It happened. FMLN, the left-leaning political party that emerged from a revolutionary guerilla organization, has won a
presidential election in El Salvador. For the first time in 20 years, ARENA – the right-leaning political party established by a former death-squad commander - will not control the presidency.
Those still trapped in a Cold War mindset will view this outcome as an ominous threat to democracy and capitalism in Central America. Such views are wrong-headed. The peaceful transfer of power signifies a major milestone in the establishment of democracy in El Salvador and the election of a left-leaning moderate like Mauricio Funes actually offers free-market supporters a final opportunity to make their case to the people of Central America.
Despite its revolutionary roots, FMLN is almost certain to follow a moderate course. Without a legislative majority, it will have to reach a consensus with other parties, the vast majority of which do not share its left-wing ideology. This is especially true when Mr. Funes tries to receive assistance from multilateral institutions (e.g. the IMF and the Inter-American Development Bank), which the government needs to cover its growing fiscal deficit. Such foreign financing requires legislation that can only pass with a demanding two-thirds majority[1]. FMLN will have no choice but to compromise with ARENA.
An FMLN presidency might also lead to closer relations with Cuba and Venezuela, but overall Mr. Funes’ foreign policy will have to remain US-centered. Lower oil prices have left Hugo Chavez with less money to spend abroad and with more problems to face at home. More importantly, El Salvador’s economy depends on that of the US, to which it sends over 50% of its exports. Most importantly however, is the fact that 2.5 million Salvadorans live in the US, who collectively send billions of dollars back home every year. In 2008, workers’ remittances reached $3.79 billion, representing 17% of El Salvador’s GDP[2]. Mr. Funes will need this money to get through the tough economic times ahead.
Ultimately, changing how people use these remittances will determine if free-market ideas survive in Central America. Apart from providing a steadier source of cash than foreign investment, remittances can reduce inequality by providing income to the poorer segments of society, often located in rural areas. The problem is that El Salvador is not leveraging this money in a way that most effectively spurs development. Most recipients of remittances do not deposit their money in financial institutions. Instead, they pay transfer fees and take the cash with them. As a result, millions of Salvadorans are not accessing banking services that can provide their families with greater financial independence over the long run (e.g. insurance, loans, etc.). The money is helping, but not nearly as much as it could.
If Mr. Funes is serious about promoting the welfare of his people, then he will work hard to change cultural assumptions about banking and make it easier for poor people to participate in the financial sector. Doing so will require cooperating with ARENA and changing the ideological mindset that has afflicted both parties since the end of the country’s long civil war. Multilateral institutions and NGOs can facilitate this transition, and so can the US – by recognizing that the entrepreneurial spirit of its immigrant Salvadoran population is its best defense against the potential threat of an autocratic centrally planned government.
[1] Economist Intelligence Unit (Great Britain). Country Risk Service. El Salvador, the Economist Intelligence Unit February 2009
[2] Economist Intelligence Unit (Great Britain). Country Risk Service. El Salvador, the Economist Intelligence Unit February 2009
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If you're interested in El Salvador consider reading these books:
A fictional account of a Salvadoran immigrant trying to make his way in the United States
It happened. FMLN, the left-leaning political party that emerged from a revolutionary guerilla organization, has won a presidential election in El Salvador. For the first time in 20 years, ARENA – the right-leaning political party established by a former death-squad commander - will not control the presidency.