Latin America File: El Salvador’s Chile-style economy tanks under FMLN president, Peru’s demise likely under Chavez “mini me”; Brazilian “hotshot” political fixer masterminds Funes, Humala campaigns

The media has made much of the “schism” between El Salvador’s “moderate” center-left president, Mauricio Funes, and his puppet-masters in the Marxist “Politburo” that controls the Farabundo Marti National Liberation Front (FMLN), the guerrilla army-turned-political party that won the 2009 election. According to an article in the Wall Street Journal, “El Salvador Quits the Market Model,” in the first two years of his presidency, Funes has done a fine job of tanking Salvadoran capitalism.

Funes, insists WSJ reporter Mary Anastasia O’Grady, “has been a disaster for the once-thriving Salvadoran economy” and then offers an example: “The United Nations’ Economic Commission on Latin America and the Caribbean reported earlier this month that while ‘the region’s FDI inflows were 40% higher than in 2009,’ El Salvador didn’t benefit. ‘In Central America, foreign investment flows to all countries grew, except in the case of El Salvador.’ It experienced a 79% decline.” The FMLN’s legacy as a communist insurgent group has no doubt contributed to this flight of foreign investment.

Between the 1992 peace accords, which ended the Salvadoran Civil War, and the formation of the first FMLN government, 17 years later, “the country began a modernization that lasted more than a decade.”  O’Grady compares the Salvadoran “economic miracle” with that of Chile’s: “The free market reforms were unique in Central America and nearly unequaled in the wider region. Only Chile’s economic liberalization of the 1970s and 1980s [under General Augusto Pinochet] was comparable.” She elaborates:

The results were impressive, particularly for a country with a largely uneducated work force. From 1989 to 2008 El Salvador had the highest export growth in the region (an increase of some 800%), and per capita growth in gross domestic product was among the fastest in the region. This was led for the first time by strong performance in the industrial sector instead of in more traditional agriculture. By 2006, the poverty rate had fallen to 31% of the population from 60% in 1991.

During this period, the center-right Nationalist Republican Alliance (ARENA) governed El Salvador. Seeking to be balanced, WSJ notes that the Salvadoran economy began slowing down under ARENA’s last president, Tony Saca, who was elected in 2004. Saca’s refusal to grant operating permits to Pacific Rim Mining Corporation for its El Dorado gold mine in one of the poorest parts of the country led to the forfeiting of thousands of jobs.

Since Funes came into office in April 2009, however, El Salvador’s debt position fell apart rapidly. In December 2008, the debt-to-GDP ratio was just under 36%, but two years later it was more than 51%. According to San Salvador’s first quarter 2011 fiscal report, there has been a 17.5% year-over-year increase in current expenses. This includes a 15.5% jump in the public-sector wage bill, 21% growth in government expenditures on goods and services, and a 48% increase in transfer payments. San Salvador’s fiscal deficit has expanded 28.6%.

More seriously, Moody’s has twice downgraded El Salvador’s debt, while Standard & Poor’s has issued one downgrade. Last fall, when Fitch Ratings urged El Salvador to improve its investment climate or risk a downgrade, Funes told Diario de Hoy that if the World Bank, the International Monetary Fund, and the Inter-American Development Bank had no confidence in his country, they could keep their credit. WSJ quips of Funes: “He obviously never has heard of Greece.”

Incidentally, the Greek Communist Party (KKE), which enjoys the support of 10% of the electorate, is spearheading large anti-austerity demonstrations throughout the ancient birthplace of democracy. Perhaps the FMLN, like the KKE, hopes to radicalize El Salvador’s voters prior to a full-blown red coup.

The Heritage Foundation/Wall Street Journal Index of Economic Freedom recently plucked another feather from Funes’ cap. In 2000, the Heritage Foundation ranked El Salvador’s economy as the ninth freest in the world, but now places it at 39. Like Saca, Funes refuses to allow the Pacific Rim mine to operate so the country now has no active mining concessions. “But that loss of investment and jobs has not satisfied the party base of the FMLN,” observes O’Grady sardonically, “They complain loudly that Mr. Funes has yet to completely quash Salvadoran capitalism.”

In an effort to shine the USA’s perpetually tarnished image in Latin America and possibly to woo Salvadoran immigrants into the Democratic Party camp, the Obama White House has snuggled up to the Funes government. This past March, US President Barack Hussein Obama (pictured above) winged his way to Central America, where he pressed the flesh with Funes and pledged US$200 million to fight drug trafficking and gang violence. “The US wants to be a partner in this process,” Obama gushed. “We want El Salvador to be successful.” This has hardly been the case, though.

Obama later toured the National Cathedral and visited the tomb of Archbishop Oscar Romero, who was assassinated in 1980 after criticizing the Carter Administration for funding the Revolutionary Government Junta that came to power the previous year. In 1993 by an official United Nations report identified the man who ordered Romero’s killing as former Major and School of the Americas graduate Roberto (“Blowtorch Bob”) D’Aubuisson, founder of ARENA.

According to O’Grady, Peru’s economy faces a similarly bleak future under left-nationalist Ollanta Humala, a presidential contender whose rival in the June 5 run-off vote is the daughter of jailed president Alberto Fujimori. Both Funes and Humala have employed the services of the same Brazilian advertising “hotshot,” João Santana, to orchestrate their election campaigns. “If João Santana’s expertise translates into a Humala victory, Peruvians had better hope that the similarities end there,” O’Grady warns darkly. In the latest public opinion polls, Keiko Fujimori had a narrow but growing lead over ex-soldier Humala, whose past association with Hugo Chavez has proven to be a liability.

Diplomatic cables quoted by the newspaper El Comercio and published by WikiLeaks reveal that Humala received funding from Venezuela’s communist dictator in 2006, at which time he lost the presidency to Alan Garcia. The cables cited sociologist and drug trafficking expert Jaime Antezana as telling US diplomats in Peru that Humula was “financed by the government of Venezuela.” Antezana, however, later denied telling US officials anything of the sort. During his current run for Peru’s top post, Humala has downplayed both his own leftism and admiration of Chavez.

In a previous post, we reported that in 2006 Venezuela’s chief elections officer showed up in Lima to encourage Humala’s last bid for the presidency.