The 'real' war in Salvador: reversing economic tailspin

Sitting in his office beneath maps of El Salvador's war, a high-level military observer talks about more than fighting. ''What's really important here ,'' he says, ''is the economy.''

Later, beside a pool in the balmy evening air, a senior Salvadorean bureaucrat echoes that view. ''The real battlefield,'' he says, ''is the economic arena.''

And how has that battle for the economy - which the leftist guerrillas have announced as the principal target of their military strategy - been going?

''The economy gets worse every day,'' says US Ambassador Deane R. Hinton, adding, ''There's a clear trend downward.''

In a detailed report issued last month, the American Embassy here has assessed what it calls ''war damage'' to the Salvadorean economy.

''By almost any measure, the Salvadorean economy has been in a three-year tailspin,'' says the report. It notes that:

* Since 1979, real gross domestic product (GDP) has declined by about 25 percent.

* Export earnings fell 33 percent between 1979 and 1982.

* In the same period, real per capita income fell 30 percent, shrinking the average Salvadorean's yearly earnings from $670 to $470.

Since 1979, too, the nation's resources of people and money have been rapidly moving overseas. Ambassador Hinton says there are already some half-million Salvadorean refugees in the United States. And a Western economic observer estimates that $1 billion in private funds has already been withdrawn from the country.

But how much of that economic shift is attributable to guerrilla activity?

US officials say there is a difficulty in separating war damage from the effects of worldwide recession, high interest rates, and the continuing decline in the price of Salvador's major crop, coffee.

However, the US report pegs direct costs of the war at nearly $600 million. The bulk of that amount is charged to lost agricultural production (worth $235 million), along with increased central government costs for defense ($145 million) and care of refugees ($6 million). Damage to factories, bridges, buses, and the nation's electrical system also played a major role.

Beyond that are the indirect and largely unquantifiable costs - increased food imports, loss of tourism revenues, imports of diesel fuel to run standby electrical generators when guerrillas attack power installations, and public health costs when those power outages interrupt the electric pumps used in rural drinking water systems.

As though that were not enough, the heavily agricultural nation also suffered a severe drought last summer - followed by floods last fall.

''It is difficult to believe that all the bad things that have coincided against El Salvador can continue into the future,'' says Salvadorean President Alvaro Magana.

An economist and former banker, Dr. Magana takes an optimistic view. ''I am sure that the economic picture is going to change completely next year,'' he says - forecasting higher prices for cotton and sugar (the nation's major crops behind coffee), an end of the world recession, lower interest rates, and falling oil prices.

Others are not so sure. After declines in GDP approaching 10 percent in both 1980 and 1981, last year's goal was to hold the line with zero growth. Figures now in, however, show that the economy dropped again in 1982, though only by 5.4 percent.

Planners here are again hoping for zero growth - although they candidly admit that only through continuing economic aid from the US (about $200 million of which was dispersed in 1982, with an estimated $250 million coming for 1983) will that be possible.

How to reverse the decline? In the short term, one new plan pushed by the US Agency for International Development (AID) calls for a joint military-economic strategy in the war-battered farmland east of the capital.

Modeled on a program pioneered with some success in Vietnam, the plan will attempt to put back into operation some 22 abandoned farms in San Vicente and Usulutan - first by military missions to rout the guerrillas, then through economic aid to plant and harvest the crops.

US officials here, noting that the plan is being coordinated by several Salvadorean agencies, say there is enough money to begin the operation now, and are looking to the US Congress to provide additional funds quickly. ''Wouldn't it be nice,'' says a US official, ''to get a crop in the ground this year!''

But in the longer term, experts agree, the nation's economy needs more fundamental rethinking - especially since the world's appetite for coffee seems to be declining. Many here also agree that land reform is a necessary social and political move, but will not solve economic problems.

Part of the difficulty in this Massachusetts-size nation, says one local economist, is that ''there is not enough land, and the quality of the land is not good.'' Add to that a high birthrate, and a population density (593 people per square mile, according to government figures) that is second only to Haiti in the Western Hemisphere, and the problem of assembling large enough agricultural parcels to create economies of scale becomes acute.

One answer may be in increasing the nation's manufacturing base. Salvadoreans already have a reputation as Central America's entrepreneurs. But figures from the Economics Department of the Catholic University here show that, just as in agriculture, the industrial base is also highly concentrated in the hands of a few. Of the 333,000 firms in the nation in 1979, a tiny 0.7 percent of the largest ones produced 59 percent of the nation's private-sector profits - although they employed only 28 percent of the industrial work force.

What is needed, say some economists here, is a tax-reform system that allows the government to reinvest some of that excess wealth in other businesses. Others, however, note that until the nation's legal system is tightened up, corruption and tax-avoidance will defeat even the fairest tax system.

Meanwhile, says former President Jose Napoleon Duarte, ''The economy is being destroyed by both extremes (on the right and the left).''