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Proceso is published weekly in Spanish by the Center for Information, Documentation and Research Support (CIDAI) of the Central American University (UCA) of El Salvador. Portions are sent in English to the *reg.elsalvador* conference of PeaceNet in the USA and may be forwarded or copied to other networks and electronic mailing lists. Please make sure to mention Proceso when quoting from this publication.

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June 11, 1997

EDITORIAL: Privatization under fire

The law to privatize telecommunications was overturned by the legislative opposition in response to mistakes made by the public officials in charge of selling the company [ANTEL]. Initially, the opposition asked for six months to review the law, about which there were serious doubts, but the government officials responded in a challenging fashion that the last word belonged to President Calderon, and thus that the sale would take place on schedule. The defeat suffered by the government at the hands of the legislative opposition was, therefore, justified.

This was ARENA's first great legislative defeat. It never imagined it would confront such a united opposition so soon.

ARENA's improvisation was seen in the poverty of its arguments to defend the indefensible. At some points during the legislative debate, the ARENA deputies almost textually parroted the government propaganda in favor of privatizing ANTEL. They set forth their arguments more emotionally than rationally.

During the debate, the official posture was backed up with sophisms. The first argument used was that the privatization of ANTEL would bring considerable advantages to the Salvadoran people.

The ARENA deputies' distance from popular opinion is what prevents them from understanding the depth of the people's rejection of privatization. They were alarmed by the impact a derogation of the law would have on job creation and the people's hunger, thereby transforming privatization into a marvelous instrument which, all by itself, would increase the people's welfare. They also spoke of their many years of sacrifice, which was not being acknowledged.

They threatened to launch a crusade of the type only they know how to organize. At the end, their bewilderment was obvious. ARENA will have to learn to handle the new political realities of the nation, and will have to do so soon, otherwise it will lose even more space.

Another sophism frequently brandished by the government officials was the wrong message being sent to foreign investors.

They spoke of investment packing up and leaving, of legal uncertainty, irresponsibility, etc. In truth, for honest investors, the overturning of that law is an advantage, because the rules under which privatization will take place will now be clearer, and one might expect that the possibilities for corruption will be drastically reduced. If ANTEL is on the verge of bankruptcy, as they say, what interest could foreign and national investors have in it? They probably have had access to real figures on the profitability of the enterprise. With a pre-sale image of unprofitability, then, once the sale is made, they could show how successful the operation is.

No one can be sure that what has taken place so far in the process of privatization has followed the established rules, as we saw in the case of Channel 8 and the auctioning-off of radio frequencies. The same former Presidential Commissioner for the Modernization of the State acknowledges that there has been strong pressure to ensure that privatization benefits certain private interests. No one has made a greater contribution to legal uncertainty than ARENA who, with the support of the majority it enjoyed in the previous legislature, modified the law hastily to exempt Channel 8 from privatization and thus allow President Calderon to remove the General Superintendent of Electricity and Communications at his whim.

The legislative opposition acted with a heretofore unknown diligence. As it had promised, it elected and installed the commission in charge of drawing up a new draft bill to privatize ANTEL. However, it is not willing to admit representatives of the executive branch into its inner chambers, but instead prefers to be advised by independent experts, and even by the U.S. Embassy. The commission is not starting entirely from scratch, but rather on the basis of the overturned law; at the same time, it is not about to get bogged down in sterile debates -apparently technical in nature- with government officials and their advisers. Rejection of the executive branch is obvious and quite justified, given the executive's arrogance, lack of credibility and scorn with which it has treated the opposition to date. We must acknowledge, however, that President Calderon took the blow with elegance, by refusing to veto the legislative decision to overturn the law. The initiative now lies with the Legislative Assembly. The executive branch lost its chance due to a lack of vision and political skill.

Private enterprise, however, is obsessed with the privatization of telecommunications, pensions and the distribution of electricity. Just as with the government ideologues, it naively believes that privatization is the key to the nation's well-being.

To a large extent, this obsession has to do with its economic interests and those of its allies in the international consortia, but is also extremely based on ideology. For example, it assumes that corruption will disappear when state-owned enterprises are privatized, overlooking the fact that the private sector is just as corrupt as the public. The private sector is also concerned about the signals being sent to foreign investors. It insists on privatization, regardless of how or when. At best, privatization is one of several methods for jump-starting the economies of non- industrialized nations like El Salvador; however, it alone will not make this an industrialized country.

The posture of private enterprises is not an objective one. It complains to the opposition deputies about the derogation of the law, but totally overlooks the arbitrary way ARENA has handled privatization. The opaque and no doubt self-serving attitude of the ARENA government around the privatization of telecommunications ought to concern it even more, because it shows that there is no real free competition. The government continues to protect and promote certain private interests. The opposition deputies have been much more transparent and consistent, since they hope to prevent monopolies and oligopolies from effecting a fraudulent takeover of telecommunications.

POLITICS: The derogation of the ANTEL privatization law

Over the past several weeks, there have been significant incidents making an impact on the Salvadoran political scene. The removal of the Superintendent of Energy and Communications, Orlando de Sola, was followed by the controversial derogation of Legislative Decree 900, the contents of which is the Law to Privatize ANTEL. Soon afterwards, President Armando Calderon Sol celebrated his third anniversary in government, and days later, the Presidential Commissioner for the Modernization of the State, Alfredo Mena Lagos, announced his resignation.

Without a doubt, and as expected, the suspension of the privatization of ANTEL was the most outstanding and hotly debated issue. The fact that the opposition parties were able to prove that the change in the balance of forces in the Legislative Assembly -an outcome of the March 16 elections- is a reality, is upsetting to many. However, it is worthwhile to note that overturning privatization, and everything that has been said and has occurred around that, is not -as some would have it- an isolated event.

The first link along the chain of events, one which will certainly characterize the unfolding of political events over the next three years, was the removal of Orlando de Sola by President Calderon Sol. Ignoring the legal suit filed by the former official -and his complaints before the legislature- and attempting to justify the removal with vague and unfounded explanations, the President moved hastily to appoint Eric Casamiquela to the post.

The opposition parties moved to support de Sola, and the Supreme Court admitted his suit. The President, however, without further ado, preferred to end the affair. This attitude is understandable given how obvious it was that de Sola's removal was in response to pressure from one of the most powerful economic groups in El Salvador; any other presidential explanation sounded -or actually was- evasive (cf. Proceso 758).

Soon afterwards, the opposition parties used their votes to support the Christian Democratic initiative to overturn the ANTEL Privatization Law. Thus, the legislature left behind the administrative haggling which had characterized its first month in office, and finally got down to the issues. As expected, this time ARENA and the opposition did not reach an accord around such a polemical issue. Suspending the privatization of the telecommunications company is a double defeat for the government: in the first place, it was overwhelmingly proven that the ARENA bench is not in the majority and, as a result, that ARENA will find it impossible to pass a bill without the support of the other parties. ARENA has lost its former privileges and its facility to decide the destiny of the nation at its whim and pleasure.

In the second place, for the ARENA administration, stopping the privatization of ANTEL means jeopardizing practically its entire program. Its trademark slogan has been the "modernization of the state," and given that for ARENA, modernization has always meant privatization, and the cornerstone of its privatization plans has always been ANTEL, the suspension of the process is tantamount to throwing the whole ARENA program overboard. This explains the depth of its concern for the decision to stop the process.

All in all, the official party has been very careful with its image. The ARENA bench in the legislature went no farther than threatening to launch "civic crusades"; for its part, the Calderon Sol cabinet officials were even somewhat nonchalant about the debate sparked by the suspension of the privatization law, and the President himself -who was expected to veto the legislative ruling- showed great willingness to begin dialogue, and offered to set up a joint legislative-executive commission to work together to modify the law. A veto would have been decidedly inconvenient for the government, not only because it would have contradicted its reiterated interest in consensus, but also because it would have tarnished its three-year anniversary report to the nation, delivered in the legislative chambers.

Despite the government's apparently good intentions, the deputies decided to do without the executive branch in its review of the privatization law, and set up an ad hoc commission made up exclusively by representatives of the legislature. The commission will have one month to come up with a new law, and has promised to work jointly with those sectors involved in the process.

While the commission was getting consolidated, ARENA took another blow: Alfredo Mena Lagos resigned his post as Presidential Commissioner for the Modernization of the State. When asked about the reasons for his resignation, Mena Lagos denounced certain irregularities within the party. According to the former official, "there is a somewhat unclear leadership within the government and within the party." In more recent statements, he has even questioned the integrity of Calderon Sol's inner circle, calling the ARENA party "schizophrenic."

Although ARENA deputies downplayed the former official's statements, there is no doubt that his resignation is one more piece of evidence of the gradual breakdown ARENA has been going through over the past several years. The electoral results, Calderon Sol's low ratings in the latest IUDOP poll on his three years in office [cf. Proceso 760], and the derogation of Legislative Decree 900 are the most tangible illustrations that the ruling party has lost much of the strength upon which it had most prided itself. Nevertheless, its leaders continue to prepare themselves for 1999.

It is difficult to attribute ARENA's sudden wishes to build consensus to a profound change in its political convictions. What just happened shows that ARENA continues to defend the same interests and shares the same concerns as ever. The fact that it is suddenly willing to reach consensus is a necessary tactic to reach its goals; it is hard to imagine that if ARENA were not forced to do so by the present circumstances, the party would have abandoned its confrontational and authoritarian spirit all on its own and moved to rhetorically support consensus, as it is doing today.

As things stand, the opposition has the last word on the privatization of ANTEL. With the removal of de Sola (who was fired as Superintendent for having defended the privatization of a state- owned enterprise) and ARENA's insistence on the total privatization of ANTEL, it has once again become clear how inconsistent is this government which is incapable of holding firmly to its own principles. Now it is time to see how capable the opposition parties are of counteracting this inconsistency.

Privatization is a serious affair, since the nation's assets are at stake. It was easy to be the opposition in the previous legislature, since responsibility for mistakes was easily and quickly attributable to ARENA. Things have begun to change, but that does not only mean a defeat for the governing party, but also a commitment to the nation. El Salvador's hopes for modifying its course and reasonably expecting improvements in traditionally forgotten areas depends on how seriously the parties fulfill this commitment.

ECONOMY: Socio-economic aspects of the President's speech

Over the past several decades, the annual presidential speech recounting the labors of government has become a tradition; equally traditional is the tendency to present only information which show progress, systematically omitting aspects which reveal the presence of serious problems such as: real income levels, education and health.

By extracting some of the figures out of context, the presidential speech managed to reduce the political impact which would have been caused by reporting the nature and depth of the nation's economic problems, which are principally concentrated in the inability to generate savings, investment, production and foreign exchange in an autonomous fashion. Thus, economic growth and jobs fundamentally depend on outside resources, either from family remittances or foreign investment. Additional problems have arisen from the government's reluctance to substantially increase budget allocations for social development, particularly education and housing. This article will seek to review some of the claims made by President Calderon Sol in his third anniversary speech, in order to place them in a context related to the principal macroeconomic tendencies, social spending and economic growth.

According to the President's speech, the dependency of economic growth on external factors is not really a problem at all; on the contrary, it is vitally important to "make our nation an attractive place for investment and job creation." However, that did not keep the President from claiming that "we are going through a temporary deceleration, but recovery is already underway, and in order to ensure its sustainability, we must become more competitive." One of the few signs of this recovery, according to the President, is the supposed reactivation of the agricultural sector and the "historical record in the nation's sugar harvest." These figures are only part of the performance of the productive sector, since other agricultural sub-sectors, such as coffee, basic grains and livestock, as well as key urban sectors, such as construction and commerce, are suffering from an obvious recession.

One of the claims made by the President around the macroeconomic situation is that "inflation dropped to seven percent... the lowest rate of the past 20 years and the lowest in Central America, which has facilitated a significant drop in interest rates." Even if we accept this claim, this event must not be interpreted in an isolated fashion from the real minimum wage over recent years, because this shows that, despite reduced inflation, real wages have declined considerably.

The latest increase in the nominal minimum wage was in June 1995, and according to some estimates, for that year the average real minimum wage was 840.23 colones per month; by last May, it was estimated that the real value of the minimum wage had dropped below 800 colones. In other words, the reduction in inflation has not translated into an improvement in the real minimum wage, since it continues to grow more slowly than prices.

In addition, the President claims as an important achievement the stabilization of the exchange rate and a 33% growth in exports.

Of course, the stabilization of the exchange rate has very positive repercussions on price stability, and largely explains the reduced inflation rate; but at the same time, it represents one of the questions that orthodox supporters of structural adjustment and the export sector have about the government, since stabilizing the exchange rate translates into a loss in competitiveness for exports.

Despite the fact that exports increased by 33%, the most important issues is to establish the performance of the trade balance. Up until before the current recession, imports were growing faster than exports, with a concomitant increase in the trade gap. Since 1996, the situation has changed with a contraction in imports as a result of a drop in production, although one of the problems yet to be resolved is the tendency toward a continually increasing trade gap during periods of economic growth. So far, this tendency toward an imbalance has been neutralized by the inflow of foreign resources, especially family remittances, which has made it possible to obtain positive balances in the balance of payments, accumulate net international foreign exchange reserves and keep the exchange rate stable.

With regard to the social sphere, the government named education, health and housing as fundamental pillars, highlighting achievements such as the educational reform, attention to the educational needs of the poor, broadening the quality and coverage of health services offered by the Ministry and by Social Security, and financing housing options for the poor.

Little was said, however, about the way in which the government has followed up on its offer set forth in its Social Development Plan, which proposes that by 1999, 50% of the national budget will be used for social spending. Since this promise was first heard in 1995, the social spending budget has not reflected any government determination to increase it. Thus, the 1996 and 1997 social budgets have not shown a tendency to rise.

Between 1995 and 1996, the portion of the budget allocated for education went from 14.8% to 14.6%; the health budget dropped from 10.3% to 9.2%; and the housing budget dropped from 0.36% to 0.31%; in other words, all were reduced in their proportions. In 1997, health spending was cut proportionally again, reaching only 8.6% of the budget, while housing dropped to merely 0.2% of the total.

Education was the only sector to receive greater nominal funding, remaining at 14.6% of the budget. However, overall social spending dropped from 25.6% of the national budget in 1995 to 25.1% in 1997.

In sum, the socio-economic results of President Calderon Sol's third year in government are not substantially different from previous years: an economic recession with macroeconomic stability which depends on foreign inflows and a contraction in social spending. The fundamental aspects for the people's welfare, such as the performance of real wages and budget allocations for social spending, continue to be ignored, despite having been included among the government's principal concerns at the level of speeches.

Leaving aside the fact that the presidential rhetoric has become routine, it is still surprising to see how it is invariably utilized to paint a very one-sided vision of the economic situation. This vision tries to highlight starkly the achievements of macroeconomic stability, leaving imbalancing tendencies on the background, although these ought to be targeted for elimination by economic policies. Concretely, we can mention the high dependence on foreign resources to promote growth, jobs and stability.

To judge by the presidential speech, his greatest hopes are set on an increase in foreign investment, since -given the current situation of economic recession- it is obviously that there are not enough local resources (in terms of savings) to promote production.

Meanwhile, the people must continue to wait for the time when "the benefits of economic growth reach all Salvadorans," as the President himself claims, and for social policies to accurately reflect the commitments already made by the government.