Civil war undermines efforts to boost Salvador's ailing economy

Six years after leftist guerrillas declared war on the government, that conflict remains the Salvadorean economy's most critical problem, officials and foreign observers agree. And there are few hopes that it will soon be solved. President Jos'e Napole'on Duarte's efforts to pump new life into the flagging economy, meanwhile, have been condemned by both the left and right as insufficient. Even senior government planners say the steps they took earlier this year tackled only the immediate crisis without confronting deep-rooted difficulties.

Those steps, embodied in a Jan. 21 package, included currency devaluation, a new tax on coffee, monetary and credit curbs, and some temporary price freezes.

Predictably, these classic International Monetary Fund-style adjustment measures sparked fierce opposition from a wide range of labor unions.

The cost of everything with an imported component skyrocketed with the devaluation. Private businessmen say the packet was inflationary, since they were asked to raise wages in line with earlier state-sector increases, without offering them serious incentives to boost production.

``These measures were designed simply to cover the government's fiscal- and balance-of-payments deficits,'' says leading manufacturer and right-wing political leader Hugo Barrera.

``Certainly there will be foreign-exchange savings'' as a result of the devaluation, concurs one Western diplomat, ``but that doesn't interest the man in the street who can't afford his family's beans.''

There are doubts, too, about just how much impact the measures will have on the fiscal deficit, due to be closed by the special coffee tax. ``The outlook for coffee is not as good as [high world] prices would lead one to expect,'' one foreign economic analyst sats, ``because this has been the worst harvest for many years.'' The best El Salvador can expect from the buoyant world coffee market, he adds, is that it will ``prevent a total disaster.''

Also helping to stave off disaster, says Planning Minister Fidel Ch'avez Mena, is the recent drop in oil prices, which will narrow last year's huge balance-of-payments gap between exports of $900 million and imports of $1,800 million.

Aside from movements on world economy markets, United States economic aid will also play a key role in underpinning the economy, as it has done since 1980, says Mr. Ch'avez Mena. ``Without US aid, we would be absolutely broke,'' he acknowledges, ``and inflation would be totally out of control,'' he says. El Salvador will receive about $513 million in US economic and military aid for fiscal year 1987.

Although one of the economic package's central goals was to curb inflation by reducing the balance-of-payments and current-account gaps, its initial impact has been the opposite. Last year's inflation rate of 31 percent, alarming by Salvadorean standards, may even have doubled in recent months, according to preliminary figures, as a result of devaluation-linked price rises.

Beneath these figures lie structural problems that even optimists in the ruling Christian Democratic Party say will be hard to deal with. Chief among them is that more than 30 percent of the work force is unemployed and 40 percent is underemployed, says Marco Tulio Lima, a leader of an opposition labor confederation.

The government hopes to generate new jobs through economic expansion. Last year saw the gross domestic product grow by 1.6 percent. This achievement, though modest, marks the second year of growth following four years during which the GDP had shrunk by 25 percent.

However, an economic resurgence would require confidence and the capital that comes with it. But President Duarte's election in 1984, has not encouraged a return of either element. This is mainly because Mr. Duarte has not been able to end the war.

Nor have the social and economic reforms of 1980 -- heralded as the key to wresting economic control of the country from a tightly knit group of powerful families -- borne the fruit they promised. After six years, agrarian reform has affected only 22 percent of farm land, by the most generous estimates, and cooperatives created by the reforms are now struggling under heavy debts incurred when they bought their land.

For Ch'avez Mena, the strength of Duarte's government is that it has ``navigated its way day by day, while changing the structures too'' -- even if ``we still need to develop the reforms further to deepen them.'' Second in two-part series. Part one ran May 20.

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