A Fiscal Pact For El Salvador

In El Salvador there is an urgent need for a Fiscal Pact. It is great news that the government, opposition parties and civil society have entered into dialogue to achieve this pact, which could solve the current and delicate fiscal situation of the public treasury; so that in the future it provides an adequate and sustainable management of public finances.

Due to the difficult fiscal situation that El Salvador is facing, with high public debt, low economic growth and an unfavorable perspective if the present conditions continue, the government and political opposition parties are currently negotiating a fiscal pact aimed at finding a solution to the fiscal problem that for several years has afflicted the country and has now reached a level of significant difficulty to the extent that, in recent past, at least two of the major risk rating agencies downgraded the country asserting among other reasons, lack of understanding between political forces in the country, high level of public debt and low economic growth.

In the current negotiations, the government has requested the Legislative Assembly to approve US $ 1,200 million to issue bonds in the international market, in order to pay the internal debt of treasury bills adding up to US$900 million and the rest for other needs. Also, they are requesting a pension reform to adopt a "mixed" pension system and the increase of the tax burden. Meanwhile, to vote in favor of this new debt, the opposition parties have required from the government the issuance of a Fiscal Responsibility Act that would set certain bounds on public spending and indebtedness, the adoption of a series of austerity measures which aim to decrease the level of government spending, to continue with a privatized pensions management system and to not increase the tax burden. The Legislative Assembly approved the issuance of bonds for an amount of US$ 550 million and simultaneously enacted the Fiscal Responsibility Act; pending of negotiation is the approval for the issuance of balance of the requested bonds, for an amount of US$ 650 million.

The...