COUNTRY OVERVIEW

The principal beneficiaries of USAID’s programs continue to be Salvadorans living in poverty in rural areas. Photo by U.S. Embassy Public Affairs Section.

El Salvador has demonstrated exceptional social and economic resiliency in the face of several recent challenges, including the devastating impact of massive back-to-back earthquakes in 2001; an intense two week period during 2005 that left the country damaged by floods, landslides and a volcanic eruption, causing tens of thousands to flee their homes; the economic downturn from 9/11; the loss of jobs and export earnings due to low coffee prices and increased global competition in the apparel industry; as well as record-high costs of petroleum imports.

During the 2001-2004 period, while some Latin American countries experienced negative growth rates, the Salvadoran economy grew by almost two percent annually, reaching 2.8 percent in 2005.

In March 2004, the country held a highly successful Presidential election with a record 67 percent voter turnout.  The electoral process was deemed transparent, free and fair, and has been held up as a model for the region.  President Elias Antonio Saca has emphasized his government’s commitment to trade-led growth and competitiveness, increased security, transparent and responsible government, job creation and increased social investment.  In March 2006, elections for the Legislative Assembly and 262 municipalities will take place.

Although the past decade has seen a reduction in poverty, the country continues to suffer from a highly inequitable distribution of income.  In 1992, the poorest 20 percent received approximately three percent of the nation’s wealth.  As of 2004, the poorest 20 percent of the population still received only 3.1 percent of national income.  This continues to marginalize a large portion of the population, and threatens broad-based growth and democratic consolidation.  The Saca administration has developed a plan to target social spending in geographic areas with a high incidence of poverty, and to promote job growth.

In 2004, the country’s exports reached $3.3 billion, a 5.3 percent increase over 2003.  Remittances from Salvadorans living abroad continue to maintain liquidity in the Salvadoran economy and reach almost one-fifth of the population.  Remittances for 2005 reached $2.83 billion - a remarkable 11 percent increase over last year.  A dollarized economy and relatively low interest and inflation rates, has bolstered a growing banking and financial sector.

The ratification and passage of the Central America Free Trade Agreement (CAFTA) will hopefully prove to be a regional economic stimulus and a curb on illegal migration to the U.S.  Additionally, the government passed a fiscal reform package intended to increase tax revenues from 12.2 percent of Gross Domestic Product (GDP) in 2004 to almost 15 percent by 2009.  With these reforms, the GOES estimates significant additional revenue can be generated for critically important social investments in health and education.

The principal beneficiaries of USAID’s programs in economic growth and education, democracy and governance, child survival and reproductive health, the provision of potable water, and earthquake reconstruction continue to be Salvadorans living in poverty in rural areas.  Approximately 32 percent of rural households are female-headed, and USAID’s programs in income generation, education, agriculture, microenterprise, health, maternal care and access to clean water target women, in particular.

U.S. Interests and Goals: El Salvador’s unique strategic location and strong historical and cultural ties to the United States makes political and economic stability in El Salvador a vital U.S. interest.  The political and economic liberalization that El Salvador has successfully adopted has made it a model for post-conflict developing countries.  The U.S. is El Salvador’s most important trading partner, receiving 65.4 percent of its exports and providing 46.3 percent of its imports.  An estimated 1.5 to two million Salvadorans reside in the United States, many of them illegally.  By promoting economic prosperity in El Salvador through USAID programming and mechanisms such as the Central America Free Trade Agreement, the U.S. can help strengthen the Salvadoran economy, thereby promoting a reduction in flow of economic migrants to the U.S. and reducing the country’s vulnerability to transshipment of narcotics and trafficking in persons.

Donor Relations: Donor coordination in El Salvador reinforces policy dialogue and enhances intercommunication and coordination.  With the active participation of the donor community, the United Nations Development Program (UNDP) is leading the development of improved coordination mechanisms among donors and with the new government.  Currently, sectoral working groups are formed by government, donors and civil society representatives, and they discuss key topics of national interest. USAID is actively participating in a number of these coordination groups.

In 2004, bilateral support to El Salvador totaled $74.26 million.  The United States was the largest bilateral donor.

Multilateral assistance in 2004 totaled $34.18 million.  Major multilateral agencies are the United Nations Development Programme (UNDP) and the European Union (EU), followed by the Inter-American Institute for Cooperation on Agriculture (IICA) and the Pan American Health Organization (PAHO).

Multilateral lending institutions provide the largest share of development assistance to El Salvador through multi-year investment loans.  The major lending institutions are the Inter-American Development Bank (IDB), the Central American Bank for Economic Integration (CABEI) and the World Bank (WB).

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