El Salvador’s New President Is Sitting on a Pot of Gold

(Bloomberg Opinion) -- Of the many outsiders who have emerged in Latin American politics of late, young Nayib Bukele stands out. El Salvador’s president-elect is 37 years old, favors jeans and leather jackets, and Facebook Live to press conferences. Having trounced contenders from the party duopoly that has controlled national politics for 30 years, he cast his victory as “the destruction of bipartisanship” and a national tipping point. “Salvadorans were angry at their politicians,” Giancarlo Morelli, an analyst with the Economist Intelligence Unit, explained. “And here’s this guy who seems like a leader of the 21st century, talking about the 4th industrial revolution.”

Encouraging as that may be, El Salvador will have to get to the 21st century as well. While the end of the civil war in 1992 cleared the way for national reconciliation, economic opening and robust growth, familiar miseries remain that neither social media nor sound bites can fix.

Chronic public overspending blights the economy, which still awaits important upgrades to a languishing fiscal responsibility law. With one former president in jail for embezzlement and another on the lam, corruption abounds. Hence Bukele’s talk of inviting international investigators to help his country prosecute crooked officials. Whether he’ll remain resolute in the event the imported corruption-busters turn a gimlet eye on his own government, as they did in Guatemala and Honduras, is another matter.

And while the Central American cold war is over, violence has soared, no longer fomented by guerrillas and military strongmen but digitally savvy criminal gangs, who flourish in the state security apparatus’s blind spots — one of the big drivers of migration.

Bukele, promisingly, would counter these woes and more by leveraging technology and big data. “His security manifesto invoked the words ‘new technology’ over 17 times,” noted Robert Muggah, a public safety expert at the Igarape Institute, in Rio de Janeiro. Yet Bukele will inherit a bureaucracy that in many ways still runs on analog. “The state gathers lots of data, but departments aren’t used to sharing it for public policy,” Morelli said. “You have government employees who’ve never worked in the cloud.”

One of El Salvador’s biggest challenges received scant attention during the campaign: how to make the most of its challenging demographics. Like neighboring Guatemala and Honduras, El Salvador has become an exporter of people. At least one in five Salvadorans live outside the country, a trend bemoaned as a hemorrhage of youth and energy. Yet that lament may be shortsighted.

Salvadoran migrants send back a fortune in hard currency: Some 22 percent of gross domestic product owes to emigrant remittances, and the cash inflow is growing at around 10 percent a year, according to economist Manuel Orozco, a specialist in remittances at the Inter-American Dialogue. That’s critical in a land where capital is scarce and loans are dear. Most policy makers and international wonks fret over the human capital lost to emigration. They ought instead to worry about how to put those squandered resources to work.

“Government has to stop seeing migration as just a problem and thinking that ending it will make El Salvador better and mend relations with the U.S.,” Orozco told me.

By putting remittances to better use, government could address its short-term fiscal emergency and tap a huge pool of money for development. First, though, Salvadorans need to rethink some economic shibboleths.

“There’s an assumption that lack of growth is related to insecurity, but El Salvador has had chronic slow growth throughout the postwar period," said Orozco. “What growth we’ve seen is largely down to remittances.” His research shows that one in three households receive remittances of $1,000 a year on average, for an annual total of around $800 million.

Although some of that cash goes straight to consumption, most is squirreled away inefficiently, due to the large numbers of unbanked Salvadorans who toil in the informal economy.

That’s a missed opportunity for El Salvador, where the chary banking sector favors lending to bigger companies. “Three-quarters of the country’s businesses are in the informal sector, meaning they don’t pay taxes,” said Orozco. “El Salvador is so small it should be putting credit everywhere, not just in large capital companies.”

Retooling the credit market to scoop up the great unbanked is difficult, but Bukele ignores that challenge at his peril. Research shows that Central American nations that formalize savings are only half as likely to see their populations migrate.

Advancing that goal would be a 21st-century win for El Salvador’s new president, its struggling economy, and its vexed relations with the would-be wall-builders up north.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”

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