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El Salvador struggles with nature and GDP.

Of the seven Central American countries, El Salvador is the smallest in land area, and has the third biggest population as well as the third biggest economy.

The Central Reserve Bank of El Salvador (BCR) maintains an index of economic activity, a 12 month moving average updated monthly, and according to the most recent one available (on the BCR's website) December 2005, for all of 2005, the index gained 2.8 percent. The BCR said that growth was driven by gains in agriculture, commerce, and services.

The BCR also reported that inflation "remained below the values for the previous years." This is a considerable benefit for consumers. The International Monetary Fund (IMF) said that the growth in the annual rate of inflation for 2005 was 4.0 percent, and would show the same level of growth for 2006.

In addition to "gross investment," the BCR cited private consumption as one of the main factors promoting growth.

According to the IMF, El Salvador's GDP growth was 2.0 percent in 2005 and will also be 2.0 percent in 2006-shaky performance by any standard.

Part of El Salvador's problems in 2005 were two highly significant environmental shocks. The worst was Hurricane Stan, which came ashore in southern Mexico on October 4, 2005 as a category 1 hurricane.

Nearly simultaneously, the Ilamatepec Volcano-about 40 miles from San Salvador-erupted causing mud slides, road closing and 72 deaths. When Hurricane Stan finally arrived, it combined with a huge rainstorm over El Salvador (and much of the rest of the region). The now combined storms were responsible for a 20 inch rainfall in the mountains, rainfall that caused massive flooding, more mud slides and additional road closings.

The economic damage from these storms undoubtedly exacted a large penalty from GDP.

Remittances to families from Salvadoreans working abroad are a significant contributor to economic growth. These remittances were quite strong during 2005, according to the BCR, which reported that remittances totaled us$2.8 billion. This amounts to 16.6 percent of GDP.

The Inter Press Service News Agency (IPS) (Rome) reported on November 25, 2005 that remittances were not a solution to poverty overall, but they often kept families from slipping into poverty. Citing the Economic Commission for Latin America and the Caribbean (ECLAC), IPS said that in El Salvador remittances were estimated to be more than foreign direct investment into the country, and equivalent to over 50 percent of exports.

A mission to El Salvador by the IMF in December 2005 was uncritical of the government's weak performance in 2005. It praised the government for its response to the serious natural disasters, and held out hope that El Salvador would gain control of its problems in the near future.

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Publication:Market Latin America
Geographic Code:2ELSA
Date:Apr 1, 2006
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