Dependence on the USA and Dollarization Affect the National Economy: President of the Central Reserve Bank of El Salvador

The main factor that makes our country keep a dollar economy is the fear instilled in the population and the possible effect that this contradiction can cause. Carlos Acevedo, president of the Central Reserve Bank, did an interview with Agenda de Nación in which he tackled the economic activity and the flow of the country’s financial resources.

Furthermore, Acevedo believes that Salvadorians must diversify their economic activities and not have the United States as the main supporter of the economy, since this causes the country’s development to be subjugated to North America’s well-being.

The weakness of the dollar is an influential factor in the country’s situation, but he argued that wanting to reverse the dollarization could cause areas of power to provoke the financial system to collapse.

“We must try not to depend on the United States so much nor remittances,”* Acevedo assured this morning. This is due to the fact that the link with the United States is strong, and it’s a relationship of dependence. Also, the recovery in the Salvadorian economy is managed in a parallel manner with that of the American giant. For example, the United States and El Salvador aspired to grow around 3 and 2.5 percent respectively, but as the United Stated lowered its projection due to the effects of tropical depression 12E, our country projects a growth of 1.5 percent by the end of the year.

Having the United States as a fundamental partner is important for historic reasons and for the Salvadorian population that resides in the country, but we shouldn’t be so dependent. “We cannot say let’s break ties. It would be unreasonable to diversify and not depend on the North American market. To look at Asia or China, as the rest of the world, is to adhere to a healthy, diversifying principle,” he said.

There’s another factor that affects the slow growth of the national economy, and this is dollarization. “El Salvador has grown less than the mean of the global economy of Latin America. It is a structural problem that became worse in the last decade. The decade of dollarization is historically the one with the lowest growth after the war,” and he added that having a dollar economy “is a strong lock that limits the economic dynamics but breaking it would be a worse mistake.” According to Acevedo, that is because centers of power, filled with people he labeled as “fanatics,” would generate a media campaign and would spread fear amongst the population. If this were to happen, he foresees that the population would take their money out of the banks, and the financial system would be destined to “collapse.”

“The law of monetary integration is ridiculous,” he added. We work with the given scheme. “We need to strengthen productivity and invest in human capital.” During the administration of ex-president Francisco Flores, the law of monetary integration was approved, allowing circulation of the Salvadorian colón and the U.S. dollar. However, it was concluded that each received colón had to be retired from circulation in a somewhat obscure process. One of the complaints from the population is that this link allows them to earn their salary in colóns and spend in dollars. However, the historic relation with the United States and the lack of monetary policy continues to be a relevant element in the development dynamic of the county.

Exports and imports grow about 20 percent according to the Central Reserve Bank; export of textiles and nontraditional products from El Salvador are most commercialized abroad. In addition, the Salvadorian gold from smelting and pawnshops has contributed, unlike coffee, which is not as meaningful after the weakening of agriculture because of previous administrations. Exports experienced a growth of 20 percent compared to last year.

On the other hand, the production of textiles forces the consumables for the machines to be the main exported product as well. Therefore, commodities, such as the products of oil and its derivatives, make up most of the imports, and those have increased about 21 percent from 2010.

*Editor’s Note: Quotes could not be verified.