El Salvador - Economy Role of Government

Role of government

Traditionally, the government has played an important role in the country's economy. This role increased substantially after 1979, provoking considerable controversy and fueling domestic political polarization. Economic policy was coordinated among the central and municipal governments and seventeen decentralized agencies, which included the Salvadoran Social Security Institute (Instituto Salvadoreno del Seguro Social--ISSS) and the Salvadoran Institute for Agrarian Reform (Instituto Salvadoreno de Transformacion Agraria--ISTA). Nine state-owned companies provided utility services to the Salvadoran public. In 1980 the government nationalized the marketing and export of coffee and sugar, two of El Salvador's most important export commodities. Since then, Incafe and the National Sugar Institute (Instituto Nacional de Az�car--Inazucar) have acted as financial intermediaries between domestic producers and foreign markets. These bodies have been widely criticized by coffee and sugar producers because they imposed heavy export taxes and service charges that totaled some 50 percent of the sale price abroad.

Although considerable domestic criticism of the government's economic policy focused on the disincentives and inefficiency of land reform and the creation of Incafe and Inazucar, some critics maintained that another drawback of the government's economic policy was its failure to take into account the counterinsurgency effort. Many Salvadoran policymakers tended to accept the conflict as inevitable, calculating its effect only in terms of a shrinking growth rate. They apparently failed to assess a project's viability in the context of the civil conflict.

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