The U.S. “Partnership for Growth” reflects a shift in imperial strategy and highlights the constraints facing progressive governments in Latin America

March 16, 2015


Beneath a painting of Archbishop Oscar Romero, Salvadoran President Sánchez Cerén shakes hands with a representative of the Millennium Challenge Corporation, while U.S. Ambassador Mari Carmen Aponte looks on. (Juan Quintero / U.S. Embassy)

El Salvador’s long civil war between savagely repressive U.S.-funded military forces and a leftist guerrilla army ended in 1992. But while the peace accords ended the “war of bullets,” said labor leader Wilfredo Berríos, “the political, social, and economic war began again,” and “under the rules of the right, the rules of capitalism, and the rules of the United States.” In this context, the triumph of the FMLN (Farabundo Martí National Liberation Front)—the former guerrillas—in the last two presidential elections is quite remarkable. The victories of Mauricio Funes in 2009 and Salvador Sánchez Cerén in 2014 have threatened to disrupt the Salvadoran government’s historic pattern of compliance with U.S. interests. Yet as Berríos’s comments imply, forces opposed to progressive change retain great power to shape “the rules” of the game—even under FMLN governance.

The Obama administration has sought to ensure the adoption of corporate-friendly policies in El Salvador by conditioning Millennium Challenge Corporation (MCC) development aid upon a slew of neoliberal reforms that include privatization, the relaxation of business regulations, and the enforcement of trade provisions that privilege U.S. corporations. Since 2011, the U.S. “Partnership for Growth” has provided the overarching framework for advancing these policies. According to the State Department, the program aims to “promote a business-friendly institutional environment” and “catalyze private investment.”

The “Partnership” exemplifies a more general U.S. strategy in Latin America. Since 1998 the region has elected roughly a dozen left-of-center presidents who explicitly reject U.S. intervention and neoliberal economics. In response, the United States has tried to institutionalize neoliberal policies that can constrain future governments regardless of political affiliation. In effect, Washington has sought to mitigate the danger of elections by insulating economic policy from democratic input. As the FMLN’s experience in El Salvador suggests, these left-of-center governments are heavily constrained by forces opposed to progressive change. However, both government choices and popular struggle also help to shape policies on the ground.


“El Salvador is arguably our closest friend in the Western Hemisphere,” wrote U.S. ambassador Charles Glazer in 2007. At that point, the ARENA (Nationalist Republican Alliance) party had controlled the Salvadoran government for almost two decades. ARENA was closely linked to the right-wing death squads that had murdered tens of thousands of peasants, students, workers, and religious people in the 1970s and 1980s. After the war, the party continued to enjoy strong U.S. support because of its enthusiasm for neoliberalism, its support for the 2003 Iraq invasion, and its militarized approach to both crime and dissent.

Although Mauricio Funes’ 2009 election threatened a change, the new president tried hard to preserve an amicable relationship with Washington, and the White House reciprocated. The U.S. Embassy’s current Economic Counselor, John Barrett, said that “Funes came in with a lot of good will,” which was “one reason why” the World Bank and Inter-American Development Bank (IDB) “stepped up with a lot of new funding.” The Obama administration soon sought to solidify the relationship through the Partnership for Growth, formally inaugurated in November 2011. As part of the Partnership, in September 2014 the Obama administration renewed a $461 million MCC development grant to deliver $277 million in additional funding for education, infrastructure, and other projects. The country’s poverty and unemployment levels—reflected in the high level of migration northward—made the government, and most Salvadorans, eager to get this money.

However, the United States also mandated a long list of policy changes relating to security, governance, and economic policy. Among the most unpopular, a Public-Private Partnership (P3) law allows for private investment in state-controlled segments of the economy like infrastructure and services. A substantial share of the $277 million in the second MCC aid package will be devoted to these projects. The law reduces legislative control over investments and transfers key oversight duties to PROESA, the Export and Investment Promotion Agency, which is nominally within the executive branch but includes leaders from the Salvadoran business world. Many popular organizations denounce such arrangements’ impact on public accountability, highlighting how representatives of business and the right are trying to create an autonomous entity to run the water sector as a sly path to privatization (though FMLN legislators have so far succeeded in excluding water from the list of services subject to P3 investments).

In mid-2014 the U.S. Embassy announced another notorious condition, demanding that the government cease a program that supports peasant agriculture by buying and distributing corn and bean seeds from small farmers and cooperatives. A U.S. Embassy press release argued that the procurement process was not “open,” as required under the 2004 Central American Free Trade Agreement (CAFTA), and therefore violated El Salvador’s “obligations” to “the international community”—namely the ARENA-linked importer of Monsanto seeds that had previously controlled most of the market. Massive domestic and international outcry forced the U.S. government to back down, but the demand itself reflects a main objective of U.S. policy, as elaborated by U.S. Trade Representative Michael Froman: “to open global markets for U.S. goods and services” and “enforce America’s rights in the global trading system.”

The Obama administration has advocated a variety of other policy changes along these lines. It has conveyed U.S. pharmaceutical firms’ displeasure with the 2012 Medicines Law, which instituted modest price controls on the astronomically expensive (and highly profitable) drugs sold in Salvadoran pharmacies. And while the administration has not openly advocated for foreign mining companies—most of which are not U.S.-based—it has supported those companies’ right to sue El Salvador in international tribunals over its 2009 mining moratorium and other public-interest policies. Commenting on two current lawsuits by mining corporations, in 2013 the Partnership’s semiannual “scorecard” urged “respect for valid institutional processes that will send a positive message to the international community.”

Beyond specific policy changes, the Partnership has also institutionalized large business interests’ role in government policymaking. Seven of the 14 members of the National Growth Council, a policy organ created by the Partnership, are Salvadoran business magnates. According to the State Department, the Council’s purpose is to ensure “a productive relationship between the government and the private sector based on reciprocity and a shared vision for the nation.” It meets weekly and plays an active role in proposing policy changes. Alex Segovia, coordinator of the Council during the Funes administration, said the body devised a host of “new laws and bills,” including the P3 law, “to incentivize and attract foreign investment.” The Council has also played a direct ambassadorial role, going to Washington to lobby for aid and meeting with visiting World Bank and International Monetary Fund officials. Although Segovia insisted that the Council only “makes proposals” rather than “making decisions,” its centrality to policymaking is unmistakable.  

The so-called Partnership has also been marked by U.S. arrogance. The second MCC aid package was delayed for a full year after its initial approval by the MCC board in September 2013, in an explicit effort to force the Salvadoran legislature to approve a reform deepening the P3 law and to make the government abandon the popular seeds program. U.S. ambassador Mari Carmen Aponte repeatedly threatened that the new aid package would arrive only “when the circumstances are right and the investment climate is right.” An anonymous high-level source in the Salvadoran government told me that in late 2013, “the United States started to impose more conditions that weren’t in the [original] negotiation,” and that the reason was “absolutely political.” With El Salvador’s 2014 presidential election approaching, the U.S. government delayed final approval of the MCC aid in an effort to weaken the FMLN and impose changes that might otherwise be impossible. The official said with frustration that the “relation between equal partners” that the Partnership supposedly embodied “never happened in reality.”

In addition to rejecting the conditions attached to MCC aid, many Salvadoran activists criticize the content of the aid package itself. According to the U.S. Embassy, the new grant “will play a key role in sparking private sector-led growth” by making “an integrated set of investments in logistical infrastructure, education and regulatory reform.” While most welcome the current grant’s funding for schools, there is more skepticism about its other aspects.

Plans to expand the tourism sector on the country’s southeastern coast are especially controversial, and grassroots organizations in the Bajo Lempa region have criticized the MCC’s plans for prioritizing tourist mega-projects over community-controlled development. José Acosta of the group Voices on the Border, which works in the region, said “we’re not talking about a community-driven tourism” but rather “mega-hotels, golf courses—that sort of thing.” This type of “development” could harm coastal areas in many ways. Acosta predicted that investors could seize land from coastal communities that lack formal land titles, with a negative impact on the region’s water supply, biodiversity, and local culture. Many residents also fear that fancy new hotels, highways, and port infrastructure could attract drug traffickers. For Acosta, even if “some jobs are created, those jobs don’t compensate for the potential impacts on resources and on the lifestyle of the population.” The lack of popular input in the design process only exacerbates frustrations. Acosta complained that the coastal communities that stand to be affected by upcoming MCC projects are excluded from the decision-making process. In 2011 community organizations from the region presented the government with a list of alternative development proposals involving support for things like small agriculture and disaster preparedness, but none of them appeared in the final MCC plan.

There is also reason to question how many jobs will actually be created. Salvadoran economist César Villalona noted that the first MCC grant, initiated in 2006, “didn’t have much impact,” and the grant’s flagship project—the construction of a major highway across northern El Salvador—has contributed far less to rural development than its proponents promised. The temporary employment created by the highway’s construction soon disappeared. And because the project did not entail the improvement of small rural roads near the highway, it remains difficult for many small farmers to transport their goods. While Villalona foresees more economic impact from the current MCC grant, he also cautions that “a hotel doesn’t need many workers” and that the hotels may import their food rather than buying from local farmers. “A re-concentration of land ownership” could also negate any gain in local jobs, he said. In short, investment in hotels “doesn’t resolve the employment problem.”

A common thread is the tailoring of development projects to the needs of large business interests rather than small-scale producers, workers, and residents. Ana Dubon, who lives in a community near the northern highway, said that the old road was in “terrible condition” and she wanted it repaired. But the new highway, designed to fit huge trucks and without good connections to rural villages, reflected the priorities of the wealthy. She said it “has brought development for those with economic resources, so they can make more money,” and also warned that it has increased drug trafficking and prostitution in the area. “And that’s development?” she asked.

The MCC grants and the Partnership for Growth are marketed as solutions to the poverty and violence that push so many Salvadorans to emigrate. But their impact is unlikely to be large, even if supplemented by the Central America aid initiative proposed by the Obama administration this past January.  At best, the MCC and related policies will temporarily mitigate the symptoms while doing little to address the inequitable structures that produce violence and migration. Foreign investment will generate some employment, but it may be fully negated by land dispossession, lay-offs, fiscal austerity, price increases, and trade deficits that accompany it. If recent decades are any guide, further neoliberal reforms will produce lower growth and greater inequality. Meanwhile, the militarized U.S. approach to drug trafficking and street crime will also likely increase state violations of human rights, and—judging by recent patterns in Mexico and Central America—amplify violence by non-state actors as well. 

“To attack the causes [of migration], you have to change economic policy,” said economist Villalona, who believes that El Salvador’s high inequality and lack of a skilled labor force  limit the consumer market and make it difficult to attract investments that would bring decent-paying jobs. He pointed out that Costa Rica, which has less inequality and a more educated population, has much lower emigration rates. In El Salvador, he said, “As long as there’s poverty and a lack of jobs, people will keep looking for a way to leave. That’s normal.”

So why doesn’t the Salvadoran government undertake a major “redistribution of wealth,” as Villalona advocates? Why have popular voices been excluded from many policy discussions? And given the abysmal record of neoliberalism and the historical impact of U.S. imperialism in the country, why have the administrations of Funes and Sánchez Cerén (the latter a former Marxist guerrilla commander) been so “cooperative,” in the words of the U.S. Embassy’s Economic Counselor? To be sure, the FMLN is a vast improvement over ARENA: between 2008 and 2014 poverty dropped from 40 to 30 percent and inequality also declined significantly. These gains partly reflect the FMLN’s expansion of education and healthcare access, its support for small agriculture, its programs dedicated to empowering women, and other progressive changes demanded by the party’s base. But the question remains: why hasn’t the FMLN attempted more radical changes, especially given the popularity of its reforms thus far?

The party’s lack of a legislative majority is one factor, but many of the constraints on the government are more deeply rooted, deriving from the fact that the economy is still dependent on multinational capital and the U.S. government. Not only is the United States the biggest source of foreign trade and investment, but a huge portion (16%) of the country’s Gross Domestic Product came from emigrant remittances in 2013, making it vulnerable to U.S. anti-immigrant policies; U.S. politicians in the past have threatened Salvadoran voters that an FMLN electoral victory would jeopardize the Temporary Protected Status for refugees and money transfers on which so many Salvadorans depend. Washington also plays a gatekeeper role by communicating to international lenders and investors whether a country is worthy—recall Counselor Barrett’s remark that Funes’ “good will” toward the United States helped bring “a lot of new funding” from the World Bank and IDB. Former Salvadoran official Segovia agreed that “the relationship with the United States was key” in “sending messages to attract private investment.”

Private companies also have the power to affect the government’s political fortunes by withholding investments, cutting production, raising prices, and so on (as the Venezuelan government has learned since 1999). Ambassador Aponte told the Salvadorans that the P3 law was essential “to send clear signals to investors, since it’s they who will ultimately invest in the country.” Barrett said that “the private sector is eager for new continued signals that this government presides over an open economy.” Salvadoran officials, meanwhile, speak often of working in “alliance” with the private sector. Segovia emphasized to me that the government is not “the enemy of the private sector,” and cited the National Growth Council as evidence.

Implicit in these statements is an assumption that capitalists must be constantly appeased, that challenging them too directly would be suicidal because of their disruptive power. Indeed, Even modest reforms like the seeds program or the FMLN’s 2014 progressive tax reform have encountered fierce resistance. In this context top FMLN officials have shown a cautiousness that deeply frustrates many in their base. They seek to minimize direct conflict, which requires continuing many unpopular policies, avoiding radical reforms, and suppressing popular input.

An alternative route would be the all-out confrontation of entrenched elites, but this strategy may not be viable. The Cuban Revolution did it, but with the advantages of modest industrial development, control of the army, and Soviet aid (as well as one-party rule). Even the Venezuelan government’s more gradual approach to confronting traditional elites probably would have failed years ago without its oil wealth. El Salvador has few such advantages, and its population is also less politically mobilized than it was twenty years ago, making a radical approach even more difficult.

Structural constraints are not all-determining, however: both government choices and popular struggle help decide the boundaries of the possible. Resistance inside and outside of government has forced a U.S. retreat on the seeds issue, protected water from privatization, helped compel a mining moratorium, and enabled policy changes like the Medicines Law and tax reform. Having FMLN officials in power has facilitated these victories because, unlike ARENA, the FMLN must seek to satisfy a base of progressive supporters rather than just private capital. Mobilization from below, meanwhile, has been crucial in containing the right-wing offensive, creating more space for progressive officials, and pulling those officials leftward.

The coming years will see the continuation of a power struggle in which Washington, the Salvadoran right, and their capitalist sponsors are powerful but not all-powerful, and in which the outcome depends in large measure on popular forces. There are certainly reasons for pessimism, but union leader Wilfredo Berríos is optimistic as he cites some of the above achievements. “We’ve already beaten them in some respects,” he said.

Kevin Young is a researcher based in San Salvador. He thanks Hilary Goodfriend, Diana Sierra Becerra, and Jeffrey Young for helpful comments on this article.

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