Country Report El Salvador November 2009

Outlook for 2010-11

• The president, Mauricio Funes of the ruling Frente Farabundo Marti para la Liberacion Nacional (FMLN), will face serious challenges, ranging from a rapidly weakening economy to violent crime.
• His task will be complicated by the lack of a legislative majority, divisions within his own party and strong opposition from the Alianza Republicana Nacionalista (Arena).
• A tax reform and economic recovery will boost revenue and help to ease the fiscal deficit in 2010-11. As part of a US$800m stand-by arrangement with the IMF, the government will lower the fiscal deficit in 2010-11.
• A recovery in the US—El Salvador's main source of export sales, foreign direct investment and workers' remittances—will help GDP to recover to 2.5% in 2010 before it eases to 1.5% in 2011 owing to weaker US growth.
• After falling during part of 2009, inflation will rise in 2010 by 2% at year-end, on the back of a modest increase in global commodity prices. It will increase by just 2.2% in 2011 as the economy slows once again, dampening prices.
• After narrowing sharply in 2009, the current-account deficit will widen in 2010, but it will remain well below 2008 levels. It will ease again in 2011 on the back of weaker growth in the US and Central America.

Monthly review

• A comprehensive public security policy remains elusive even though violent crime has surged further from record levels.
• Mr Funes has unveiled a stop-gap plan, the Plan Batalla por la Paz (the "battle for peace" plan), which involves continuing the joint army-police patrols that were introduced by the previous Arena administration.
• The government has presented Congress with a conservative budget for 2010. However, it will soon present an extraordinary stimulus budget that will seek to fulfil the government's social, health and education targets.
• In the first eight months of 2009, the non-financial public-sector deficit rose to US$462m from US$24m in the year-earlier period. The deterioration was largely owing to a fall in tax revenue.
• The Central Bank's GDP data for the second quarter of 2009 confirmed that El Salvador was officially in recession as activity contracted for a second consecutive quarter.
• GDP contracted by 2.4% in the second quarter of 2009, down from a fall of 1.5% in the first quarter and growth of 1.8% in the fourth quarter of 2008.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52