April 17, 2009

Consumer prices rise in El Salvador as government fails to pay subsidies to key industries

News

Included in this update:

Nicaragua halts trade negotiations betweenEurope and Central America
President-elect Mauricio Funes meets US Vice-president Joe Biden

Salvadoran President Tony Saca's Technical Secretary, Eduardo Ayala Grimaldi, announced last week that the government would no longer be paying the subsidy to electrical utilities that it has long maintained in order to ease costs for Salvadoran families and small and medium businesses. Ayala Grimaldi said the subsidy costs the government $15.7 million per month funds that simply do not exist given the current financial crisis. In December 2008, Grimaldi sought to instill confidence in the Saca Administration's ability to handle the crisis, saying I made a call for tranquility, because the government is in control.

Since last August, the electric distribution companies have complained that subsidy payments from the government have been late. Electricity bills began to rise across the country in February in response. The electric bill has always been about four or five dollars for us. At its highest, eight dollars and thats the highest it has ever been. But for the past two bills it has been fifteen and seventeen dollars. Thats a more than three times increase, said Karla Estrada, a single mother and employee at a non-governmental organization.

The transportation sector, which has not received its government subsidy for the past three months, has called for a strike that would stop 70% of the countrys buses and microbuses from running next week. The Salvadoran Chamber of the Transport Industry (CASIT) decided to take this measure during its General Assembly in the first week of April to demand the government pay the $17 million dollars it owes. On Thursday, April 16, representatives of the transportation sector met with representatives of the Ministry of Transport and Ministry of Finances with the mediation of Human Rights Ombudsman Oscar Luna. The meeting yielded no compromises or agreements and CASIT has said if the conflict is not resolved favorably by next week, they will begin the strike.

Both of these situations are really going to affect the general population, and particularly poor people, said student organizer Israel Alexander Leiva. For example, with the electric subsidy, that will affect all sectors and raise prices all around. Right now an egg costs 15 cents and is a staple of a poor familys diet. If it goes up to 20 or 25 cents because the cost of production increases, that will create a real crisis.

Late last year, the Salvadoran government received over $1 billion in loans from the International Monetary Fund and Inter-American Development Bank designed to mitigate the effects of the global economic crisis.

Nicaragua halts trade negotiations between Europe and Central America

On April 1, Nicaragua withdrew from negotiations for a free trade agreement between the European Union and five Central American Countries (Nicaragua, El Salvador, Costa Rica, Honduras, and Guatemala). The talks, being held in Tegucigalpa, Honduras, were in their seventh round. Nicaragua asked for a moratorium of six months while it carries out internal government discussions and consultations with its population.

Nicaraguan President Daniel Ortega said, The conditions are unacceptable on the part of the European community because they will come to create a much more difficult position for the fragile Central American economies. He also cited the European Union's refusal to consider the creation of a $70 billion dollar fund in order to confront the asymmetries and lack of competitiveness in Central America compared to the European Union.

Salvadoran Vice-chancellor and representative at the negotiations Eduardo Cálix explained that Nicaraguas withdrawal breaks up the negotiations for all the countries. [The EU delegates] have a mandate to negotiate with the five countries and not with four, he said.

The negotiations of this free trade agreement have received criticism from the social movement and economists alike. They cite similar accords with Mexico and the United StatesEl Salvador deeper into poverty and greatly damaged the agricultural sector in the country. that have pushed

Regarding the free trade agreement with the EU, The purpose of this instrument of domination is to exercise control over our natural resources, over our water, over our biodiversity, over our mineral resources, over our energy resources, said Raul Moreno, economist at the Foundation for the Study of the Application of Law (FESPAD).

President-elect Mauricio Funes meets US Vice-president Joe Biden

On Monday, March 30, US Vice-president Joe Biden met with Central American heads of state in Costa Rica. President-elect Mauricio Funes was present by special invitation in addition to current Salvadoran President Tony Saca. Biden said the purpose of his visit was to show a region that felt ignored under the Bush administration that it will no longer be neglected. The meeting will be followed up this month by the Summit of the Americas in Trinidad and Tobago, which will be attended by US President Barack Obama and Funes.

In Costa Rica, Central American leaders pleaded for the US to slow its record pace of deportations. In 2008 alone, over 80,000 Central Americans were deported. These deportations and the economic crisis have been a hard blow to Central American countries, which heavily rely on remittances sent home in their economy. According to the Inter-American Development Bank (IDB), in the last quarter of 2008, remittance income dropped by 4% compared to the same period in 2007. In El Salvador, remittances are the largest source of income to the Gross National Product (GNP), making up close to 20% of the countrys income. Mass deportations have also been linked to the countrys gang problems and high homicide rate.

Biden asked for patience from the Central American Leaders. There will not be an immediate response to deportations, he said. Without giving any details on when or how, Biden explained that the deportation problem could only be solved in the context of comprehensive immigration reform that includes a pathway to citizenship for undocumented immigrants. In addition to immigration reform, Biden cited the War on Drugs, strengthening of financial institutions, and environmental issues as areas the US and Central America could collaborate on. We are not putting together a policy for the hemisphere; we are putting together a policy with the hemisphere, he added.

Meanwhile, Funes continuous to state his wiliness to reach agreements with the US based on respect between the two governments and the needs of the Salvadoran people.