Fitch Comment on El Salvador

The new government of El Salvador faces a difficult economic reality

Thursday, March 19, 2009

El Salvador elected a new president on March 15. Mauricio Funes of theFMLN party will take the presidency in what appears to be a difficult adjustment period for the global economy and particularly for El Salvador because it will have to face a disproportionate impact from the US recession and narrow external liquidity conditions.

According to Casey Reckman, Associate Director of Fitch's Latin American Sovereigns Group. "El Salvador's economy is being impacted by lower external demand and declining levels of remittances. However, response options through public policies by the new government are limited in a "dollarized" economy and in light of fiscal stringency. "

Reckman also said that "political cooperation, as seen in the recent commitments between the two major parties for approving the use of multilateral loans, could be crucial for the country's fiscal financing in the long term and to restore investor confidence."

Mr Funes reiterated his commitment to macroeconomic stability, dollarization of the economy and a prudent fiscal policy in the context El Salvador's Precautionary Stand-By Agreement with the IMF. Reckman also said that "the fulfillment of this promise and the continuation of reforms started by previous ARENA (Nationalist Republican Alliance) governments will also be important to ease the fiscal constraints of the country and strengthen the economy in the current climate of domestic and external economic challenge."

Fitch qualifies El Salvador as 'BB +' with negative outlook.


Casey Reckman

Shelly Shetty

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