[Cispes-update] Consumer prices rise in El Salvador as government fails to pay subsidies to key industries

[CISPES National Office]

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

CISPES update

April 17, 2009

 

Included in this update:


*        Nicaragua halts trade <>  negotiations between Europe 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 that’s the highest it has ever been. But for the past two bills it has
been fifteen and seventeen dollars. That’s 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
country’s 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 family’s 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 Nicaragua’s 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 States that have pushed El Salvador deeper into
poverty and greatly damaged the agricultural sector in the country.  

 

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 country’s income. Mass deportations have also been linked to the
country’s 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.

 

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