Order Code RS21655
Updated January 13, 2005
CRS Report for Congress
Received through the CRS Web
El Salvador: Political, Economic, and Social
Conditions and Relations with
the United States
Clare Ribando
Analyst in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Tony Saca, a businessman from the conservative National Republican Alliance
(ARENA) party, was inaugurated as president for a five-year term in June 2004.
President Saca faces the challenges of restarting a stagnating economy, passing
legislation in a polarized political environment, and combating gang violence. Although
70% of Salvadorans approve of his overall job performance, a majority disprove of his
decision to maintain a contingent of 380 Salvadoran soldiers in Iraq. The United States
is working with President Saca to combat narco-trafficking, to resolve immigration
issues, and to promote free trade, possibly through the proposed United States-
Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). On
December 17, 2004, El Salvador became the first country in Central America to ratify
DR-CAFTA. On January 6, 2005, the U.S. government extended the Temporary
Protected Status (TPS) of undocumented Salvadoran migrants living in the United States
until September 9, 2006. This report will be updated as events warrant. For further
information, see CRS Report RL32322, Central America and the Dominican Republic
in the Context of the Free Trade Agreement (DR-CAFTA) with the United States.
Background
El Salvador, nearly the size of Massachusetts, is the smallest nation in Central
America, and the most densely populated with 6.3 million people. With a per capita
income of $2,050, it is considered a lower middle-income country. In the past dozen
years, El Salvador posted solid economic growth, held free and fair presidential and
municipal elections, and survived a series of natural disasters. Significant problems
remain, however, such as endemic poverty and rampant gang violence. These social
problems, as well as a polarized political system, are inextricably linked to the country’s
devastating civil war that lasted throughout the 1980s.
Political Situation
Congressional Research Service ˜ The Library of Congress

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El Salvador achieved notable stability and economic growth in the 1990s, but its
growth has stagnated for the past six years, making it increasingly dependent on
remittances from citizens living abroad.1 A 1992 negotiated peace accord brought the
country’s protracted 12-year civil war, which had resulted in 75,000 deaths, to an end.
The agreement formally assimilated the former guerrilla forces, the FMLN, into the
electoral process. The current president, Antonio (Tony) Saca, was elected in March
2004, along with Ana Vilma de Escobar, El Salvador’s first female Vice President, and
was inaugurated as President on June 1, 2004, for a five-year term. He is the fourth
consecutive, democratically elected president from the conservative ARENA party that
has governed the country since 1989.
2004 Presidential Elections. In March 2004, Saca (ARENA), a well known
businessmen and sports announcer, won the Salvadoran presidential election handily with
57.7% of the vote. He soundly defeated his nearest rival, Shafick Handal, an aging former
guerrilla and Communist party member, of the Farabundo Marti National Liberation Front
(FMLN) who obtained 35.7% of the vote. Following far behind, Hector Silva, the former
mayor of San Salvador and center-left coalition candidate of the Christian Democratic
Party (PDC) and the United Democratic Center (CDU), received 3.9%, and Rafael
Machuca of the center-right National Conciliation Party (PCN), received 2.7%. The
failure of either of the two third-party candidates to receive even 5% of the vote reflected
the continuing polarization of the country between the FMLN and ARENA.
Future of the FMLN. Throughout the campaign, Shafick Handal vocally opposed
ARENA’s privatization schemes, the dollarization of the economy, participation in DR-
CAFTA, and sending Salvadoran troops to Iraq. Saca’s first round victory was a serious
setback and cause for assessment for the FMLN that had gone into the campaign with
high expectations based on the party’s strong performance in the March 2003 legislative
and municipal elections. In those elections, the FMLN won more seats in the National
Assembly than ARENA, the mayoralty of San Salvador for the third consecutive time,
and seven of the 14 departmental capitals. Despite Handal’s poor electoral showing, his
orthodox faction of the FMLN, led by ex-guerilla Medardo Gonzalez, prevailed over a
more moderate candidate (the mayor of Santa Tecla, Oscar Ortiz) in the party’s internal
leadership elections that were held on November 7, 2004.
Legislative Record. President Saca is maintaining the free market economic
policies of his predecessors, but is also looking for ways to increase tourism and to build
up his country as a logistical hub in order to boost employment and economic growth.
At his inauguration, boycotted by the FMLN, he called for dialogue to achieve consensus
and invited the FMLN to the presidential palace for a meeting. Less than three weeks after
his inauguration, President Saca crafted an agreement that led to the passage of the long-
stalled 2004 budget, largely by agreeing to spend more funds on health and education
sectors and to channel a larger share of the funds to the municipalities. The budget
approval was followed quickly by an increase in the country’s minimum pension, and, in
late July, by the unanimous approval of the “Super Firm Hand” package of anti-gang
1 El Salvador, is among a handful of Latin American countries currently relying on remittances
for more than 10 % of its GDP. “All in the Family: Latin America’s Most Important International
Financial Flow,” Inter-American Dialogue, January 2004.

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reforms. Designed along the lines of former President Flores’ “Firm Hand” plan passed
in July 2003, the package includes reforms stiffening the penalty for gang membership
to up to five years in prison and gang leadership to nine years. The anti-gang legislation
was approved despite vocal criticisms by the United Nations and other religious and
humanitarian groups that its tough provisions, especially those allowing convictions of
minors under 12 years of age, violate international human rights standards.2
While some 70% of Salvadorans approve of President Saca’s overall job
performance, he will face a number of significant challenges in 2005. In October 2004,
the FMLN, which controls 31 of 84 seats in the National Legislature, withdrew its support
from the multi-party commission developed by President Saca to discuss important
national social, economic, and political issues. Although Saca was able to muster enough
support in the legislature from small parties to ratify the DR-CAFTA agreement over
FMLN objections, he has been unable to pass the country’s 2005 budget. The FMLN
opposes President Saca’s budget proposal as it would increase the country’s foreign
indebtedness. The party is also likely to oppose any presidential proposals for further
privatization, or to change El Salvador’s public health or education programs.3
Economic and Social Conditions
In the 1990s, El Salvador adopted a “neo-liberal” economic model, cutting
government spending, privatizing state-owned enterprises, and adopting the dollar as its
national currency. The economy averaged an annual growth rate of 4.5% between 1990
and 2001 but registered only 2% growth the past few years. While remittances and
reconstruction projects remained steady in 2004, high oil prices and a slump in the
maquiladora sector (large assembly plants operating in free-trade zones) kept growth at
a modest 1.8% in 2004. Remittances now contribute 15% of El Salvador’s annual GDP,
and the country’s economic success has become increasingly dependent on the success
of the global economy.
El Salvador’s recent economic stagnation may be linked to disruptions that resulted
from Hurricane Mitch in 1998, two major earthquakes in 2001, a decline in coffee prices,
and the slowdown in the U.S. economy following September 11, 2001. The earthquakes
in particular caused the country significant damage, leaving more than 100,000 people
homeless and tens of thousands without jobs. Total damage estimates were placed as high
as $3 billion.4 This series of natural disasters occurred as El Salvador’s coffee industry
was recording record losses when international coffee prices fell nearly 70% since 1997.
Since the United States is El Salvador’s most important trading partner, the U.S. recession
and sluggish recovery in 2001- 2002 lowered the demand for Salvadoran exports.
Although the U.S. economy has recovered since 2003, increasing competition for access
to the U.S. market from Asian and other producers has limited the demand for Salvadoran
exports.
2 Stephen Temple, “Legislative Success for El Salvador’s New President as Anti-Criminal Gang
Reforms Passed,” WMRC Daily Analysis, July 30, 2004.
3 Economist Intelligence Unit, “Country Report: El Salvador,”January 2005.
4 USAID, “El Salvador Earthquakes: Final Fact Sheet (FY2001),” Sept. 7, 2002.

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Although El Salvador has fared better than other countries in the hemisphere, when
population increases are taken into account, the country’s modest growth, averaging 2%
or less for the past four years, is not enough to produce dramatic improvements in
standards of living. With 48% of the population living in poverty and more than 25%
reportedly feeling they must migrate abroad in search of work, some critics have argued
that the average Salvadoran household has not benefitted from neoliberalism.5
Dollarization has raised the cost of living while its primary benefits, lower interest rates
and easier access to capital markets, have not resulted in an overall decline in poverty
levels. Between 1989 and 2004, poverty levels actually rose from 47% to 51%.6 With
prices rising, privatization has been vigorously opposed. A nine-month doctors’ strike,
the longest in the country’s history, ended in June 2003, when the privatization of the
country’s social security system was halted. Finally, the fruits of stable economic growth
have not been equitably distributed as the income of the richest 10% of the population is
33.6 times higher than that of the poorest 10%.7
Gangs and Violence. Pervasive poverty and inequality, combined with 15%
unemployment and significant underemployment, have contributed to the related
problems of crime and violence that have plagued El Salvador since its civil war. As
many as 30,000 Salvadoran youth belong to maras (street gangs).8 In 2004, the
Salvadoran National Police estimated that 2,756 homicides were committed in the
country, 60% of which were gang-related.9 These gangs are increasingly involved in
human trafficking, drug trafficking, and kidnaping, and pose a serious threat to the
country’s stability.
Some have traced the origins of the maras to youth gangs formed in poor Latino
neighborhoods around Los Angeles by refugees from the Central American civil wars of
the 1980s who were then deported back to the region by U.S. immigration officials in the
1990s.10 Other scholars have noted that the high tolerance of violence among Salvadorans
in general, as well as the widespread proliferation of firearms and explosives that has
occurred since the war, have contributed to the gang problem.11 Still others, especially
organizations working with gang members in El Salvador, have asserted that it may not
be gang membership in itself, but also extreme poverty, joblessness, and social exclusion
5 Joseph Contreras, “A Country’s Rebirth,” Newsweek International, July 21, 2003; U.S.
Embassy San Salvador, “El Salvador’s Economic Update: Second Quarter 20002,” Sept. 16,
2003.
6 “Election 2004: El Salvador’s Ruling Party Maintains Narrow Lead Over Former Rebel
Leftists,” WMRC Daily Analysis, Feb. 18, 2004.
7 United Nations, Human Development Report 2003.
8 Christ Kraul, “El Salvador Comes to Grips with Gangs,” Los Angeles times, December 13,
2004.
9 “2,576 Homicidios en el 2004 en El Salvador, Agence France Presse, January 5, 2004.
10 Jeremy McDermott, “Criminal ‘Mara’ Gangs Pose Threat to Central America,” Jane’s
Intelligence Review, June 1, 2004.
11 Joaquín Chávez, “An Anatomy of Violence in El Salvador,” NACLA Report on the Americas,
May/June 2004.

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that are contributing to the violence.12 The Salvadoran government reports that its tough
anti-gang legislation has led to a 14% drop in murders in 2004, as well as significant
declines in carjackings and kidnapings.13
Relations with the United States
Throughout the last two decades, the United States has maintained a strong interest
in the political and economic situation in El Salvador. During the 1980s, El Salvador was
the largest recipient of U.S. aid in Latin America as its government struggled against the
armed FMLN insurgency. After the 1992 peace accords were signed, U.S. involvement
in El Salvador shifted towards helping the government transform the country’s struggling
economy into a model of free-market economic development. Since that time, successive
ARENA governments have maintained a close relationship with the United States. On
December 17, 2003, El Salvador, signed the CAFTA, which later was changed to now
include the Dominican Republic and is referred to as “DR-CAFTA,” that, if approved by
all parties to the agreement, could strengthen the economic linkages between all parties
to the agreement. El Salvador has maintained a troop presence in Iraq since 2003 despite
protests from the FMLN and terrorists threats against the ARENA government from an
extremist group claiming to be linked to Al Qaeda.14
U.S. Foreign Aid. In the 1990s, total U.S. foreign assistance to El Salvador
declined from wartime levels ($570.2 million in 1985), and shifted from military aid
towards development assistance and disaster relief. Military aid to El Salvador reached
a peak of $196.6 million in 1984, but fell to $0.4 million a decade later. The United
States provided $37.7 million in assistance to El Salvador following Hurricane Mitch in
1998 and an additional $168 million in reconstruction assistance since the two
earthquakes in 2001. For FY2004, Congress appropriated an estimated $42 million for El
Salvador, and the Administration has requested $33.2 million in assistance for FY2005.
These amounts support a wide variety of Development Assistance and Child Survival and
Health Programs, as well as 169 Peace Corps volunteers.
Counter-Narcotics Issues. Not a major producer of illicit drugs, El Salvador
serves as a transit country for narcotics, mainly cocaine and heroin, cultivated in the
Andes and destined for the United States. El Salvador, along with Ecuador, Aruba, and
the Netherlands Antilles, serves as a Forward Operating Location for U.S. anti-drug
forces. Since August 2000, U.S. forces based at Comalapa airport in San Salvador have
successfully intercepted more than 50 metric tons of cocaine.
Support for U.S. Military Operations in Iraq. El Salvador immediately
supported the United States following the September 2001 terrorist attacks and sent a first
contingent of 360 soldiers to Iraq in August 2003 and a replacement contingent of 380
soldiers in February 2004. While all other Spanish-speaking countries have withdrawn
12 Sarah Elizabeth Garland, “El Salvador: The Struggle to Reclaim Gang Members for Society,”
Inter Press Service, August 4, 2004.
13 Ibid, Kraul.
14 “El Salvador: Troops Head to Iraq Amid Threats from Extremists,” Latin American Regional
Report, August 17, 2004.

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their troops, the first part of a third contingent of 380 Salvadoran troops departed for Iraq
on August 19, 2004. A fourth contingent of troops could be sent to Iraq in February 2005.
Migration Issues. The United States responded to the recent natural disasters in
El Salvador by granting Temporary Protected Status (TPS) to an estimated 290,000
undocumented Salvadoran migrants living in the United States. On January 6, 2005, the
U.S. government extended the TPS of undocumented Salvadoran migrants living in the
United States until September 9, 2006. TPS is an important bilateral issue for El Salvador,
whose migrants living in the United States sent home roughly $2.5 billion in remittances
in 2004. The exodus of large numbers of poor migrants to the United States has also
eased pressure on the Salvadoran social service system and labor market.
U.S. Trade and DR-CAFTA. The United States is El Salvador’s main trading
partner, purchasing 60% of its exports and supplying 50% of its imports. More than 300
U.S. companies currently operate in El Salvador, many of which are based in the
country’s 17 free trade zones. Since the 1980s, El Salvador has benefitted from
preferential trade agreements, such as the Caribbean Basin Initiative and later the
Caribbean Basin Trade Partnership Act (CBTPA) of 2000, which have provided some of
its exports, especially apparel and related items, duty-free entry into the U.S. market. As
a result, the composition of Salvadoran exports to the United States has shifted from
agricultural products, such as coffee and spices, to apparel and textiles. The government
of El Salvador reportedly fears that although it would still benefit from the CBTPA and
its proximity to the United States, fierce Asian competition could overtake its nascent
textile industry when worldwide textile quotas are lifted in 2005.
Critics are concerned, however, that insufficient environmental and labor protections,
as well as the likely inability of Salvadoran farmers to compete with U.S. agricultural
producers, could offset any potential job or investment gains that may result from the
agreement. Human Rights Watch recently reported that only 5% of the labor force in El
Salvador is unionized, and even those that are unionized are minimally protected by a
weak Ministry of Labor (MOL) and a corrupt judicial system.15 While DR-CAFTA has
provisions providing for the enforcement of domestic labor laws and establishing
cooperative ways to bring those laws up to international standards, its opponents are
pushing for a renegotiation of the agreement that would require all signatories to establish
and adequately enforce laws compliant with international labor standards.
On December 17, 2004, despite strong opposition from the FMLN, El Salvador
became the first country in Central America to ratify DR-CAFTA.16
15 “Deliberate Indifference: El Salvador’s Failure to Protect Worker’s Rights,” Human Rights
Watch, Vol. 15, No. 5(B), December 2003.
16 “El Salvador First to Ratify CAFTA, But Followers May be Few,” Noticen: Central American
and Caribbean Affairs, January 6, 2005.

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