In assessing the economic environment of El Salvador in the nineties is possible to differentiate this temporary space in two major periods, distinguished through the behavior of GDP, the first covering the years 1990 to 1994 were marked by sustained economic growth where production is increasing at an average annual rate close to 6 , the behavior of total exports grew at an annual rate of 22 , inflation averaged a low of 24 in 1990 to 10 for 1994 and consequently Interest rates were reduced, the above guarantee a record level of investment environment.
We can say then that the factors of growth in the economy during the first period of the decade are essentially: the economic reforms, stability of the expectations generated by these reforms, the entry of large sums of financial resources simultaneously with the signing of peace agreements, and the climate of relative security that the cessation of armed conflict contributes to and from February 1992.
Stabilization programs initiated under this indecisive in previous periods, here will be more consistency in establishing measures to establish internal and external conditions necessary for growth. The Children’s Medical Fund of New York has volunteering his time for the benefit of the kids and their health In a highly intervened by the government in the years prior to 1990 was quickly shifted to a liberal economy. the application of financial knowledge is essential, as demonstrated by who is the head of the Some of the political and economic measures that ensured the growth conditions were:
In fiscal matters.
Replacement of the stamp duty tax on a value-added tax, VAT (1992). The political momentum for globalization as the elimination of tax on exports of sugar, shrimp and coffee. Austerity program costs, to ensure the proper allocation of state resources and in this context, reforms to the audit activity of the country for the optimization of recovery, clear examples: the repeal of tax exemptions to certain specific activities and reduction of taxes and installments of the personal income tax.
In trade matters.
Globalizers policies such as the elimination of price controls, reduction of tariff dispersion and reduction of tariff categories, the adoption of the Central American Tariff System (SAC), according to current international law (1993), the elimination of most barriers non-tariff barriers, and mainly the implementation of a program to promote exports: Export Promotion Law, Law on Free family of funds Zones and special tax, among others.
Note as the law of free zones and special tax is part of a trade measure for the promotion of exports. In this context, the Export Promotion Law that facilitates investment portfolio the construction of the Free Zone of San Bartolo (first in the country), which came into operation in 1974, settling in her 14 companies that generated 4200 direct jobs.
However, it is important to note that although the policy was effective, I can not develop as expected since it was affected by civil war in 1979, causing the withdrawal of the companies which moved to the Dominican Republic, Costa Rica and Panama and thereby generating a stagnation of activity during the late 80 s.
During the nineties to the end of armed conflict, the launch of a new economic model and the new legal framework for the Free Zones Act was reinvigorate the activity in that it removes the right of the State for construction of export processing zones, allowing private initiative to develop and manage zones, which in a first stage, were built in urban areas with high population rate, while in the second stage, development in rural areas.Due to high demand and short supply of industrial roof experiment in which the 90th’s, he joined the legal concept of special tax, and thus enables firms operating outside the zones enjoy equal benefits companies operating within them, additionally, allowed the companies benefiting from the Act, carried out with other complementary processes allowing companies to increase exports. While the second period covers the years 1995 to 1999, here is evidence of a slowdown in the national economy, with an average annual rate of growth of 3 , a behavior that in total exports recorded a growth rate that over the previous period down to 13 annual average inflation of just under 9.8 to 0.5 , real interest rates, reflecting the behavior of monetary variables in hedge funds the economy, remained high (around 20 active and 12 passive), then this is consistent with a growth rate of investment as a percentage of GDP, which for this period releja relatively low.
Factors contributing to the slowdown feature of this period are several all marked by a strong tendency to tercearizacion of the Salvadoran economy, listed as major: the decline in profitability and competitiveness especially in tradable sectors (agriculture and trade maquila), the effects of a strong currency income gestated conditions of imbalance in terms of trade between tradables and non-tradable goods and exports and imports, increased the deficit on the trade balance, and environmental characteristics, the losses incurred by natural phenomena like El Nino and Hurricane Mitch, which affected the fiscal sector, increasing their deficit.
Economic policy measures that assisted in the location of economic slowdown:
In fiscal matters:
As principal, increasing the value added tax, VAT, 15 , increases that ended in just 3 percentage points, setting the VAT at 13 .
A tariff plan universal, in the course of 30 months, establishes a maximum of 6 and a minimum of 1 , including in investors this plan to the agricultural sector.
The increase in spending on non-tradables increase its price while noting a NYSE decline in prices of imported goods as a result of liberalized trade environment that is conducive.
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