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LaFoca's picture

El Salvador's Economy Tied to the Whims of the Federal Reserve Fiasco?

Since El Salvador has adopted the dollar, the economy there has been tied to the EEUU's ridiculous and corrupt Federal Reserve Corporation, which even many U.S. citizens confuse for a government agency instead of a corporate venture. And while this is beneficial for ex-pats, I wonder if it benefits the citizens of El Salvador. Especially when our dollar has become a fiat device instead of a note backed by sound assets. So what impact will it have on El Salvador as currency continues to devalue under the escalating debt of EEUU?

In most Central American countries, including El Salvador, the practice of borrowing to pay for consumer goods is not as popular as in the U.S. Most people pay cash for goods and live more within their means. But with the dollar devaluing each day, many in El Salvador feel the dollar should be replaced with the colón again and a strong movement is under way to do this. This way they can back their currency with reserves.

But what could happen if this doesn't occur? We see that consumerism has invaded Central America now, so will the purchasing power be limited based on Salvadoran ties to the dollar. Or will more services be nationalized to place a cap prices? Already, many Salvadoran utilities have price caps to control the effects of inflation, but what about the cost of necessary items like food? In El Salvador, pork costs about the same as in the U.S. in places like Super Selectos. Certainly, raising pigs in El Salvador cannot cost the same as raising them in the U.S.; but the prices are equivalent to U.S. prices, even for products made in El Salvador.

Certainly, this is not a concern of the wealthy families in El Salvador, controlling the economy like the Kriete family which own an International Airline; GRUPO TACA; or the Siman Family- owners of SIMAN Department stores; or the Poma Family (grupo roble) which is an architectural family and has totally re-shaped the retail and housing industry in El Salvador; or the Dueñas Family which own some of the biggest names in fashion. But for the masses, this is a concern. Will the Funes administration address this? Not likely! Even when the economy has spiraled down along with the U.S.

This should be an interesting time in El Salvador. Already, many of its citizens are declining the jobs from maquiladoras paying only around $200 a month. Simply, with the prices, the wise people cannot afford to work for that, so there are more street vendors trying to create their own businesses these days. For those who speak English, the opportunities are better working in airports or call centers, and certainly El Salvador has recognized this and implemented a national demand that all children graduating today must speak English, preparing them to function on a more global level. That's a positive step. But the Salvadoran stock markets are fairly non-existent, even if the banks are doing well. How will Salvadorans protect themselves if the dollar limits their spending power?

And for those who exist off their investments inside the U.S. and live as ex-pats in Central America, what will happen to them if their money continues to devalue? If countries such as El Salvador do turn back to their own currency, will our dollars become less and less valuable as our currency devalues? These are questions ex-pats should be asking ourselves


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