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El Salvador FOREIGN ECONOMIC RELATIONS
Balance of Payments and the External Sector
In 1987 El Salvador was one of the few countries in the world
to maintain a large current account deficit and experience a net
outflow of private capital while achieving a large increase in
international reserves. This increase was equivalent to almost 1
percent of GDP. These seemingly inconsistent results were
reconciled by a flow of US$275 million in official aid to El
Salvador, 90 percent of which came from AID.
El Salvador's total exports equaled approximately US$573
million in 1987, a decline of almost 20 percent compared with
1986. The country's weak export performance reflected a
deterioration in its terms of trade, growing protectionism in
Organisation for Economic Co-operation and Development (OECD)
countries, and continuing stagnation of the CACM. Coffee prices
fell 35 percent from their 1986 high levels, and other
agricultural products, such as cotton, sugar, and nontraditional
exports, did not compensate. In 1987 foreign assistance and
emigrant remittances surpassed coffee as the most important
sources of foreign exchange. Both continued to finance the
country's balance of payments deficit by an amount equal to 10
percent of GDP. In 1987 remittances from Salvadorans living in
the United States easily exceeded the country's debt-service
payments.
The total value of imports in 1987 was approximately US$911
million. Import volume and value rose in 1987 by about 3 percent
and 18 percent, respectively, stimulated by the recovery in the
construction sector, the overvalued colon, and a moderate
recovery in consumer spending (see
table 6, Appendix). Raw
materials continued to account for over 50 percent of total
imports, followed by consumer goods (24 percent) and capital
goods (23 percent).
Factor services in 1987 (income from factors of production
employed outside the owner's locale, such as interest paid on or
received from external debt), remained in deficit in 1987 at
US$127 million. With exports falling, the country's debt-service
ratio rose to 37 percent of exports in 1987. A large surplus in
nonfactor payments, consisting primarily of insurance
disbursements from the 1986 earthquake, negated a significant
amount of the factor-service deficit, leaving a small US$14
million services account deficit.
Trade with other Central American countries continued to
diminish in 1987. In 1977 El Salvador exported US$216 million, or
about 25 percent of its total exports, to other CACM countries.
In 1987, because of the stagnation of the CACM, exports to this
market fell below US$100 million, or less than 15 percent of
total exports. In turn, the fall of exports to CACM countries
forced El Salvador to solicit other trading partners, such as the
United States and Canada, which increased Salvadoran imports by
their combined total of more than 100 percent between 1981 and
1987. Exports to these two countries accounted for almost 50
percent of Salvadoran exports in 1987. Even with rising demand,
total exports dropped by almost 50 percent in dollar terms
between 1977 and 1987.
Data as of November 1988
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