Hard-to-Keep Promises

Very ambitious goals and limitations in the current economic model are some of the factors that would impede the fulfillment of the campaign promises of the candidates for the presidency of El Salvador.

Thursday, January 31, 2019

The Central American Institute of Fiscal Studies (Icefi) evaluated the viability of the main issues addressed in the government plans of the parties seeking the presidency in El Salvador in the February 3 elections.

From Icefi's analysis of government plans:

The Alianza Republicana Nacionalista (Arena) party opts for agriculture, coffee farming, industry and tourism as its big bets, as well as the creation of investment funds for innovation. It also outlines that, together with the reduction of procedures, confidence and leadership, 300,000 jobs can be generated in the next five years.

For the Institute it is positive that public funds are proposed for innovation, however, the goals of employment generation and public investment are ambitious and difficult to achieve, considering the current situation of public finances and the lack of clarity on the cost and sources of financing.

The Frente Farabundo Martí para la Liberación Nacional (FMLN) party leaves behind the idea of a change in the economic model, as proposed in the 2014 elections. It considers tourism, agriculture, the promotion of MYPES and development poles -including special economic zones- as the main strategies for the generation of 385,000 jobs in the next five years, with fair and equal salaries for men and women. Proposes the promotion of public investment, the simplification of private investment and the adoption of a comprehensive sustainability policy to achieve sustainable economic growth.

According to Icef, measures proposed in this area are difficult to achieve, considering the limitations of the current economic model for the generation of formal employment, the insistence on futile fiscal incentives, as well as the lack of clarity in goals, cost and sources of financing.

The Gran Alianza por la Unidad Nacional (Gana) party proposes a pro-market, pro-free-enterprise, anti-neo-liberal model with a fair and equitable distribution of resources. Its goal is for the economy to grow at 4% by the end of the five-year period. Proposes several legal changes: reforms to tax incentives in free trade zones, factoring law and the creation of digital banks. The main bets are the promotion of tourism and agriculture, with emphasis on coffee, along with multiple infrastructure projects through public-private partnerships.

In this regard, Icefi warns about the risks for the State of setting up public-private partnerships, since they are not properly negotiated and under a clear legal framework that protects public interests.

The Vamos party is committed to attracting more direct foreign investment in sectors such as textiles, plastics, pharmaceuticals, aeronautics, technology, tourism, call centers and remote services, and the promotion of economic development zones (ZED). In addition, it establishes the goal of generating 475,000 formal jobs during the 5 years of management.

However, considering the structural limitations of the economic model to generate formal jobs, the ineffectiveness of fiscal incentives to attract investment, as well as the lack of clarity of the measures to be implemented to meet goals and mobilize the required financing, in the opinion of the Institute, the measures proposed in this area are very difficult to implement.

See full analysis of Arena, FMLN, Gana and Vamos.

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