Commentary

El Salvador’s Choice

On March 15th, Salvadorans will head to the polls in a presidential vote that could result in a drastic departure from the movement towards free markets and democracy that has characterized the country since the end of the civil war in 1992. Such a retrograde move would be a travesty.

Since the end of its civil war, El Salvador has transformed its economy by implementing a far-reaching liberalization process which has included the privatization of state enterprises, deregulation, trade and financial liberalization, privatization of the pension system along the lines of Chile’s successful reform, and the adoption of the U.S dollar as the official currency. Today, El Salvador is among the twenty-five freest economies in the world, according to the Fraser Institute’s Economic Freedom of the World Report.

These reforms have paid off handsomely. Between 1991 and 2007, the percentage of households in poverty fell from 60 percent to 34.6 percent. Extreme poverty declined from 28.2 percent of households to 10.8 percent during the same period. Just one decade after the implementation of the first reforms, net enrollment in primary education increased by close to 10 percentage points, infant mortality declined by 40 percent, and the population without access to safe water was halved.

Still, critics question the market reforms, pointing to El Salvador’s low income levels and mediocre growth rates. Some argue that improvements in the country’s social indicators are the result of the hundreds of millions of dollars that Salvadorans receive in remittances every year. However, there is ample evidence that official figures underestimate the performance of the economy, mostly because the service sector—an area in which El Salvador is the leader in the region—is grossly undervalued in the country’s estimation of GDP. The economy is probably more than 30 percent larger than indicated by the official data, and the average per capita growth rate since 1992 has been approximately 5.2 percent per year, markedly higher than the official estimate of 1.9 percent.

The threat to such achievements lies in the former Marxist guerrilla group, FMLN, which abandoned armed struggle in 1992 for electoral politics and became the country’s main opposition party. Instead of pursuing a modern center-left course along the lines of Chile’s governing Concertacion Nacional, the FMLN has decided to keep its hard-left agenda. Despite nominating Mauricio Funes, a popular moderate figure, as its presidential candidate, high-ranking FMLN officials have made clear their intentions to undo the market reforms that El Salvador has implemented and emulate the socialist revolution of Venezuela’s Hugo Chávez.

There are several reasons why the FMLN leads in most polls despite the development accomplishments of the last decade and a half. First, under the presidency of Antonio Saca, the ruling ARENA party lost the reformist drive that characterized previous administrations since 1989. Worse, ARENA’s presidential candidate, Rodrigo Ávila, has adopted populist rhetoric that runs counter to the market reforms.

But perhaps the main source of popular discontent against ARENA is the climate of violence that currently besets the country. With a murder rate of 60.7 per 100,000 inhabitants in 2007, El Salvador is the most violent country in the world. This lack of basic security imposes enormous costs on the Salvadoran economy and scares away investment. According to a study by El Salvador’s National Public Security Council, the violence cost the country $2 billion in 2006—nearly 11 percent of GDP.

Another factor contributing to FMLN’s popularity is that a third of El Salvador’s adult population is less than 30 years old. These are the voters who do not remember, or have very distant memories of, their country as it was fifteen years ago. It is no coincidence that support for the FMLN is particularly strong among the younger population. As one of my Salvadoran colleagues noted during a visit to San Salvador last year, “It’s true; young people today have problems paying for their cell phones, gas for their cars, and college tuition. What they don’t remember is that fifteen years ago their parents couldn’t afford phones or cars, lived in shanty towns, and couldn’t even dream of going to college.”

Hopefully they will not have to ever find out for themselves, and there will come a day when elections in El Salvador won’t have so much at stake.

Juan Carlos Hidalgo is project coordinator for Latin America at the Cato Institute’s Center for Global Liberty and Prosperity, and is the author of the policy paper, “El Salvador: A Central American Tiger?