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El Salvador

Situation and cooperation

The Chingo vulcano on the border of El Salvador with Guatemala

Since the end of the civil war in 1992, El Salvador has been undergoing a process of democratisation. Nonetheless, the country remains deeply divided politically and socially. The two main parties, the conservative ARENA (formerly the party of the armed forces) and the leftist FMLN (formerly an alliance of revolutionary movements), are rooted in the respective traditions of the erstwhile adversaries in the civil war.

Parliamentary and presidential elections in January and March 2009 heralded the first democratic change of government since 1992. At the presidential elections in June 2014, the former FMLN Commander Salvador Sánchez Cerén won by a close margin.

Economic development

A coffee roaster at work

The Salvadorian economy is heavily dependent on economic development in the US. In 2001, the US dollar replaced the colón as the official currency, so that El Salvador is no longer able to operate an independent monetary policy. About half of all the country’s exports go to the US. After years of continuous economic growth, El Salvador was badly affected by the global economic and financial crisis of 2008. In 2009, gross domestic product (GDP) fell by 3.1 per cent. The crisis was compounded by the impacts of Hurricane Ida, which wreaked havoc in November 2009. Clearing up the damage caused by the hurricane required half the funds that had actually been earmarked for boosting the economy, balancing the budget and reducing poverty.

In October 2011, there was another episode of extreme rainfall, leading to severe flooding and landslides and causing a renewed setback for economic development. Since then very little has been achieved in the way of economic recovery. Economic growth is predicted to lie between two and three per cent over the next few years. Revenues from exports and from taxes have fallen, and the state is heavily indebted; meanwhile, high amounts are being spent to fund public subsidies and social programmes.

In order to reduce underemployment, increase tax revenues and create new income opportunities for its growing population, El Salvador will need to generate vast numbers of new jobs. However, investors are being put off by the high crime rate, legal uncertainty, corruption and cumbersome bureaucracy.

El Salvador has few mineral resources to speak of and little industry. Contract processing is an important economic activity, particularly in the electrical and textiles industries. Coffee is the most important agricultural export. However, export revenues vary greatly due to world market volatility and changeable crop conditions.

Economic growth in recent years has mainly been based on consumer spending. This in turn depends heavily upon remittances from the almost three million Salvadorian citizens living abroad – most of them in the US. In 2014, these remittances amounted to around 4.2 billion US dollars, which was equivalent to approximately 16 per cent of gross domestic product.


Education and training deficits weaken the labour market

Boy in a slum, El Salvador

Despite relatively favourable economic conditions, the situation on El Salvador’s labour market remains problematic. In 2014, the official unemployment rate stood at 6.2 per cent. However, it is estimated that more than 40 per cent of the working age population is either unemployed or underemployed, especially in rural areas. Many Salvadorian businesses lack international competitiveness because their workforces are not sufficiently well trained.

El Salvador’s school and university systems have a considerable way to go to match the standards set in other Latin American countries. Despite the huge reform efforts that the government is making, there are still major deficits in primary and secondary education. In 2013, the illiteracy rate was 13 per cent.


Extreme social inequality

Communal maize mill in Suchitoto

The wide disparities within Salvadorian society continue to exist. Although poverty has been halved since the early 1990s, according to World Bank figures published in 2013, 11. 5 per cent of the population is still forced to survive on less than 3.1 US dollars a day. Many families depend on remittances transferred by relatives living and working abroad.

El Salvador was ranked 117th out of 188 countries on the 2015 Human Development Index (HDI). Large numbers of Salvadorians lack access to medical care, clean drinking water and adequate housing, especially in rural regions. Life in these parts is usually based on subsistence farming with low productivity. The problem of inequitable land distribution that favours a small number of large landowners has not yet been resolved either. In urban zones a lack of prospects and jobs, especially among young people, is leading to an increase in crime and social tensions.


Development potential

Bus driver in San Salvador, the capital of El Salvador

Political stability, economic dynamism, growing regional integration, infrastructure improvements and a comparatively robust financial sector are important signs of development potential in El Salvador. The country could reduce its vulnerability to falling world coffee prices by diversifying its agriculture. El Salvador is a densely populated country with – on average – a very young population. This potential could be harnessed even more effectively in the future by broadening access to education and improving the quality of vocational training. Trade, transport, and communications and services already account for about two thirds of the country’s gross national product.

In terms of social policy, the Salvadorian government has made a public commitment to tackle poverty, thus giving the issue more weight in the political debate.


Obstacles to development

A workshop in San Salvador

Crime and legal uncertainty pose a hindrance to social, economic and political development. El Salvador has one of the highest crime rates in the world. Young people frequently fall in with youth gangs, which are said to be responsible for the dramatic increase in illegal activities such as blackmail and drug-related crimes. The deportation by the United States of juvenile offenders of Salvadorian origin and the growing presence of international drug cartels are exacerbating these problems.

Environmental pollution poses a further obstacle to development. The lack of proper waste disposal systems has resulted in contamination of El Salvador’s air, soil and groundwater. Compared with its neighbours, El Salvador also has relatively little land under forest cover. If coffee plantations are included, then only around 16 per cent of the country is still forested. Natural forest covers just 2 per cent of the country’s surface area. This situation has been caused by forest clearance on a massive scale, both to supply land for arable and livestock farming, and as a result of the high population growth rate.


Priority areas of German development cooperation with El Salvador

Since 2008, Germany’s development cooperation with El Salvador has been directed specifically at cross-border and regional cooperative efforts with a focus on climate and environmental protection, renewable energy, sustainable economic development and the prevention of youth violence.

The projects are for the most part carried out under the aegis of the Central American Integration System (SICA), which has its headquarters in El Salvador, and in collaboration with the Central American Bank for Economic Integration (CABEI), which has its headquarters in Tegucigalpa, Honduras. El Salvador is a pilot country for a regional project concerned with climate change adaptation in urban areas.


Climate and environment

Santa Ana Crater lake

One focus of German activities in Central America is the environmental sector. El Salvador was one of the first countries to participate in the German government’s Initiative for Climate and Environmental Protection (IKLU). The loans granted under the initiative are to be used to finance environmental investments in El Salvador, particularly by small and medium-sized enterprises (SMEs), and for small projects to promote renewable energy. IKLU has now been replaced by a new initiative, the German Climate Technology Initiative (DKTI). DKTI funding has been used to provide El Salvador with a loan of 50 million euros at the end of 2015, to be used for investments in renewable energies and energy efficiency.

A total of 36 million euros had been pledged by the end of 2015 for a regional project in the region of Trifinio in the Rio Lempa catchment area (where the borders of El Salvador, Honduras and Guatemala meet). The project involves forest protection and the conservation of mainly Salvadorian water resources. El Salvador is also involved in a regional forest protection project for the whole of Central America (REDD).

The regional programme 4E, which has the goal of promoting renewable energies and energy efficiency, has been very successful. It is seen as a showcase project for German development cooperation in El Salvador and has met with great public interest.


Help for the young and peaceful societies in Central America

Since 2010, the German Federal Ministry for Economic Cooperation and Development (BMZ) has been promoting a major regional programme for preventing youth violence (PREVENIR) in El Salvador, Guatemala and Honduras. This project involves cooperation between governmental and non-governmental organisations that are working at the regional, national and local levels to tackle and prevent youth violence.

Since 2013, the programme has been supplemented by a project that will help to promote peaceful coexistence between youths through investment in the infrastructure of unstable neighbourhoods and the creation of ‘safe areas’ (CONVIVIR) in El Salvador.


Debt swaps

For 2008 and 2009, El Salvador was granted debt swaps worth 10 million euros each. The funds made available through debt conversion have been used to support infrastructure measures for basic services in the 32 poorest communities in El Salvador.

In 2015, El Salvador requested a further debt swap with a volume of 10 million euros. The funds are to be paid into the Global Fund to Fight AIDS, Tuberculosis and Malaria and will be used for the benefit of the national reference laboratory for infectious diseases.


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