El Salvador a Business Study
1. Executive Summary
After centuries of colonization, revolutions, civil wars, and political corruption, El Salvador now finds itself poised for strong economic growth. There are several key factors that have created this position for El Salvador.
The election of President Carlos Mauricio Funes Cartagena in 2009 has shown significant promise in the improvement of Salvadoran society. Already, Funes’ policies have demonstrated significant drops in violent crimes, a major deterrent to foreign direct investment in El Salvador. Education and healthcare reform are key components of his policy aimed, at eliminating the 40% poverty stricken nation.
Accession into the WTO, the signing of numerous free trade agreements such as the CACM, the CAFTA-DR, as well as several “preferential partner” trade agreements has opened many doors for trade between El Salvador and numerous nations, most notably, the United States. With the help of some of these agreements, El Salvador has also opened and increased trade between itself and many European and Asian nations.
Positioning the United States as its key trading partner was accomplished via dollarization. Accepting the US dollar as its sole form of currency eased trade complications between El Salvador and the US and eliminated volatility of the Colón in the foreign exchange market. This dollarization gave Salvadoran industry the credibility of the US dollar, eliminating or limiting national inflationary effects upon trade. This dollarization, however, lessens the Salvadorans control on their economy through fiscal policy, but also serves to prohibit political instability’s effect on the currency.
The nation’s current economy exhibits a trade deficit with imports outnumbering exports in 2011 by 180%. Key exports from El Salvador include coffee, textiles and value-added cloth apparel, and unskilled-to semiskilled labor produced manufactured goods. Key imports are in the form of fuels and energy, foodstuffs, and
After centuries of colonization, revolutions, civil wars, and political corruption, El Salvador now finds itself poised for strong economic growth. There are several key factors that have created this position for El Salvador.
The election of President Carlos Mauricio Funes Cartagena in 2009 has shown significant promise in the improvement of Salvadoran society. Already, Funes’ policies have demonstrated significant drops in violent crimes, a major deterrent to foreign direct investment in El Salvador. Education and healthcare reform are key components of his policy aimed, at eliminating the 40% poverty stricken nation.
Accession into the WTO, the signing of numerous free trade agreements such as the CACM, the CAFTA-DR, as well as several “preferential partner” trade agreements has opened many doors for trade between El Salvador and numerous nations, most notably, the United States. With the help of some of these agreements, El Salvador has also opened and increased trade between itself and many European and Asian nations.
Positioning the United States as its key trading partner was accomplished via dollarization. Accepting the US dollar as its sole form of currency eased trade complications between El Salvador and the US and eliminated volatility of the Colón in the foreign exchange market. This dollarization gave Salvadoran industry the credibility of the US dollar, eliminating or limiting national inflationary effects upon trade. This dollarization, however, lessens the Salvadorans control on their economy through fiscal policy, but also serves to prohibit political instability’s effect on the currency.
The nation’s current economy exhibits a trade deficit with imports outnumbering exports in 2011 by 180%. Key exports from El Salvador include coffee, textiles and value-added cloth apparel, and unskilled-to semiskilled labor produced manufactured goods. Key imports are in the form of fuels and energy, foodstuffs, and
Cited: 3. The World Bank Group. (2012). El Salvador. Retrieved from http://data.worldbank.org/country/el-salvador#cp_wdi. 4. "El Salvador." The New York Times. N.p., 28 Aug. 2012. Retrieved from http://topics.nytimes.com/top/news/international/countriesandterritories/elsalvador/index.html 5 10. "El Salvador Inflation Rate." Trading Economics. N.p., Oct. 2012. Retrieved from http://www.tradingeconomics.com/el-salvador/inflation-cpi 11 12. RTI International. "The El Salvador Municipal Competitiveness Index 2009." US Aid. N.p., 2009. Retrieved from http://pdf.usaid.gov/pdf_docs/PNADQ843.pdf 13