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El Salvador: Expanding Ties of a Far-flung Diaspora
Américas / February 2007

By Larry Luxner

SAN SALVADOR — Guadalupe de Romagoza, a 48-year-old entrepreneur living in San Juan, Puerto Rico, loves ceramics. For years, her four employees back home in El Salvador have been turning out a dizzying variety of colorful, oven-baked enamel souvenirs ranging from ashtrays and jewelry boxes to candle holders and crucifixes.

"People in other countries have no idea what El Salvador is like. They think it's an impoverished country without cars or universities," says Romagoza, longtime owner of L'Atelier Ceramica in La Libertad. "Our idea is to familiarize people with our artisans and in that way promote tourism to El Salvador."

José Barahona, 62, is on a mission of a different type.

In 1970, the dirt-poor immigrant from Chalatenango snuck into the United States illegally, landing a job making salads in a restaurant in San Francisco. Despite being deported several times, the illiterate Barahona came back again and again, finally making it in the business world.

Today, Barahona is a multimillionaire. His Washington, D.C., janitorial company, Able Service Contractors Inc., has 600 employees and annual sales as high as $12 million. And he owns six Pollo Campera restaurant franchises in suburban Maryland and Virginia.

"I look for opportunities, and when I find them, I go for it," he says. "It doesn't matter where you go. You have to respect the system, adapt and grow economically. You have to be disciplined in your business, and have lots of courage."

Romagoza and Barahona were two of just over 600 Salvadorans who returned briefly to their homeland in mid-October to attend an unusual event: the II Foro Presidencial con Salvadoreños en el Exterior. The two-day conference — held at San Salvador's Radisson Plaza Hotel — attracted successful Salvadorans from across the United States and 20 other countries ranging from Australia to Sweden.

The II Foro Presidencial was the brainchild of President Elias Antonio Saca, who in November 2004 presided over a similar conference attended by 600 Salvadoran expatriates.

"Saca's the one behind everything," says Ernesto Nosthas, a government official whose job title at the Ministry of Foreign Affairs is unusual in itself: general director of the Dirección General de Atención a las Comunidades en el Exterior. "For the first time in the history of this country, a president created a special government agency to deal with the diaspora. This was an historic event."

Added El Salvador's foreign minister, Francisco Lainéz, in an interview with Américas: "Events like this create a forum where Salvadorans living abroad can share their experiences, and enrich the country's understanding on what these Salvadorans want and need. Through their ideas and proposals, the government can create better policies to work with them."

The diaspora is particularly important for El Salvador, Central America's smallest nation. With 6.7 million inhabitants crammed into an area smaller than Massachusetts, El Salvador ranks as the most densely populated country in Latin America.

It also has a higher proportion of its citizens living in the United States than any nation on Earth. Over 2.9 million Salvadorans reside abroad, 95% of them in the 50 states. Last year, said Nosthas, family remittances from Salvadorans living abroad came to nearly $3 billion — or nearly 16% of the country's Gross Domestic Product.

Billboards for Western Union, MoneyGram and other wire transfer services crop up all over the countryside, from San Salvador down to the smallest towns in the interior. Millions of Salvadorans have come to depend on these remesas for everything from buying groceries to paying their monthly cellphone bill.

Nearly all this money comes from north of the Río Grande, and the reason for that is simple: during El Salvador's long and bloody civil war, which claimed 75,000 lives between 1980 and 1992, nearly a quarter of the population fled the country. Today, California alone is home to 1.2 million salvadoreños, with sizeable communities located in Washington, D.C., New York and South Florida.

Large numbers of Salvadoran expats also live in Spain, Mexico and elsewhere — including an estimated 30,000 in faraway Australia.

"Sixteen percent of our GDP comes from remittances, but more important than that, we have nearly three million people living abroad who have talent and knowledge. They can be very good partners for the development of our country, if we can only engage all these people," Nosthas explained. "We are now living a situation similar to the situation of Ireland in the early 1960s. Ireland was struggling because of the civil war. There was a lot of poverty. Look at it now. It has the best economy in the European Union."

To be sure, El Salvador is still a long way from Ireland — geographically, economically and politically. As Nosthas points out, the average worker in El Salvador earns $2,500 a year. "In the diaspora, they earn $16,500 a year," he said.

And the enmity from El Salvador's long-running civil war runs deep. Political life is dominated by two political parties: the center-right ARENA, which President Saca belongs to, and the leftist FMLN, which is currently in the opposition.

In many respects, El Salvador is incredibly unlucky. Aside from the war — which bankrupted the country and caused immeasurable physical and psychological suffering — El Salvador was struck by two back-to-back earthquakes in early 2001 that left over 1,100 people dead, 8,100 injured and hundreds of thousands homeless. Its people are constantly battered by hurricanes, volcanic eruptions and mudslides.

Following the earthquakes, the U.S. government granted Temporary Protected Status (TPS) for Salvadorans who arrived in the United States on or before Feb. 13, 2001. TPS is in addition to NACARA (Nicaraguan Adjustment and Central American Relief Act), which along with political asylum allowed hundreds of thousands of Salvadoran war refugees to remain in the United States indefinitely.

The TPS program has been extended several times by the Department of Homeland Security, but in order to qualify, Salvadorans enjoying TPS need to periodically re-register.

"There are two reasons why TPS is granted: civil war and natural disaster. Unfortunately, we have qualified for both of them," said René León, El Salvador's longtime ambassador to the United States. "If they don't register, they'll lose their immigration status and work permit, and they will get a deportation order."

And that's been happening more and more frequently.

During the first nine months of 2006, the U.S. Department of Homeland Security deported 9,458 people back to El Salvador, up 26.5% from the same period a year earlier. At least one-fourth of these deportees had criminal records — contributing to a wave of crime never before seen in the country.

"Every week, they're sending a couple of planes back, full of deportees," says Enzo Bettaglio, executive director of the American Chamber of Commerce in San Salvador. "It has increased dramatically. We don't have that many job opportunities readily available to absorb them on the spot."

AmCham's Bettaglio agrees that crime is a more serious issue than ever before.

"It has really escalated," he said. "We conduct an informal quarterly survey among our members, and personal security wasn't much of an issue last year. But this year, everyone's concerned. There's no quick or easy answer."

Even participants at the recent II Foro Presidencial are concerned. According to a survey conducted by elsalvador.com of 100 randomly selected attendees, 83% said they considered "delinquency" an obstacle to investing in a business in El Salvador. Likewise, 52% of respondents said corruption was also holding them back from making an investment, while 24% were worried that there was little government support for investors.

Yet the poll — whose results were published in El Diario de Hoy newspaper — showed that 94% of those interviewed wanted to invest in El Salvador because they considered their homeland to have huge tourist or commercial potential, and 42% indicated that they would be prepared to invest $40,000 or more initially in a business there.

In fact, El Salvador's economy is doing rather well these days.

In 2005, the country's GDP grew 2.8%, and projections indicate the country will finish 2006 with 3.5% growth. At present, El Salvador's total GDP is estimated at around $17 billion, translating into per-capita annual income of around $2,450.

"El Salvador has been doing everything by the book," says Bettaglio, whose 350 member companies represent 80% of total U.S. investment in El Salvador. "Our rating is investment-grade — the only other countries in Latin America that can claim that are Mexico and Chile. We've been doing our homework. We have a freely elected, democratic government. We have very transparent elections and one of the highest voter turnouts in the world. It's a very pro-business, private enterprise government, and they know what needs to be done."

Among the biggest U.S. investors in El Salvador are energy distributor AES; apparel manufacturer Fruit of the Loom, with 9,000 employees in four factories, and computer maker Dell, which employs 1,600 people in call-center operations.

The textile and apparel sector is still the country's most important, though that's declined somewhat in the wake of cheap competition from the Far East.

"This sector used to employ 90,000 people, but we lost 10,000 jobs due to the China effect," said Bettaglio. "We no longer market El Salvador as a cheap-labor country. We want to bring more value-added production and more upscale factories. What's happening now in the apparel sector is that they're restructuring and doing the full package, so instead of just cutting and trimming, we're also producing fabrics now."

Two factors seem to be working in El Salvador's favor: the country's recent replacement of its historic currency, the colón, with the U.S. dollar, and its enthusiastic embrace of the Central America Free Trade Agreement, commonly known as DR-CAFTA.

The colón, which for years was pegged at 8.75 to the dollar, has been phased out, with virtually all transactions now taking place in dollars. While the net effect of this on consumers has been to push up prices due to rounding, it has also eliminated the government's need to print money, thereby reducing inflation and greatly contributing to stability in the eyes of potential overseas investors.

Margarita de Escobar, the country's vice-minister of foreign affairs, says that looking back, the decision to eliminate the colón was difficult but wise.

"One of the effects of dollarization is that we now have the cheapest cost of sending remittances of anywhere in the Americas. We also have the lowest interest rates in the region," she said. "We don't have the problem of changing money, and all these factors — accompanied by sound public administration — have contributed to a positive macroeconomy."

Added Bettaglio: "Dollarization was good because we're trying to promote investment, and for a U.S. investor going into a country that's dollarized, you don't have the hassles of converting or repatriating funds."

Another milestone in El Salvador's recent history came on Dec. 17, 2005, when El Salvador ratified DR-CAFTA, which opens the door to tariff-free, quota-free trade with the United States, already the country's most important trading partner.

"I think El Salvador has sent very clear signals about investment and trade. We were the first country to ratify CAFTA," said Lainéz, the foreign minister. "We also have the most stable economy in all of Central America, with the lowest inflation rate, and a very detailed plan on incentives for investment. That will surely make a difference."

Under the accord, five Central American countries — Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua — and the Dominican Republic gain duty-free access to the U.S. market in exchange for granting the United States similar privileges.

"I think CAFTA is a no-brainer for the United States and Central America," said Ambassador León. "One day, the economic history of our region will be divided into before CAFTA and after CAFTA. That'll be the point of reference."

León said the accord has already generated more than $250 million in direct foreign investment for El Salvador, and has boosted exports by 18% in the last six months. "It's also creating a lot of opportunities for Salvadorans living in the U.S., and it'll strengthen our institutional capacity to deal with labor and environmental issues."

Bettaglio, noting that AmCham "spent a lot of time and resources lobbying in Washington" for CAFTA's passage, said "unfortunately, it was delayed and didn't come into effect until March, so the numbers you see won't reflect reality until a year from now. But we're already starting to see some positive signs. We were the first country to ratify CAFTA and the first to implement it. As a result, several companies that were hesitant before CAFTA was signed have since confirmed investments."

Lainéz acknowledged that CAFTA won't be good for everyone, just as dollarization wasn't good for everyone.

"Some smaller industries might not be able to meet the quality requirements. Therefore, we must give them all the help they need in order to prepare themselves to compete in such a demanding market," said. "We expect to be able to attract the kind of investment that needs specialized labor, because we don't want to compete on the price of labor. El Salvador already has one of the highest minimum wages in the region, so we want to base our strategy on the strength of our people and their capacity to produce and compete."

Despite El Salvador's robust economy, large segments of the population still live in misery, particularly in the northern and eastern regions near El Salvador's borders with Honduras and Guatemala.

To combat this poverty, El Salvador recently qualified for $442 million in funds from the Millennium Challenge Corp., a U.S. government development agency.

"This money will allow us to develop a program in the poorest part of El Salvador where 815,000 people live in impoverished conditions," said León. "Among other things, we're building a road that will connect this region with the rest of the country, and also with Honduras and Guatemala."

The Millennium Challenge Account (MCA), as it's known, will be focused on 94 municipalities in northern and eastern El Salvador, said Roberto F. Simán, an economic advisor to President Saca who has been put in charge of supervising the MCA in El Salvador.

"This is a national plan for the north, and it will substantially change one-third of the country," said Simán, noting that initially, El Salvador did not qualify for the MCA because the program was available only for poor countries, and El Salvador was classified as a lower middle-income country.

"But then it opened to countries like us, middle-income countries that don't have aid sources," he said. "Thirty countries are classified as lower middle-income, and out of these 30, they selected only two, Namibia and El Salvador."

Simán said the Millennium Challenge Corp. "loved our project" because it encompasses human development — such as education — along with water, sanitation, rural electrification and roadbuilding.

"It's a lot of money. Usually, when we do projects, it's little by little," said Simán, acknowledging that the money could stop flowing if El Salvador doesn't keep its commitments. "The MCA look at 16 indicators by the World Bank, Heritage Foundation, Freedom House and others. If the indicators fail and we go below the average, they stop the aid. They can completely freeze us, even though we've negotiated a five-year grant."

Another project in the works is the construction of a $198 million, state-of-the-art port at Cutuco on the Pacific coast. Being built with Japanese financing, this port — located in the department of La Unión, about a three-hour drive east of San Salvador — will connect with Puerto Cortes in Honduras, in effect creating a "dry canal" linking the Pacific and the Atlantic oceans.

It's aimed specifically at the market of post-Panamax ships that are too wide to squeeze through the existing Panama Canal.

Dredging is now underway; when finished, ships with capacities as large as 6,000 or 7,000 TEUs (20-foot equivalent units) will be able to call at Cutuco.

"This port will be one of the most modern in all of Latin America and with the capacity to handle the largest ships," said Lainéz. "Once the port is finished and the road to Puerto Cortés is inaugurated, it'll take about six hours to get from one port to the other, which is much less than the time it takes to transit the Panama Canal."

Land prices near Cutuco have already started to rise in anticipation of the coming business boom, said Lainéz, while several factories have already set up operations near the existing port. "Honduras and Guatemala are excited because that'll give them more traffic to their ports as well. And if something ever happens to the Panama Canal, there will always be an alternative for traffic from one ocean to another."

Escobar said the canal seco is the largest single public works project currently underway in El Salvador, but that it's only one of many ideas being pursued by the government to fight poverty and boost the standard of living.

"We have to create a good investment climate so that companies will invest in better-paying jobs," she said. "If people have better access to education, there'll be more resources for better housing, and they won't be looking to migrate to the United States." - END -

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