EL SALVADOR

Bush Visits, Discusses Free Trade

US President George W. Bush’s stopover in El Salvador on 24 Mar generated effusive enthusiasm among many sectors in Salvadoran society, as the government and local media portrayed the visit as a recognition of the progress and modernization of Salvadoran democracy. Bush’s choice of El Salvador as the site to discuss free trade between his country and Central America also was seen as an affirmation of El Salvador’s new role as regional leader, a post occupied historically by Costa Rica. The US president called El Salvador “one of the bright lights of Latin America,” and praised Salvadoran leader Francisco Flores as a “unique and grandiose president.”

The focus of the five-hour conference was the proposed free trade agreement between the US and the seven Central American countries, including Belize. The idea has been viewed with great optimism by the leaders of all seven nations, who believe the elimination of trade barriers between their countries and the US will multiply export earnings and attract investment from US companies, thus creating jobs and cutting down on migration to the north. The US is Central America’s biggest commercial partner; trade with the US represents about 50% of the area’s foreign commerce, and over $12.8 billion was exchanged between the two regions in ’01, although the balance of trade tilted overwhelming in the favor of US Salvadoran Economy Minister Miguel Lacayo said the free trade agreement will substitute the “little window” offered to Central American exports through the current Caribbean Basin Initiative with a “wide-open door.”

Bush promised to rush the negotiation process so that the agreement can go into effect as soon as possible. However, his ability to do so depends on the US Senate, which must approve the Trade Promotion Act (TPA), or “fast-track” authority. With the TPA, the Bush administration could submit the completed free trade agreement to the US legislature for either approval or rejection, thus avoiding Congressional modification and a laborious chapter-by-chapter approval process.

Obstacles exist on the Central American side as well. Bush called on the governments of the region to prepare themselves for negotiations by complying with several conditions, including strengthening the protection of intellectual property rights and simplifying trade within Central America. The presidents at the conference responded almost immediately, convening after Bush’s departure to sign an agreement that will reduce obstacles to intra-regional investment and exchange of services. According to Oscar Santamaría, secretary general of the System of Central American Integration (SICA), Bush’s free trade proposal has added a noticeable stimulus to the process of integration and cooperation between the Central American nations. He said the leaders of the region now have a “real will” to resolve the various commercial and border disputes that have plagued the area in recent years.

Despite the general optimism surrounding the proposal, Central American analysts have warned that a free trade agreement with the US should be negotiated with caution. The Salvadoran Foundation for Social and Economic Development (FUSADES) released a report on 22 Mar pointing out that the US economy is very “protectionist” in its use of non-tariff trade barriers such as technical and sanitary requirements. The report also emphasized the enormous disparity between the economies of the US and Central America. For example, the Gross Domestic Product (GDP) of the US is 754 times greater than that of El Salvador. FUSADES argued that these asymmetries must be taken into account during negotiations.

Representatives of civil society in El Salvador have questioned the future agreement’s advantages to medium and small businesses. The government has promised that such businesses will be able to tap the “ethnic market” of Salvadoran immigrants living in the US who have a demand for traditional foods, such as pupusas. This assumption has been met with skepticism from several social and political sectors, including the leadership of the Farabundo Martí National Liberation Front (FMLN), the main Congressional opposition party.

Bush disappointed the participating countries by refusing to discuss the status of undocumented immigrants who live in the US on a semi-legal status. This issue is of much greater relevance to the Central American populace than the free trade agreement, as thousands of families rely on money sent from relatives in the US for basic subsistence. The Temporary Protection Status (TPS) currently enjoyed by immigrants from El Salvador, Nicaragua and Honduras expires this year. Bush said his administration would analyze the issue closer to the TPS expiration date, leaving unknown for now the future of hundreds of thousands of Central American immigrants.

Thousands of Salvadorans, including several FMLN leaders, took to the streets of San Salvador on the day of the US president’s visit to protest his reticence on the TPS issue and to register general opposition to the free trade agreement. The anti-Bush rally coincided with a march held to commemorate the 22^nd anniversary of the death of Salvadoran Archbishop Óscar Arnulfo Romero. Margarita Posada, director of the Forum of Civil Society, found a common thread between the two issues. “The government of the US has a debt pending with [Salvadoran] society,” she said. “It was [that government] that financed the [civil] war, that was an accomplice in 70,000 deaths, and among those casualties is the Monsignor Romero.”

Dollars Catching On

US dollars now comprise nearly two-thirds of the currency used in El Salvador, according to the most recent statistics of the Salvadoran Central Reserve Bank (BCR). As of 21 Mar, $350 million, or 65% of the total monetary mass, was in circulation as dollars, compared to $190 million, or 35%, in Salvadoran colones. Financial experts have predicted that, at this pace, dollars could make up 80% of the money in circulation by the end of ’02. The economy of El Salvador was officially “dollarized” in Jan ’01 with the passage of the Law of Monetary Integration (see Vol. 20, No. 1).

Proponents of the law have emphasized its success in reducing interest rates for loans. In the last two years, rates have dropped from 15.1% to 7.2%, while the other Central American countries currently have loan interest rates of about 20%. Bank officials continue to encourage dollarization, pointing out that the entire banking system will function more smoothly with only one currency. They also argue that accounts in dollars eliminate the possibility of devaluation, thus allowing depositors to save their money with greater confidence. However, interest paid on deposits has decreased from 8% to 3.5% since the law went into effect.

In other economic news, the BCR announced that El Salvador’s GDP grew only 1.8% in ’01, less than the 2% growth that had been estimated at the end of the year. Factors responsible for the scant growth include the earthquakes of Jan and Feb, the fall in the international price of coffee, and the reduction in earnings from exports in general. On the other hand, the government’s reconstruction efforts following the earthquakes may be responsible for the growth that was achieved, as evidenced by the 10% expansion of the construction sector. The BCR’s goal for ’02 is 3% economic growth.

Annan Bypasses El Salvador

While the visit of George W. Bush allowed for much self-congratulation among El Salvador’s political class, some analysts are viewing United Nations (UN) Secretary General Kofi Annan’s exclusion of the country from his Central American tour as a blow to Salvadoran diplomacy. Annan visited Honduras, Nicaragua and Costa Rica in a mid-Mar trip, and was expected to make a stop 15 Mar in El Salvador.

President Flores had envisioned a visit by Annan to be the highlight of the country’s celebration of the closure of the peace process, 10 years following the signing of the accords that ended El Salvador’s civil war. However, several sectors of society, most notably the FMLN, have objected to the supposition that the peace process is over and that the goals outlined in the accords have been met. On 8 Mar, FMLN leaders Schafik Handal and Hugo Martínez met with Iqbal Riza, head of Annan’s cabinet, to express their view that the government has not complied with several peace initiatives. According to María Eugenia Brizuela de Ávila, the Salvadoran Minister of Foreign Relations, Annan canceled his visit when it became apparent that a spirit of consensus did not exist among the parties that signed the accord.

Various international officials, including the ambassadors of Spain, Mexico, Colombia and the US in El Salvador and the representative of the UN Program in El Salvador, have joined the government in declaring the peace process complete. Nonetheless, the domestic labor and agricultural sectors have backed the FMLN’s challenge to this claim. The party’s major complaints focus on human rights abuses and citizen security. Analysts have speculated that the incursion of the National Civil Police into the Legislative Assembly on 13 Feb may have led the FMLN to seek its meeting with Riza (see Vol. 21, No. 3). Flores’ government plans to submit a counter-report to the UN in the near future.

In a survey conducted in El Salvador by the University Institute of Public Opinion, 80.7% of the respondents agreed that the peace process has been “good for the country,” and 53.9% said the country is in better shape than it was 10 years ago.

Internal Shifts in Political Parties

Both President Flores’ Nationalist Republican Alliance (ARENA) party and the FMLN have experienced internal changes in the last month. On 18 Mar, Archie Baldocchi was named the new president of ARENA, replacing Roberto Murray Meza, who became director of communications. The local press guessed that the change may have been made to allow Murray Meza to prepare his candidacy for the ’04 presidential election. ARENA also replaced seven departmental directors, and the party’s National Executive Board announced plans to carry out a thorough evaluation of its 29 congressional representatives and 127 mayors to determine who will be nominated for reelection in ’03.

The FMLN’s ethics tribunal decided at the end of Mar to expel five of its representatives in the legislative assembly for sympathizing with the newly-formed Renewal Movement. The organization began as an FMLN splinter group, and on 7 Apr inaugurated itself as a new, leftist political faction. Facundo Guardado was named president of the group, which hopes to become an official political institution by fusing with and reconstructing the already-existing Social Democratic Party.

—Jamie Tabb