After the Victory, Sobering Realities

November 2, 2009

Anyone who followed Salvadoran politics over the last few decades with a view toward social justice was rewarded with a moment of pure exhilaration following the presidential election in March. Finally, it seemed, average Salvadorans would have a president who was on their side.

The first 100 days of Funes’s presidency brought a notable shift in government priorities. The administration began by, among other things, including civil society actors and opposition leaders in the cabinet and ministerial posts, opening permanent spaces of dialogue to provide traditionally marginalized populations access to the executive, and forming a deliberative Economic and Social Council to create negotiated, coordinated responses to the country’s many economic challenges.1

Yet some sobering realities are likely to emerge during the Funes administration’s tenure. Salvadoran political and social institutions have always done little to solve the problems of poverty, economic marginalization, and human welfare. Official neglect in these areas was reinforced in the 1980s by structural-adjustment policies, which shifted the focus to private-sector solutions, easing pressure on the state to take responsibility and underestimating its capacity to regulate private firms. The right-wing ARENA party’s 17-year rule firmly entrenched neoliberal reforms by promoting fiscal austerity, privatization, rollback of public goods, and openings to international investment.

The most insidious assumption underlying these changes is that investor rights should take priority over those of ordinary citizens, and that private enterprise ought to supersede public entities designed to serve citizens’ needs. The idea that private investors are the engine of development remains ubiquitous. Even Funes, in a May 1 interview with Latin Pulse, reaffirmed his government’s commitment to ensuring “investor confidence,” even as he advocated social policies that serve workers and the poor.

“My party and my government plan to create the conditions for macroeconomic stability in order to attract more private and foreign investment, as well as stimulate investments from the private sector within the country,” Funes said. “It is not the government that creates jobs; the government must create conditions of macroeconomic stability so that foreign investors feel compelled to invest in the country.”2 He added that his administration would not reverse privatizations (presumably in the electricity and banking sectors) or threaten investment. This stance is, in fact, quite similar to those of ANEP (the powerful Salvadoran business association), the U.S. Embassy, and the U.S.-Salvadoran Chamber of Commerce.

Although ARENA went to great lengths to help investors feel “safe,” its efforts resulted in little progress in economic development, largely because the rules it instituted do not require investors to transfer technology, use local inputs, or meet performance criteria. So it is difficult to imagine how Funes’s promise that private investment will stimulate development will be realized without some change in the rules of the game. But it is precisely such changes that scare investors away. In any case, without greater capacity to assume debt and engage in deficit spending, as well as to make serious state investments in public-goods sectors—all strategies strongly discouraged under prevailing wisdom of “macroeconomic stability”—the Salvadoran state will continue to lack the capacity to carry out some of its more ambitious goals, like those suggested by Funes in his inaugural speech: to protect the most vulnerable members of the population through redistributive social policy and to build a universal safety net.

The institutional morass created by the Central American Free Trade Agreement (CAFTA), which epitomizes the rollback of the state and the rollout of market-supporting mechanisms, will be a particular challenge in the years ahead. CAFTA takes decision-making in such crucial areas as public ownership, investor controls, dispute resolution, and environmental and labor protections out of the hands of national courts and elected representatives, and places them within the insulated framework of “free trade.” CAFTA’s chapter on investment, for example, grants foreign investors the right to arbitrate their disputes with governments in private, unaccountable tribunals with almost no provisions for civil society participation.

Operating outside national courts, these tribunals transcend the legal and procedural provisions for citizens or -corporations under domestic law. This mechanism allows corporations to sidestep democratic decision-making, allowing them to win taxpayer money by suing governments for lost profits. A recent Salvadoran case, set to be tried under -CAFTA, exemplifies the problem. Pacific Rim Mining Corporation, a Canadian company, is using its U.S. subsidiary in Nevada to sue the Salvadoran government for denying it the permits to continue operating in the country. Local protesters in the department of Cabañas complained of threats to water sources and potential cyanide contamination, leading even former ARENA president Antonio Saca to revoke the company’s permit; the Funes government has upheld this decision. In a more recent case, the U.S. mining corporation Commerce Group filed a nearly identical complaint.3

Funes has expressed confidence that international arbitration will vindicate these decisions. But his optimism seems unfounded, given the history of NAFTA and WTO rulings, most of which have favored investors. Eleven NAFTA cases filed against the United States, Canada, and Mexico have already garnered $35 million for foreign investors. Moreover, these proceedings are exceedingly costly; the U.S. government alone has spent millions in legal fees fighting investors’ claims. Small nations like El Salvador are likely to have great difficulty fighting mega-corporations and risk bearing staggering legal fees if they do.

Another constraint the Funes government will face is a lack of state capacity. El Salvador’s near two decades of neoliberal reforms followed traditional Washington Consensus policies: dismantling state structures, restricting spending and credit, and devolving responsibility for public goods away from the central state. The results have been debilitating, as complications in the water sector demonstrate.

In 2005, for the sake of “bettering water and sanitation services at the national level,” the 2006 investment budget of the public water company, ANDA, was cut drastically, making it the lowest allocation in seven years. These cuts were implemented despite consistent rationing and water scarcity in ANDA’s network, and a fall of 12% in water provision over the decade from 1994 to 2004. ANDA’s president at the time, Manuel Arrieta, seemed unconcerned by the contradiction between reducing the investment budget and improving services, arguing that the shortfall would be made up by “international cooperation and other institutions,” like “the central government, IDB credits, donations, or the private sector.” None of these sources were secured prior to the cuts, and to date, the expected influx of cash never materialized.4

Overcoming institutional legacies and power relations put into place by neoliberalism and elite rule will not be easy, requiring resources, capacities, and state efforts for a new round of reconstruction. Funes’s government will face formidable obstacles as it tries to reorient the economy in the post–Washington Consensus era, especially if it continues to adhere to the constraining assumptions underlying market-friendly development policy. Still, the political shift presented by the rise of the FMLN to executive power may be the catalyst for a broader shift in the social bases of power, as well as the healing of historical wounds that have made broad-based social partnerships difficult until now. If coupled with new institutional mechanisms designed to protect human rights and public accountability with the same vigor with which investor rights are defended, there is hope for the peaceful emergence of alternatives in El Salvador.

The key to arriving at appropriate, context-specific policies is not to blindly implement “best practices” put forward by experts of the day, but to construct spaces for decision makers who share different values to negotiate and decide which path is appropriate for local environmental, social, and political conditions. Nothing could be farther from the CAFTA status quo. Constructing inclusive mechanisms will also help communities arrive at “legitimate” institutional and political arrangements not based on relations of power but through public discourse.

The Funes administration’s steps to create democratic spaces are thus heartening. There are many people in the existing social order who are eager to build alternatives to neoliberalism, including unionists, environmentalists, feminist and development NGOs, university scholars, consumer groups, river- basin committees, and some municipalities. They will play a central role in helping to reframe development for El Salvador and fomenting the support base that the government will need to overcome entrenched interests and ideas.

Of course, El Salvador cannot be expected to challenge the power of foreign investors—not to mention unelected rating agencies, international financial institutions, and powerful, wealthy countries—alone. Solidarity will be central, as will alliances between like-minded leaders and groups, like SETA (the Salvadoran water workers’ union) and the AFL-CIO, and between environmentalists inside and outside the country. Such ties can provide further resources to fortify the efforts of Salvadoran groups to defend against egregious attacks, like those launched by Pacific Rim and Commerce Group, and to protect resources and community decisions against the totalizing logic of market capitalism.

LaDawn Haglund teaches about globalization at Arizona State University. She is the author of Limiting Resources: Market-Led Reform and the Transformation of Public Goods (Pennsylvania State University Press, forthcoming in 2010).

1. FESPAD, “Ante los primeros cien días del Gobierno del Presidente Mauricio Funes,” September 24, 2009,

2. “Interview With El Salvador’s President-Elect Mauricio Funes,” Latin Pulse, Link TV, May 1, 2009.

3. Keny López de Carballo, “El Salvador con nueva demanda por minería,” La Prensa Gráfica (Antiguo Cuscatlán), September 2, 2009.

4. “Recortan $16 millones a ANDA en 2006,” La Prensa Gráfica, December 27, 2005.


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