El Salvador
- Total external debt: $7.1 billion
- Total external debt payments: gives $649 million each year to the rich world in debt payments.
- Population: 6.9 million
- Percentage of adults who can read and write: 80.6%
- Average life expectancy: 71.3 years
- HIV prevalence: 0.9%
- Total health spending: 2.4% of GDP (2003)
- Total spending on debt service payments: 3.8% of GDP
- Annual GDP: $17 billion
(Statistics from World Bank, 2005, and UN Human Development Report, 2005)
DROP THE DEBT FAST
El Salvador is the focus of the Drop the Debt Fast on Friday 16 May.
Background
El Salvador is situated in Central America bordering Guatemala, Honduras and the North Pacific Ocean. El Salvador is mostly mountainous terrain with a thin coastal plain along the coast and a central plateau. El Salvador has limited natural resources but produces much hydropower and geothermal energy, as well as supplies of petroleum.
History and Background
El Salvador was a former Spanish colony and achieved independence in 1821. The country has had a difficult history including many years of civil war. Civil war began in 1980 and lasted until 1992, during this period over 70,000 people were killed, and the country suffered damage worth over $2 billion. The turmoil exacerbated huge inequalities between rich and poor which continue grow. A peace deal was negotiated in 1992, and a range of economic reforms were carried out, but El Salvador subsequently suffered from natural disasters including Hurricane Mitch in 1998 and earthquakes in 2000, which have caused huge amounts of damage to the economy. The economy depends heavily on the money sent home by Salvadorans living in the US and the widespread poverty and inequality have led to high levels of violent crime.
Where has the debt come from?
The government of El Salvador has overseen an increasing debt burden, partly as a result of the costly civil war and more recently the hurricanes that have hit the region, causing huge amounts of damage to the country’s infrastructure. Funds have also been lost through corruption, and investigations are ongoing into a number of government officials for corruption and mismanagement of previous loans. For example in 2003 a $172 million loan was approved by the World Bank for repairs to seven national hospitals; so far none have been completed and the majority have not even been started.
Corruption is often cited as a reason to stop development assistance, including debt cancellation. However, the people of El Salvador should not have to suffer the results of irresponsible lending by the international community and irresponsible borrowing by their Government. Efforts should be made to tackle corruption in the country and in fact debt cancellation processes can help this, by building the capacity of parliament and civil society to scrutinise the Government. In an extreme case, debt payments could instead be diverted back towards, for instance, humanitarian projects instead of the government.
Debt cancellation status
El Salvador is officially classed as a lower middle-income country by the World Bank. It is therefore not eligible for the Heavily Indebted Poor Countries initiative or the Multilateral Debt Relief Initiative. Nor is it eligible for additional debt relief from the UK or other bilateral donors. This does not take into account any measure of its debt, such as debt-to-export ratio, or its domestic debt level, or the amount of finance EL Salvador needs to tackle poverty.
The New Economics Foundation calculates that El Salvador requires 47% debt cancellation in order for the government to meet the basic needs of its citizens, such as health, education and infrastructure, without taxing those living below an ethical poverty line of $3 a day.
Sources of information:
World Bank, www.country-data.com, BBC country profile
Last updated: April 2008
