1. NS4540 Winter Term 2018 El Salvador Indices
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Overview I
After its 12-year civil war ended in 1992, El Salvador enjoyed strong economic growth and poverty reduction.
Aggressive free-market policies were undertaken under a succession of center-right National Republican Alliance presidents.
Since 2009, governments of the leftist Farabundo Martí National Liberation Front (FMLN) have increased the state’s role in the economy.
President Salvador Sánchez Cerén will leave office in 2019 with a record of
anemic economic growth,
weak government effectiveness,
a surge in violence, drug trafficking, and
rising gang-related homicides.

3. Overview II The economy relies on exports of
coffee,
sugar,
textiles and apparel,
gold,
ethanol,
chemicals, and electricity and
the assembly of intermediate goods.
Remittances account for nearly one-fifth of GDP.
One-third of the population lives below the poverty line.

4. Overview III
El Salvador lags behind the region in attracting foreign direct investment.
In 2016, the government imposed minimum wage increases ranging from 19 percent to 105 percent.
Only about 28 percent of Salvadorans work in the formal sector.
The government spends about 4 percent of GDP on poorly targeted subsidies, especially for
Electricity,
liquefied petroleum gas, and
Transportation.
The government imposes price controls on a range of goods and services.

5. Overview IV Trade is significant for El Salvador’s economy
The combined value of exports and imports equals 64 percent of GDP.
The average applied tariff rate is 1.8 percent.
Nontariff barriers impede some trade.
In general, government policies do not significantly interfere with foreign investment.
The financial sector is dominated by mostly foreign-owned banks.
Two state-owned banks focus on mortgages and agricultural- sector financial services, respectively.

6. El Salvador Governance

7. World Economic Forum I

8. WEI II

9. WEI III

10. WEI IV

11. Legatum Prosperity Index 2016 I
El Salvador one of the most rapidly industrializing countries in Latin America
Improves in certain sectors to the slight detriment others
Still has seen a slight four rank decline overall in the Prosperity Index
Industrialization has brought economic improvement
Country has risen two ranks in Economic Quality since 2007 and
18 ranks in Business Environment
Falling poverty rates and improved labor market flexibility have helped drive this increase

12. Legatum Prosperity Index 2016 II
However rising economic prosperity has not had many spill-over effects elsewhere
Country slipped marginally in rank in both Health and Education and
Natural Environment sub-index has seen a 19 rank decline – air pollution and over fishing
Country now has the lowest ranking in the region in this sub-index
If rising economic wealth is to bring greater prosperity, then other areas of the index need to be addressed.

13. Legatum Prosperity Index 2016 III

14. Legatum Prosperity Index 2016 IV

15. Legatum Prosperity Index 2017 I

16. Legatum Prosperity Index 2017 II

17. Economic Freedom I
El Salvador’s economic freedom score is 63.2, making its economy the 75th freest in the 2018 Index.
Its overall score has decreased by 0.9 point, primarily because of significantly lower scores for property rights and government integrity.
El Salvador is ranked 16th among 32 countries in the Americas region, and its overall score is above the regional and world averages.
After nearly a decade of statist governments, El Salvador has suffered a steady decline in economic freedom.

18. Economic Freedom II
Cumbersome bureaucracy and institutional weaknesses continue to slow development
Judicial independence and the rule of law have eroded in recent years.
Government interference in the private sector has increased, with populist spending measures and price controls further distorting markets.
Open-market policies that support engagement with the world through trade and investment are still largely in place
However overall competitiveness is increasingly constrained by chronic fiscal deficits and regulatory inefficiency.

19. Overall Freedom

20. Government Integrity

21. Trade Freedom

22. Business Freedom