Last minute crisis

ARENA cannot handle its own demons

The news became public on Wednesday, November 12th. Surprisingly, after being for seven months at the head of the official party, Antonio Salaverria and Mario Acosta Oertel, the two leading figures of the official party’s directive board, renounced to their positions. Salaverria was subtly introduced as a member of the agricultural sector and the former president of an organization called ABECAFE when he accepted his responsibilities. Acosta was also honored as a businessman inside the agricultural field, and also came from a long journey of internal ostracism apparently due to his disagreements with President Flores.

The morning of last April 14th, several newspapers announced that ARENA was in the hands of “thirteen special warriors”. Their duty, according to the media, was to be “a rescue team” for a party that languished. However, in spite of the “good results that they had achieved” –the new COENA managed to revive the presence of their party in the public opinion and to impose the candidacy of Saca to the rest of the members in a relatively easy manner-, Salaverria and Acosta had to leave their positions.

Officially, the reason for their departure is a matter of unimportance. The objective would be to increase the authority level that Saca has, and to block the interference of the rival groups: those who follow Calderon Sol, and those who follow Francisco Flores. This is a harmless argument for their supporters. They are not aware of the contradiction in their discourse about the solid union that surrounds Saca. Nevertheless, the most important aspect for the ideology team of ARENA in this context is to emphasize the authority of its candidate, who, according to some people, has the destiny of the party in his hands because of the last resignations. Beyond the official discourse, it is necessary to reflect about the importance of the last changes that have taken place in the COENA, and its possible effects in the preparation of the elections in the party.

In the first place, it would be convenient to remember that Salaverria and Acosta were not only delegates of the Calderon Sol clan, but that they also represented the doubts of a specific sector of the economy: the agricultural sector. Independently from their level of efficiency to represent the demands and the expectations of this sector, at least they seemed to be close to a group of people who were unhappy with the economic priorities of the party. Many of the members of ARENA admit that neglecting the interests of the farmers has been the heel of Achilles of the ARENA administrations that followed the Peace Accords. Many of its members have abandoned the ranks of this organization and have denounced the excessive amount of power that the financial sector has over other sectors that encouraged the construction of the party.

The internal reorganization took place after the municipal elections (in March, 2003), and they promised to take care of these demands. However, as it can be proved with the resignation of the president and the vice-president of the COENA, this possibility has just vanished. Their departure might have to do with the fact that President Flores and the financial sector do not agree with any of the projects that intend to relief the situation of the agricultural sector. The President and the financial sector seem to be against an initiative, supported in the beginning by ARENA, to exempt the coffee growers from paying income taxes until the international prices of this product improve.
Ever since then, some of the members of the official party seem to be worried about the possible repercussions of the resignation of those who were the leading figures. The spokespeople of the official party tell their sympathizers that everyone is willing to acknowledge the power of Antonio Saca. He has attended to a series of meetings with the ARENA congressmen to demand their absolute obedience to his leadership. If these different initiatives intend to ease the minds of the party’s members, they will not be enough to make the agricultural sector feel more comfortable because it is overlooked by the decision-making structures of ARENA.

Due to the evident marginalization of the agricultural sector inside the structures of ARENA, and the growing disputes about their interests and those of the financial sector that controls the party, their only way out is to organize themselves to make sure that their interests will be considered by the high circles of the State’s institutions. In the context of the next elections, we can foresee several scenarios of the electoral behavior of its members, in case that this organization actually takes place. On the one hand, they can choose to support the PCN (The National Conciliation Party). A bet of this nature will not necessarily guarantee a share of power identical to the one they could have gained if they had been able to keep their influences alive. However, through the PCN they can bet that after a second electoral round the official party might need to agree about several aspects. As the counterpart of supporting the candidate of ARENA they could demand, among other things, a better deal for the agricultural sector and to improve the defense of their corporate interests. However, these aspirations will have to consider a crucial problem: the public opinion does not believe much any more in the leaders of ARENA when it comes to speak about the agricultural issues.

Another option that this sector has would be to join the coalition. The candidacy of Ana Cristina Sol (who runs for vice-president), a former public official of the Calderon Administration, seems to demonstrate to the frustrated followers of ARENA that the PDC and the CDU can listen to their demands. Because of its nature, the coalition can become an important obstacle in the way of Antonio Saca. On the other hand, Hector Silva seems to be more concerned about drawing the attention of the right-wing voters, and not necessarily the attention of the left-wing electorate. In addition, if it is considered that the followers of the FMLN are convinced about the need to drastically change the course of the country’s destiny, it seems that the marginal sectors of ARENA could become part of the coalition. In this case, they could also expect to modify the behavior of the party’s leaders in a second electoral round. The candidate of the coalition has discarded the possibility of an alliance with the FMLN if ARENA does not win the elections in the first round.

A hypothetical alliance between the agricultural sectors and the FMLN cannot be completely discarded either. Although in this case they would have to demonstrate more boldness and more political courage. That is why it is more difficult to think in an alliance of this nature. However, because ARENA evidently rejects the sensibilities of this sector, it is not so ridiculous to think about this possibility. In addition, the FMLN has based the argument of its campaign in the need to find an alliance between the different sectors of the country’s economic life in order to go beyond the project of the financial group that leads ARENA. If the sectors that have been marginalized by ARENA convince themselves that all of the doors are closed for them with Saca, this hypothetical alliance will become more plausible.

Because of the frustration of feeling mistreated by their own party, the agricultural sectors that seem to identify themselves with ARENA are free to abstain during the next presidential elections. There is no doubt that with these decisions they might considerably reduce the possibilities that Saca has to win the elections in the first round. From any perspective, despite the efforts that the ARENA leaders have made to minimize the effects of the departure of Salaverria and Acosta, their resignation shows that the party is unable to control its internal contradictions. When no one expected it, a considerable gap appeared in the discourse used by its leaders. Will the opposition be capable to take advantage of the situation and demonstrate what are the limitations of the project presented by Saca? It is still early to respond to this question. In any case, it is necessary to see that there are a few cracks appearing in the project of ARENA for the next elections.

The pre-project of the General Budget of the Nation for 2004

The map of priorities of the Salvadoran government for the next year is already defined. According to the General Budget of the State for 2004, which has been negotiated in the last three months, the attention that will be paid to the different institutions of the State will be quite different this time. The reason is that the correlation of the budgets (2003-2004) has notoriously changed as far as the expenses are concerned. The key question is if this is favorable for the country or not, since a larger or a smaller public expense will have significant consequences in both the short and the long-term.

It is important to remember that the General Budget of the State is the governmental instrument that shows the rhythm of the official power’s administrative philosophy and its specific priorities. This is about analyzing how the limited budget of the nation will be spent, and how does it fit in the vision about improving the sustainable human development of the Salvadorans.

In order to make this analysis it is necessary to examine the situation of both the income and the public expenses. Only if these elements remain stable the country will be able to block the growth of the external debt. In order to achieve this goal, the purposes and both the economic and the social activities that the government plans to perform in one year have to be realistic and prove that they actually have an influence on the country’s development. In fact, the basic responsibilities of the government should be to attend to the most urgent needs of the population: health, education, housing, security, the protection of the environment, infrastructure, et cetera. This would be the best way to prove that he is truly concerned about the population.

What is the structure of the budget for 2004? The proposal that is being discussed in the Assembly shows that the budget might be increased by 12% (considering the approved budget for 2003). This means that the budget for 2004 could be a total of $2,793.9 million. The fiscal policy has been trusted, since Hacienda (the Internal Revenue Service) predicts an increase between 2.5% and 3.5% of the GNP. The Executive power intends to reduce the fiscal deficit of the non-financial public sector by 1% of the GNP (1.6 % is predicted for this year) and increase the revenue without raising the taxes.

According to “The Message for the Project of the Budget for 2004”, a document presented by the Ministry of Hacienda, the idea is to formulate the administration of the public apparatus based on “the environment of favorable growth perspectives for the Salvadoran economy, the consolidation of the Monetary Integration, the expectations about improving the world’s economy, the positive advances of the Free Trade Agreement, and the sustainability of the family remittances”.

The first complication of the budget appears, therefore, on its foundations: the economic expectations for 2004 do not sound realistic. The common denominator is that all of those expectations include external and volatile variables for the future. For instance, the Free Trade Agreements and the dollarization are not enough to become a motor for the promotion of exportation, because the leading productive sectors are lacking strength and they are not very competitive (the agricultural sector, the industry, and the small and the micro business companies). These agreements could increase the uncontrollable importation, since the remittances generate a considerable tendency to an unproductive consumption. The result: higher levels of commercial deficit and, therefore, the disappearance of the potential incomes of the State.

As for the State’s incomes, according to the budget, the estimated amount for 2004 is $2,793.9 million. This amount will be distributed in the following manner: 70.2% for the regular income; 29.8%, for the capital income. In regard to the regular income, the revenue will increase by approximately 7% (considering the budget of 2003). However, the increase behind the regular income is leaded by the Value Added Tax (54%), which is larger than the income tax (28.4%). The third place is occupied by the income provided by the import duties, with a 9.2%.

On the other hand, it would be important to observe the contrast of the expected capital income. In this sector, a growth of 515.5% is expected, in connection with the last year. This is not a normal event, and it can be justified by the recuperation of financial investments that are expected to reach $214.3 million, out of which 95.2% is the result of the State’s stock sales in the telephone company ($204.0 million). The regular expenses represent 61.1%, while the remaining 38.9% will be assigned to the capital. This aspect deserves to be thoroughly analyzed, since, according to the government, the “austere” policy will be imposed in 2004. Is that true?

According to the Minister of Hacienda, Juan Jose Daboub, the priority of the resources has been focused on “the fight against poverty, the ways to finance the ‘Iron Fist’ Plan, the reconstruction process, and covering the debt of the former plan of pensions”. Nevertheless, the problem is not the good intentions of the budget, but the implicit conception about how to fight poverty, violence, and the debts of the country. For instance, the budget for Education has been drastically reduced. In 2003, this sector received $484.4 million; however, for the next year, its budget will be reduced by $21 million, despite the fact that the increase of 2% for the municipalities, proposed by the opposition, will not take effect. In fact, it was easier to increase the budget of the “Iron Fist” Plan ($134 million to modernize the National Civilian Police), than to destine the funds to the areas that in the long-term have a direct effect on the reduction of the levels of both poverty and violence.

For the next year, according to the proposal of the Budget Law, the Legislative Organ will receive $19.2 million. The Judicial Organ will count with 137.2 million; and the Executive with $1,410.5 million. Other Primary Units of the State will receive $1,227 million, which will be distributed, if there are no modifications in the Legislative Assembly, in the following manner: the Public Ministry will have $35.6 million, and other institutions (The Comptroller’s Office, the Supreme Electoral Tribunal, the National Council of Judicature, for instance) will receive $34.9 million. To pay the public debt, the internal as well as the external one, the government has destined $554.6 million. In addition, the State will count with a budget of $88 million for General Obligations, and $513.9 million for Varied Transactions. It is important to mention that $301.1 million are destined to finance the public system of pensions, and $114.3 million represent a portion of what is assigned to the municipal governments.

The proposal of the Budget Law is structured in he following manner: the three Organs of the State will have 56.1% of the resources. Only the Executive power will receive 50.5% of the funds. Inside of the Executive, the branches that will have higher percentages of the budget are the following: Education, Public Health and Social Assistance, Public Works and Governance. These institutions will spend 16.6%, 9%, 7.9%, and 6.5%, respectively. The Public Ministry and other institutions will have 2.5% of the budget. The public debt will practically occupy 20% of the budget.

It is important to notice that according to the proposal of the Budget Law, the amount of money assigned to the diverse branches will be very different from the amounts assigned in 2003. The most considerable reduction can be found in the Education branch. This seems paradoxical when the government recently accepted that it is necessary to promote a formal education in order to create a qualified labor and improve the productivity level as we get closer to the year 2015.

The area of the Central Government that includes the Public Works branch, Transportation, Housing, and the Urban Development unity will count with the highest budget increase. Presently, this area is working with $162.9 million. In 2004, according to the Budget Law Project, this area will receive $220.6 million. This means that the funds for this area have been increased by 35.4% ($57.7 million). This obeys partly to both the construction and the reconstruction policies, a housing project that is considered as a product of the earthquakes that took place in 2001. The aforementioned increase is connected with the construction of roads and with the development of the infrastructure, the purpose is to look for the free national circulation of merchandise before the possibility of signing a Free Trade Agreement with the United States.

For next year, $554.6 million have been destined to pay for the public debt. Therefore, this part of the budget has been increased by 24.7%, because for 2003 the amount of money assigned to this area was $448.8 million. A 17.9% of the budget is destined to pay for the public external debt ($501.4 million). On the other hand, $53.2 million will be used to pay for the internal public debt, and that amount is equivalent to 2.0% of the State’s budget. The government will also have to destine several funds to finance the public system of pensions. In this area, $301.1 million will be spent ($96.9 million more than in 2003), this is equivalent to 10.8% of the nation’s budget.

The expenses have been classified according to the different administrative areas. Therefore, the expenses of the State are organized as follows:
- Administrative conduction, $244.4 million (8.7% of the budget)
- Administration of justice and civilian security, $359.8 million (12.9%)
- Social development, $1,263.4 million (45.2%)
- Support for the economic development, $283.7 million (10.2%)
- Public debt and general obligations of the State, $642.6 million (23.0%)

Inside of the administrative conduction area, the Hacienda branch will use 20.8% of the budget. This is because of the provision of resources for the 2004 electoral event, and for the institutional expenses of the aforementioned ministry. In the administration of justice and the civilian security area, the Judicial Organ will receive the largest proportion of the budget (38.1%).

The Hacienda branch appears once again as the institution that receives the highest percentage of the budget for the social development area (38.1%). This is because of the amounts destined to finance the municipal governments, the social investment fund for the local development, and the public system of pensions. Each one of these branches represents 9.0%, 4.2%, and 23.8% of the expenses destined to improve the social development of the country.

The public works area receives 65.6% of the expenses destined to support the economic development. Among the general obligations of the State, the most active participation in a percentage scale can be observed in the return of the Value Added Tax to the exporters. This unity will use 46.3% of the expenses for the general obligations of the State. This can be explained though a governmental policy that encourages the exportation activities, which have been supported by the government since the Calderon Administration, in the mid-nineties.

By 2004, the government will assign once again a considerable amount of the budget to the social development projects. However, inside this administrative area, the education branch will receive a smaller amount of funds for 2004 (see chart). The highest budget increase will go to the Public Health branch with $251 million, an amount equivalent to 9.0% of the budget. In this context, it is impossible to perceive an actual transformation in the reactivation of the economy, since in the economic development area there are only $43.7 million destined to the Agriculture and Cattle-Raising sector, in addition to the rehabilitation programs of the cattle-raising market. This represents only 1.5% of the nation’s budget.

 

The General Budget of the Nation