The Economy -- Worse than admitted

In the lead up to the March presidential election, El Salvador's government was not talking about a downturn in El Salvador's economy related to the world financial crisis. But as IPS reports, with the election over, the information is coming out:
But shortly after voters awarded a victory to President-elect Mauricio Funes, who will take office on Jun. 1, the head of the Central Reserve Bank (BCR), Luz María de Portillo, and Eduardo Ayala, technical secretary at the Office of the Presidency, admitted otherwise.

They reported a sharp decline in exports and tax revenue, as well as the loss of thousands of jobs over the past eight months.

"We have been warning about this situation for a whole year," especially about the condition of the state coffers and the fall in GDP, but "unfortunately (the government) turned a deaf ear," Jorge Daboub, president of the Salvadoran Chamber of Trade and Industry (CCIES), told IPS.

In his view, the "electoral climate" prevented the situation from being acknowledged, and preventive measures were not taken to counteract the global economic and financial crisis that originated in the United States, which absorbs 57 percent of Salvadoran exports.

"Now we have to cope with the consequences of those bad decisions," Daboub said.

The business leader reported that 36,000 jobs have been lost since August 2008, and that sales were 21.4 percent down in February in comparison to the same month last year, especially exports to the United States. Tax revenue also declined, by 12.5 percent in the same period.

The economy "is in a tight squeeze," he said.

Official figures indicate that value added tax (VAT), the main source of tax revenue, fell by 25 percent, from 130.8 million dollars to 98 million dollars in the twelve months to January 2009, due to the fall in internal consumption and lower revenues from fuel sales.

This tough economic situation, and its impact on government revenues, is going to provide a real challenge to Mauricio Funes and the FMLN to deliver on their promises of increased social programs and spending.


Anonymous said…
told you so, didn't i tell you? i told you so.
Evervbody now-a-days is saying 'i told you so.' How do you think this is going to affect the tourism to Central, South America now that the US economy is in a crunch? -James
Tim said…
There are two competing forces on tourism -- some people might look at Central and South America for the first time as a less expensive alternative to vacations in other parts of the world. But there is a large overall drop in tourism everywhere which may be larger than the increase from differential in pricing. In other words, Central and South America still may not be cheap enough to induce tourists from outside of the region to spend the money to travel.
Unknown said…
Unfortunately, ES is a VERY expensive country to travel to relative to what the product offering is. I lived there for 4 years and undertook an ecotourism investment project that I ultimately backed away from due to economic concerns and competitiveness. Most people will not, unfortunately, pay the high cost to deal with crime, poor transportation options for tourists (compared to Guatemala or Costa Rica, for example), and overpriced but low quality lodging options. Things did improve between my first visit (2004) until the last time I was there in August, but it has a long way to go. Even the beaches are really not as nice as locals seem to think, relative to Mexico, Costa Rica, Nicaragua, and Panama, all of which are cheaper options with much better and safer tourism offerings.