DESIRE AND DETERMINATION TO SUCCEED

Free trade initiatives and further international economic integration will lead the country to greater prosperity

El Salvador is the smallest country in Central America, but perhaps also the most dynamic. The desire to recover from more than a decade of civil war during the 1980s (known in the country as the “lost years”) has imbued El Salvador’s peace-time governments with impressive determination and energy.

“We put our house in order,” says Juan J. Daboub, Minister of Finance. “We brought down inflation from 30% yearly to standard international levels – the average in the past 14 years has been 2.5%. We cut the number of taxes and import duties from 130 to three: Value Added Tax, Income Tax and import duty. Basically, we have a simple pro-business tax system.”

“We are proud of what we have done,” says Miguel E. Lacayo, Minister of Economy. “It is easy to forget where we have came from and how tough the situation was ten years ago. We lived more than a decade of very bloody conflict and we have been able to do something that very few countries in the world have been able to do, which is to achieve total peace.”

JUAN J. DABOUB Minister of Finance

“Today you come to our country and you have no idea how much we have reconstructed. We spent several years’ budgets. We know there is still a lot of work to be done but what has been done with the resources that we have available has been pretty good.”

The cost of the civil war was large. From 1979 to 1990 losses from damage to infrastructure and means of production due to guerrilla sabotage and the effect of reduced export earnings totalled $2.2 billion. More recently the country has had to recover from the effect of its natural disasters. El Salvador suffered from two earthquakes at the beginning of 2001, when parts of the country damaged by Hurricane Mitch in 1998 were still under reconstruction. The cost of the damage was estimated at between $1.5 and $2 billion.

In spite of these setbacks the economy has proved resilient, growing twice as much as the world average and 1.7 times more than the Latin American average. This is partly due to a commitment to free markets and careful fiscal management. It is also thanks to a program of diversification, which has reduced the dependency of the country on the coffee sector, that has historically been the backbone of the economy.

The international community rallied strongly to help El Salvador recover from its natural disasters by providing a total aid package of $1.3 billion, with more than $168 million from America.