living, those honest entrepreneous who tried to cope with the illegality of the competitors, how can they survive when they tried so hard to keep their own business afloat paying their taxes working with less margin of income and when they get sick don't have enough to pay the medical bills of the private health sectors, and those who don't even have jobs end in hospitals where the government cut the funding to the extent that there isn't medicine to cope with the increased population demands.
The policies implemented are wrong not the institutions. Why they cut on health institutions funding when the demand is growing?
If Tony Saca said that the country had got a success and positive economic rate growth there shouldn't be such disparity between those institutions running since the taxes are already “collected”.
Now lets see if you understand the core of these matter when you as a worker in the USA, revive medical attention just because you are part of the system which you paid you understand that corruption in El Salvador is to be tackle before implementing any reasonable system to make it work properly.
For that a government change is the only way Salvadoreans have a change to implement it, to have administrations that make the systems runs according to the realities just to mention socials or economics to gain something from our own contributions. I think salvadoreans deserve it.
And that all a got to say today.

Peace and love my brother/sisters.
El-Visitador said…
Tim, GOES spends 4 billion/year from various sources. Do you really think there is no fat in there to separate 10% or $400 million?

MinEc alone wastes over $200 million/yr, primarily in subsidies to rich coffee farmers, the surgarcane industrialists and landowners, $10-million-plus "small businesses", plus subsidies to land developers and the ilk of them. Not to mention thousands of utterly improductive bureaucrats (whenever they are not actually being counter-productive, which is just as often).

Do I really need to write a long post explaining about the hundreds of millions of dollars also uselessly burned at ISTA, ISTU, ISNA, MARN, ANDA, CEPA, ISDEMU, MinTu, CONCULTURA, PARLACEN, SC, DC, BH, etc.?

Come on! If ARENA really wanted the $400 million, they could get it out of their existing budget in no time.

The fact that they do not reveals that they just don't care about security and the anti-poverty program.
Anonymous said…
From a Salvadorian living abroad who knows the government and its people. I must say that the Saca goverment is deeply corrupt and the World Bank and the InterAmerican Development Bank are a bunch of bastards interested only in money. They care nothing about El Salvador. The benefits that people get are nothing compare to suffering coming in order to pay the loans back. El Salvador has to send troops to Iraq to pay some of those longs. Innocent people die for the big salaries of the polical figures. The FMLN should block any loans coming from this bastards and seek alternatives. Schools can get money from other sources other than loans.
Anonymous said…
No el visitador, you don't need to write a long post like mine, however you should mention on your "analysis" the money the gobernmet spent in the army, which by any meaning shouldn't be in Irak.

The size of the Army actually got more money than the health system and education the disparity is so great that impress any matematitian to check the estate of the ficticious economic growth presented by Saca to convinced everyone in El Salvador that thins are running well.

The army is a composition of lazy cows who live at the expense of the population without doing nothing to give back to the economy.

I would prefered more money to schools and health and to give education and oportunities to those people who are so stupid to get into the army because iliteracy in the country are so common, soldiers transform in teachers, doctors, ingeniers, workers, matematitians, and not into peace of meat to be sent into foreign countries to suppor the evil doers crazy cow bush, who should also be sent back to college also.

while our country is in ruin Francisco Flores and Saca sent soldiers to "help other" countries but not the one they were to gobern.

Isn't it everybody?

it's simple el visitador, private sectors are not the answers, not privatisation, just a change of mentality.

Anonymous said…
ARENA government has what, 20 million dollars for publicity? Just tells you about the priorities right there.

The army 111 million dollars, what the hell does the army do year long? Nothing more than staying in the barracks. So this institution could be disappeared or suffer a budget reduction (including firing all the decrepit generals that are STILL on the government's payroll).

Corruption. Look at Gutierrez from MOP, DDH accused him of foul play (taking bribes to favor some above the others), and what is with him? He was discharged because of "health issues". Perla, who was supposed to engage on water projects to ensure the availability of water, what he do? Built Flores a lagoon, and stole the cash. WOuldn't surprise me if the cash used to finance those "projects" came from loans.

Bancos, the first thing Cristianis (bankers of the narcs) did to evade taxes was to switch the holding of the major banks to Panama.

The cash is right there, the problem is that the ARENA mafia squanders it on projects that only benefit their group, and steals millions of it. So it is only reasonable, the only right thing to do, the thing that needs to be done to demand greater control of the cash flow and total transperency, because if not as someone else pointed out... will keep on going in this vice of "making loans, and the projects they were intended for: incomplete, undone".

By the way Visitador, of all the institutions you've listed, the only one I can surely say "Sure! Get rid of that crap, immediatly!" , is PARLACEN... Why the hell do we have to sustain such crib of corruption? Allowing "deputies" to serve as regional mules without a bother due to diplomatic imnunity AND still have to be mantained by the region?
Hodad said…
great itellectual comments by all,
seems common sense is common, on Tim's blog
Anonymous said…
Wow! This group can run El Salvador .This blog is like a world-class economic forum.

A little food for the thought: The borrower is always slave to the lender.

Applies to every aspect and every sector, from the individual to the nation.

ES or any country for that matter , is always better off reducing debts and working towards being debt-free.