Latin America in the 1990s
Edited by Rob Vos, Lance Taylor and Ricardo Paes de Barros
Chapter 8: El Salvador: balance-of-payments liberalization, remittances, employment and poverty
8. El Salvador: balance-of-payments liberalization, remittances, employment and poverty1 Alexander Segovia and Jeannette Larde 8.1 INTRODUCTION Throughout its history El Salvador has suffered wide disparities in income and wealth distribution and severe social problems. Poverty affects a major part of the population, especially in rural areas. Empirical evidence for the 1990s indicates that the country’s economic and social situation improved and that poverty decreased, essentially because of the reduction of urban poverty. Rural poverty decreased only slightly (Segovia 1998). Economic recovery and poverty reduction took place in a context of profound structural changes of the economy. These changes relate to massive internal and external migration, the crisis of the agro-export sector, the massive inﬂow of foreign resources originating mainly from remittances of Salvadorians living in the United States, and the implementation of major economic reforms. The reforms consisted of liberalization of the economy, renewed privatization of the banking sector and external opening. This chapter analyses the effects of the liberalization of the balance of payments on economic growth, employment, poverty and income distribution in El Salvador in the 1990s. To this end, we carried out a simulation exercise which determines counterfactually what income distribution and poverty levels following the 1997 economic liberalization process would have been, if the 1991–92 pre-reform wage or employment structure were to have remained unchanged.2 The study is organized into six sections. First (Section 8.2), we analyse the macroeconomic functioning of the Salvadorian economy, trends in aggregate demand and the main sources of growth....
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