El Salvador

El Salvador is the smallest country in Central America, bordering the north Pacific Ocean between Guatemala and Honduras. The total land area is approximately 20,720 sq. km (about the size of the U.S. state of Massachusetts). According to estimates in June 2008, over 7 million people inhabit the country; the population growth rate is 1.68 percent and the median age is 22.2 years. The country achieved independence from Spain in 1821 and from the Central American Federation in 1839. A civil war between 1979 and 1992 ended with the government and the leftist rebels signing a treaty that provided for political and military reforms.

[Page 581]Almost 90 percent of the population belong to the mestizo ethnic group, 9 percent are white, and the remaining 1 percent are classified as Amerindians. Approximately 83 percent are Roman Catholic, but there is no official religion. Spanish is the official language, although some Amerindians speak Nahua and other native languages. Culturally, according to Geert Hofstede's analysis, El Salvador scores very high on “uncertainty avoidance,” indicating a high concern for rules, regulations, controls, and issues of career security and risk averseness. On the other hand, they rank fairly low on “individualism,” indicating a propensity toward collectivist tendencies, i.e., manifesting in close long-term commitments to family, extended family, or extended relationships, and everyone taking responsibilities for fellow members of their group.

El Salvador has the third-largest economy in Central America, yet growth has been modest in recent years. The country's gross domestic product (GDP) was $41.65 billion in 2007 and was growing at the rate of 4.7 percent a year. It exported $3.85 billion worth of commodities to the United States (50 percent), Guatemala (14 percent), Honduras (9 percent), and Nicaragua (5 percent), primarily in the form of offshore assembly, coffee, sugar, shrimp, textiles, chemicals, and electricity. The commodities imported were valued at approximately $8.2 billion (2007) in the form of raw materials, consumer and capital goods, fuels, foodstuffs, petroleum, and electricity, primarily from the United States (32 percent), Guatemala (9 percent), Mexico (7 percent), Germany (6 percent), and China (5 percent).

Approximately 2.5 million legal and illegal Salva-dorans, equivalent to more than a third of the population of El Salvador, live in the United States and remit an estimated $2.5 billion annually, or 17.1 percent of the GDP, back to their family members. The remittances have grown at the rate of over 6 percent per year over the last decade and currently almost one in four households receives money from relatives in the United States, the most of any Latin American country. Three-quarters of the money goes to paying for household expenditures—with a 13 percent sales tax, the remittances in many ways subsidize the government budget.

The country lost control over its monetary policy with the adoption of the U.S. dollar as the currency in 2001, and is now focused on maintaining a disciplined fiscal policy. It was the first to ratify the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) in 2006, thus strengthening an already positive export trend. The current focus has been on economic diversification in the form of promoting textile production, international port services, and tourism through tax incentives. Another trend is the growth of privatization, including industries such as telecom, electricity, distribution, banking, and pension funds. In 2007, the government signed a five-year $461 million agreement with the Millennium Challenge Corporation to alleviate poverty and stimulate economic growth in the country's less-developed areas, particularly in the northern region, through investments in education, public services, enterprise development, and transportation infrastructure.

...