The pre-electoral dynamism

What is going on with ARENA?

On September 31st, ARENA organized an Ordinary General Assembly in which it designated a considerable number of candidates who will compete for the party during the next municipal elections. Apart from the curiosities and the typical discussions of an event such as this one, it would be convenient to focus in a very important factor: the announced candidacy (for the most important municipalities) of many characters who are not closely related to the traditional militancy of the official party. It is important to notice that ARENA has candidates who come from the ranks of the FMLN, in some cases (San Francisco Gotera and Santa Ana), and –to dispute San Salvador’s city hall- a person who was connected to the revolutionary movement of the civil war.

To explain the “surprising” political strategies that ARENA has used, some people even talk about the openness of the party and its capacity to value the evolution or the changes of those who were designated as candidates. The former president of El Salvador, Armando Calderon Sol, did not hesitate to say that–when a reporter asked him- the founder of his party was a visionary man with an open mind, a leader in other words, who would have had no inconveniences to accept the “new acquisitions”. In addition, he said that ARENA “is a democratic party” willing to accept anyone once it is convinced that a person has renounced to his or her former ideals, “once a person is sure, once a person has evolved, and once a person has opened his eyes”.

If we make a textual interpretation of his declarations, we could not be talking about political openness, but about a metamorphosis of the individuals who become “the adopted candidates”. That is why Calderon Sol says that now they have people who have evolved, and who have opened their eyes before the irrefutable truth of ARENA. Other ARENA sympathizers who were asked about this subject say that they are looking for people who share the philosophy of the party, those who share the same creed, and who have the opportunity to succeed. It is important to notice that the party is not actually willing to talk about a new way to understand reality. They have not even mentioned that they are willing to add new elements from the civil society, known by their efficient performance or their moral qualities (which could be an attractive discourse), to its electoral platform.

However, there is no doubt that this is an electoral game, and as such this will be judged in the future. Will the party recover the credibility it lost? In this sense, ARENA is following the steps of the FMLN. The FMLN seemed open to incorporate to its electoral platform the presence of certain characters, helped by the civilian movements, who had a considerable amount of representation in their municipalities. The only difference is that the characters adopted by ARENA do not seem to count with the support of an organized society. This is something that, in any case, can be connected with the modus operandi of the official party, which is prone to praise the image of the leaders instead of counting with an autonomous organizational platform, not precisely at the unconditional service of a person. The results of the next municipal elections will reveal if this was the right strategy, and how ARENA dealt with it. Immediately, the people can understand this strategy as a wink to those who do not sympathize with ARENA. It is a bet, but it is not openness. Not even the discourse of ARENA can sustain such affirmation.

The former ideas are not enough to explain what is going on with ARENA. Its hymn proclaims that “the graves of the red ones will be dug”. How can ARENA explain that now the party is open to welcome the “outlaws”? Is the official party going through an schizophrenic ideological stage, or is it now guided by a new generation of politicians who might be willing to end with some of the questionable elements of their past? Is this a purely electoral operation?

The ideological schizophrenia is not a new issue. Some ARENA leaders usually lead a “double life”. During the day, they use the discourse of the democrats, those nationalists compromised with the civilian freedoms, the openness of the market, and against corruption. At night, when they are away from the cameras and the microphones, they wear their “corruption suits” and they put obstacles for the free competition. It does not seem credible to say that this is a new generation of politicians, who are more aware of the need to introduce important political changes. The internal movements that shook and rearranged the pieces of the party, after the resignation of Alfredo Cristiani from the COENA –after the electoral debacle of 2000-, do not allow us to speak in this sense. The behavior of the ARENA congressmen inside the Legislative Assembly, as well as the economic policies promoted by the Flores administration do not allow us to speak in this sense either. In summary, during this period, ARENA has not contributed to strengthen the democratic consolidation process.

The only possible explanation is that this is nothing but an electoral game that intends to take advantage of the sympathy that these characters allegedly enjoy inside their respective municipalities, in order to take the country’s most important city halls away from the FMLN. This is, in a way, a sacrifice to prevent a harmful effect from happening in the future: the credibility in the opposition, and their increasing share of political responsibility. In this sense, we cannot be fooled by the so called openness. This is a carefully calculated step that does not go beyond the ambition to palliate an adverse situation. ARENA’s “strong” men, who seem to be unhappy with some of the designated candidates, will not take too long to discover the magnitude of their mistake. The “questionable candidates” do not have any chance to become important for the party’s structure, where the decisions (which the congressmen turn into national laws later) are made for the governmental officials.

However, despite the small chance that the “recent” members have to operate a significant change inside the party, there is no doubt that at least some of them will win the elections. If they do not want to disappoint the voters, they will have to show that they are capable enough to overcome the defects reproached to the opposition. If they fail, since in some municipalities the pressure on the results is more evident, the process might be reverted against the official party. This possibility might condition the behavior of the official party, as far as the decentralization issue is concerned. If this happens, that could be the main positive aspect of this inadequately called “openness”.

Financial primacy

The financial system is meant to become an important ground for the economic growth initiatives. It is supposed to play the role of an intermediary between the savers and the investors in order to support the development initiatives. The possibility to obtain profits is open and it is legitimate activity; however –given the strategic character of the sector-, the financial negotiation objectives are the priority. The chances of growth could be put at risk because of a mistake. This can also lead to make certain economic decisions that would favor only one sector and overlook the rest.

Little by little, the profitability of the financial sector is becoming a goal, a priority over the national development objectives. From the privatization of the banking system to the dollarization, the different governmental measures have been oriented to create the ideal conditions to reinvent the business companies (especially those connected with ARENA) and their economic accumulation, which is currently denied because of the low profitability of both the agricultural sector and the non-maquila industry.


This situation has eventually hidden the role that the financial sector could play, in order to prop up a sustainable development. The logic about the maximum profitability at the small term has created ostensible barriers that block the credit access for the agricultural sector and both the micro and the small business. Those barriers become evident with the periodical creation of subsidized credit programs for these sectors, which are not parallel to the dimension and the characteristics of the problem.

However, during the last years, this model of growth has already shown its weak features if we connect it with the reduction of the economic activity and the acquisition of both the credits and the deposits of the financial system. During the first seven months of 2002, the behavior of the financial system has been consistent with the general macroeconomic behavior, and particularly, with the continuance of the low rates of growth. As for the behavior of the credits and the deposits, it is surprising how it has followed a downward trend, a behavior that can also be observed in the interest rates. These aspects are closely examined in the following pages; however, before we discuss that idea, we will present a brief context of the credit allocation. For that reason we will review the information of 2001. We will also examine the behavior of the financial aggregate and the interest rates, until June 2002,

By 2001, the distribution of the credit showed that, altogether, the commerce, the service, and the construction sectors respectively received 24.6%, 8.4%, and 14%. In other words, altogether, they enjoyed 47% of the total credit, while the industry and the agriculture respectively had 25% and 7.2%, and this represents a 32.2% of the total. It seems clear that the producers of exchangeable goods are receiving a smaller proportion of the credit, and that the tertiary sectors are receiving more, which is especially noticeable in the case of the cattle-raising sector.

On the other hand, and as it was mentioned before, the behavior of the financial aggregate reveals negative tendencies inside the activities of the financial system. The credit destined to the business companies has constantly decreased during the last couple of years, going from $5,420.83 million by July of 2000 to $5,227.7 million by the same month for 2002. Apparently, it does not look like a steep fall, however, it is the symptom of a low credit demand. This situation seems odd in a context where the interest rates are constantly reduced.

The behavior of the deposits and the value titles shows a similar tendency, with the exception that such behavior took place from April to July. With this, the deposits and the value titles reach a maximum level of $7,003.1 million in March 2002, and then go down to $6,738.14 million in July. This means that a reduction of 3.8% took place during that period. Between July 2001 to July 2002, the percentage reduction would have been 0.86%.

The basic interest rates have shown a downward trend that can be observed since the beginning of the second semester of 2000. By July of that same year, one year term active rates and passive 180 days rates of 11.29% and 6.55% would have been respectively registered. This means that a difference or that a financial spread of 4.74% between both rates took place, and it represents what a financial establishment would obtain in gross terms. By July 2002, the active rates would have decreased by 7.06%, and the passive ones by 3.36%. This means that a 3.7 financial spread took place, that is, one point lower than the one we had two years ago.

When the relation between the behavior of the interest rates, the credits, and the deposits is examined, we can find a couple of contradictory facts that question the traditional economic theory. On the one hand, the reduction of the credit would reveal that the interest rate (considered as the price of the money) does not have an unequivocal influence on its behavior. That is because when there are lower active rates, the banking system’s demand of funds should be increased as well as the level of the credits; however, something completely opposite has happened here. On the other hand, the reduction of the deposits definitively could be supporting the theory of Keynes, since a reduction of the passive rates becomes a major turn down to place the cash into a savings account, causing a fall in the offer of money for deposits. However, beyond the theory, what this information shows is that the Salvadoran case demands the adoption of new measures that can stimulate the growth of both the credit and the productive investment.

In the formerly described context, it is not odd that the Volume Index of the Economic Activity (IVAE, in Spanish) of the financial sector has decreased by –5.65% during the first semester of this year. This ended with an expansive tendency of the financial sector which, at times, has reached rates higher than 10%, as it happened by the mid nineties.

The behavior of the financial sector shows that the Salvadoran economic context is becoming more and more compromised. The possibilities to elevate the low economic growth rates face a larger concession of credits for the investments; however, to judge by the tendencies, it seems that even with a substantial fall in the interest rates, the motivations to invest do not increase. The investment decisions do not seem to be focused only on the behavior of the interest rates, but also in the profitability of the investments, the loan arrears, and/or the administrative restrictions for the access to the credits, for example.

Because of all the aspects that we have formerly described, the dollarization –its alleged benefits were connected with a reduction of the interest rates and an increase on the investment- would have not had all the desired effects over the macroeconomics, although it would have eliminated the devaluation and the financial risks that the Salvadoran Banking System keeps acquiring and the debts in dollars. In this context, the authorities of the economy face the challenge to discover the roads through which the financial sector can play an active role to propel the investment initiatives, and end with the voracious reputation that it gradually acquired.