El Salvador has become George W. Bush's main ally in negotiating the Free Trade Agreement (FTA) between the United States and Central America. Leading its neighbors in the negotiations El Salvador coincides with the United States' view that free trade is the most effective way of tackling poverty in this depressed region.
It is no mere coincidence that El Salvador has sprung out of its former anonymity to become internationally recognized as the region's natural leader. Twelve years of war, one hurricane and two earthquakes, all in the space of 30 years, have failed to quash the country's tenacious survival spirit. On the contrary, throughout this period El Salvador's economy has consolidated itself as one of the most stable on the continent, establishing the country as a reference point for the whole of Central America.
In the tenth year since the end of the civil war El Salvador's macroeconomic figures speak loudly and clearly for themselves. Most noticeably, its 3 percent average economic growth rate over the past five years is higher than that of many industrialized countries. Furthermore, at just 2.1 percent. El Salvador's inflation rate is well below that of its neighbors. No mean feat for a country barely the size of Massachusetts and with a population of just 6.2 million people—not including the 3 million living in other countries around the world. Little wonder then that the people behind this economic miracle—the Salvadorans themselves—are renowned worldwide for their tenacity and commitment to hard work.
The 1992 cease-fire ended a 12-year civil war which had killed 75,000 people and caused billions of dollars of damage to the country's infrastructure. The subsequent peace agreements probably stand as the United Nations' greatest achievement ever as peace broker following its role in overseeing the successful social reintegration of fighters from both sides. This, more than anything else, helped bury the hatchet and pave the way to democracy.
"El Salvador is one of the really great stories of economic and political transformation of our time," said George Bush on his first visit to El Salvador in March this year. "Just over a decade ago, this country was in civil war. Violence was a daily reality, and prosperity was just a dream. Today, the country's renewed commitment to democracy and economic reform and trade have made it one of the freest and strongest and most stable countries in our hemisphere."
"El Salvador is one of the really bright lights in Latin America," proclaimed Mr. Bush. "Not only has it managed to change its destiny in less than a decade but it has also survived almost intact the impact of such devastating events as a civil war and two earthquakes."
"El Salvador has managed to reduce poverty levels via its commitment to economic freedoms and individual creativity," says the country's president, Francisco Flores, Latin America's youngest president and one of its most charismatic. "Our country is demonstrating to the world that poverty is not combated via populist demagogy but that economic policy is the best social policy," remarks Mr. Flores who was educated in the United States.
Voted to power in 1999, President Flores is largely responsible for making El Salvador's voice heard throughout the world's main international forums. He was also one of the first leaders to meet with George W. Bush shortly after he was voted in as president of the United States.
And Mr. Bush was clearly impressed: "It's an honor to call him friend," said U.S. new president about the man he clearly prefers to lead Central America's part in the FTA negotiations. Subsequently, Mr. Bush has been increasingly reassured by President Flores' repeated proclamations to the people of El Salvador that free trade is essential to the struggle to rise out of poverty.
Reform and democracy. Over the last four generations El Salvador has been guided by a coherent reform plan covering everything from liberalizing the financial sector and telecommunications industry to transforming the electricity system and pension schemes. Today, El Salvador is considered to have one of Latin America's freest economic structures, with 90 percent of all business in the hands of the private sector. For foreign companies interested in entering El Salvador, the national investment promotion agency, PROESA, has been helping them find their feet. Many such companies have now established their Central American headquarters in the country. Apart from El Salvador's excellent geographical location for trade and its political and economic stability, such companies are also attracted by the reputation of Salvadorans as hard workers.
El Salvador's role as regional leader also makes it a natural hub for commercial activity. This is forcing the country to step up essential modernization of its main infrastructures, especially its seaports, railways and international cargo airport.
The introduction of the dollar as the national currency via the ratification of the Monetary Integration Law is a key support mechanism for development. According to inland revenue minister, Juan José Daboub, the move has helped establish an additional macroeconomic safety net as it precludes political manipulation of currency and makes established reform irreversible. Dollarization has also seen interest rates plummet to the lowest level in the region, making business financing cheaper, thus reinforcing the banking system.
Changes on the world commercial stage, such as falling sugar and coffee prices—staple exports for El Salvador—have forced the country to search out new markets and to open its economy to the fullest. Hence El Salvador has recently negotiated FTAs with Mexico, Panama, Chile, Dominican Republic and Canada.
Opportunity knocks. Together with President Flores, another vital player in relationships between the two countries' business and political communities, is René León, El Salvador's dynamic ambassador to the United States. Mr. León has helped El Salvador seize the golden opportunity presented by the Caribbean Basin Initiative (CBI), which establishes preferential tariff measures for textile trade with the United States. The initiative is held as a major contributor to the country's economic upturn and it has been particularly beneficial for the country's poor rural areas where increased textile production now offers supplementary work and incomes, especially to undereducated peasant women.
Mr. Flores, whose trade policy makes relationships with the United States top priority, describes the initiative as an "unprecedented opportunity." "A country like ours, locked in the fight for development, needs to open its markets to attract investment and to enable our industries to sell their products."
Meanwhile, Central America faces one of the greatest challenges of its history: regional integration. "The fact that the United States has conditioned signing the Free Trade Agreement on Central American integration will undoubtedly help us," remarks El Salvador's vice-president Carlos Quintanilla Schmidt.
Indeed, since President Bush announced to the Organization of American States (OAS) his intention of signing the FTA, an unprecedented dynamic of cooperation has ensued. In what President Flores describes as "a new phase in relationships" the Central American countries, traditionally locked in border disputes, have now decided to open their doors to each other.
At the same time, other similar initiatives have arisen as part of the increased dynamic for integration. One such move is the Panama Puebla Plan (PPP), which, instigated by Mexico, aims to step up infrastructure improvements in order to cope with the increased volume of regional trade.
Two million reasons. Mr. Bush is adamant that Central American regional development via free trade is the best immigration policy for the United States due to its positive impact on economic growth and employment. "When I first got elected, I said the best foreign policy for the United States is to have a prosperous, peaceful and free neighborhood," said Mr. Bush on his visit to El Salvador.
One of René León's main duties as ambassador is to represent the two million Salvadorans living in the U.S. Collectively his compatriots send home around two billion dollars, enough to cover El Salvador's trade deficit.
The sheer scale of these family remittances has brought Mr. Flores to hold migratory policy as a corner stone of his mandate. One of his government's priorities now is to push to make permanent the Temporary Protection Status (TPS) granted by the United States to Salvadorans following the earthquakes of 2001. "Since the TPS was approved, family cash consignments have increased by $200 million, $30 million above the reconstruction aid donated by the United State," explains Mr. Flores.
El Salvador's government has just launched a program to promote the productive use of family remittances. "Our horizons look increasingly bright," affirms President Flores.
