El Salvador has come under scrutiny for its perceived lack of transparency in economic and financial practices, particularly concerning the assessment of international investment feasibility.
The International Monetary Fund (IMF) published a notice on March 20, revealing that El Salvador’s Ministry of Finance declined consent for the publication of the country’s economic, financial, and policies yearly report. This report is based on an in-person visit to the country and data collection by IMF economists. While partial results were released in an April report on Latin American economics, questions have been raised regarding the government’s commitment to transparency.
The rationale behind the refusal remains unclear, prompting concerns about the government’s dedication to transparent practices. The potential ramifications for international cooperation were underscored by local newspapers as well, emphasizing the pivotal role institutions such as the IMF play in shaping the transparency, credibility, and accountability of alliance countries.
This heightened complexity is conflicting, as the government published its yearly Deposit Guarantee Report in the same year, signaling a commitment to transparency in the financial system. The absence of the publication of IMF results introduces ambiguity concerning the alignment of data from both research sources.
El Salvador’s economy, characterized by increased domestic economic activities since 2021, faces challenges, including a widening trade gap of a $7.7 billion hole between earnings and savings predicted by the Economic Commission for Latin America and the Caribbean (ECLAC). The effects of inflation and government debt on the country’s finances, coupled with a higher frequency of new debt acquisition compared to payments, necessitate agreements with international investors.
The publication impediment from El Salvador in the current year follows a previous non-compliance with a loan agreement made with the IMF in 2020. Transparency International, a globally recognized organization combating corruption, described this behavior, among other factors, as a “recipe for corruption.”
Despite El Salvador’s reliance on traditional funding institutions like the World Bank and the IMF, there has been a decrease in economic support, with the World Bank’s commitment dropping over 90% from 2020 to the next year. External actors, such as international investment outside formal institutions, consider countries’ key metrics, studies, and rankings as core components of investment risk analysis.
The recent alliance with Qatar in January 2023, focusing on agriculture, health, and security agreements for new projects, raises questions about El Salvador’s pursuit of alternative economic support. However, the country’s strong economic ties with the U.S., accounting for over 90% of total migrant and remittances inflows, complicate the feasibility of such alternatives.
The U.S. Department of State, Bureau of Economic and Business Affairs, known for issuing warnings, cites El Salvador’s weaknesses in rule-making and investment, specifically addressing significant sovereign debt levels and a lack of audit transparency.
As El Salvador explores potential economic partnerships, transparency and responsible economic practices must remain a priority. The absence of independent audits and the refusal to publish the IMF report, coupled with a growing reliance on external support, raise concerns about the country’s economic trajectory and governance of resources. Whether prioritizing international partnerships or pursuing an independent course, El Salvador must address these challenges to secure and build credibility.
Written by Emily Ulloa
