El Salvador - Future trends

El Salvador's future is uncertain. It is a country besieged by poverty and corruption. Crime rates are high, the standard of living is low, services are scarce, and health care is inadequate. A series of natural disasters have worsened already poor conditions. Hurricane Mitch in 1998 and earthquakes in January and February of 2001 damaged the country's infrastructure, slowed the economy, and destroyed thousands of homes, leaving many in El Salvador, especially the poor, in dire straits. Road and infrastructure improvements will now have to be delayed as funds are diverted to general reconstruction projects. The administration under President Francisco Flores will be tested by the current situation. Flores has already been accused of allocating economic aid along partisan political lines, and his ability to effectively steer the country out of the current crisis will affect his chances for reelection in 2004.

El Salvador has signed a trade agreement with Mexico which will grant Salvadoran exports preferential access to Mexican markets. Trade agreements with the Dominican Republic and Chile should be ratified in 2001-02, which could help boost the economy. What is certain is that solid economic performance will depend on continued growth in the manufacturing and services sectors, whose expansion after the cease-fire helped fuel the post-war boom. Where El Salvador is most vulnerable is in its dependence on U.S. markets, which account for nearly 60 percent of its exports. A high performing U.S. economy will guarantee El Salvador good export earnings. A downturn in the U.S. economy, however, will lower the demand for imports, diminishing one of El Salvador's main sources of foreign exchange.

El Salvador will continue to battle unemployment among young males, which, according to some analysts, has contributed to high crime rates. Smuggling, drug trafficking, and money laundering, if left unchecked, will likely complicate relations with the United States and preclude future trade arrangements.

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