From: rich@pencil.cs.missouri.edu (Rich Winkel)
Subject: Proceso 532: Economy
Followup-To: alt.activism.d
Originator: rich@pencil.cs.missouri.edu
Organization: PACH
Date: Thu, 15 Oct 1992 21:11:39 GMT

/** reg.elsalvador: 126.0 **/
** Topic: Proceso 532: Economy **
** Written 11:46 am  Oct 15, 1992 by cidai@huracan.cr in cdp:reg.elsalvador **
From: cidai@huracan.cr (Centro de Informacion Documentacion y Apoyo a la Invest. - UCAJSC)
Subject: Proceso 532: Economy

Center for Information, Documentation and Research Support (CIDAI)
Central American University (UCA)
San Salvador, El Salvador
 
PROCESO 532
September 30, 1992
 
ECONOMY:
Government responsibility for rising prices
 
     The month of September has seen a price spiral much greater
than in previous months. In the opinion of government spokespersons
and at least one business group, the principal cause of the recent
surge in prices is the speculation undertaken by a great many
merchants since the Value-Added Tax (VAT) was put into effect.
However, one cannot conceal the fact that the government's fiscal
policies are the chief cause of current price tendencies.
     The dimensions of the current streak of inflation have
surpassed even official predictions. Despite official estimates,
which predicted that the VAT would not alter the government's
economic goals for this year, price tendencies during September
have shown quite the contrary, to such an extent that the
government has been forced to bring down the prices of some types
of fuel, and threaten to sanction merchants who raise their prices
disproportionately.
     According to official sources, speculation and ignorance of
how to administer the VAT are the chief causes of the current price
spiral. However, despite announcements of contingency measures, so
far none have had any significant impact on price tendencies. As a
result, public officials have begun recommending that consumers be
more selective in their purchases.
     Furthermore, official reactions to disproportionate price
hikes have been varied, both in content and origin. Only four days
after the economic measures were implemented, Planning Minister
Mirna Lievano de Marques stated publicly that the rate of inflation
expected from the VAT was acceptable, and would remain within the
limits of the monetary program, which allowed up to 12% inflation
for 1992.
     Later, faced with the unmistakable price spiral unleashed by
the VAT and the accompanying measures, Lievano said the government
was considering the possibility of harsh sanctions for merchants
who were taking advantage of the VAT and speculating with prices.
She added that the government was evaluating the possibility of
adjusting public transportation fares.
     President Cristiani, in turn, said he had ordered the Ministry
of the Economy to review the prices of gasoline, propane gas and
public transportation. He also ordered the Ministry of the Treasury
to include wage increases for public employees in the 1993 budget,
and called upon the private sector to "take measures and study the
possibility" of raising wages as well.
     The Minister of Agriculture, Antonio Cabrales, said his office
was willing to take measures to offset increases in the prices of
basic goods and other items. He claimed that the immoderate price
increases had "saddened" members of the cabinet, who regretted that
many merchants had taken advantage of the situation to raise the
prices of their goods and services.
     The Ministry of the Treasury published a communique expressing
that the price increases seen in September were not due to the VAT,
but rather to merchants' ignorance of how to incorporate the tax.
He then called upon merchants to "refrain from raising prices and
defrauding the consumers."
     By now, it is clear that the main efforts of public officials
have focused on implying that the inordinate price increases are
not the fault of government policies, but rather of speculation on
the part of business. On September, 14, the president announced
that the Ministry of the Economy was conducting price surveys in
order to determine which sectors had unjustifiably raised their
prices.
     On September 17, the Salvadoran Association of Industrialists
(ASI) "objected to and rejected price increases which have no
justification whatsoever, because the VAT must not be used as a
pretext to adopt speculative practices." ASI added that it
"condemned and rejected the speculative attitude of business which
have unduly raised their prices in an indiscriminate fashion."
     After the first wave of official reaction, Communications
Secretary Ernesto Altschul reported that starting September 21, the
prices of propane gas and diesel would be reduced. At the same
time, however, he announced that the price of gasoline would go up
approximately 10%, added to the 10% increase included in the VAT.
     These contingency measures are clearly an inadequate way to
alleviate the effects of the VAT and the increases in public
transportation fares and electricity rates. The review conducted of
the economic measures only affected the prices of two products
-propane gas and diesel- when almost all prices have gone up. In
addition, although the prices of those two products were reduced,
the price of gasoline was raised. Public transportation fares were
not affected, despite announcements to that effect.
     In spite of government rhetoric, there is no going back to
lower prices. Officials of both the Treasury Ministry and Ministry
of the Economy pointed out that their offices are in no position to
impose price controls, and suggested that consumers be the ones to
force merchants to lower their prices by buying elsewhere.
     The government's version of events awards business the
greatest share of the blame for the price increases, and downplays
the responsibility of government agencies. In the first place, even
if we were to accept the government's theory that ignorance of how
the VAT works is what has caused the price increases, we must
remember that no prior informational and training campaigns were
launched before the tax went into effect.
     In the second place, no detailed list was drawn up of products
which could have been taxed at differential rates or not at all. In
addition, the government has promoted the idea of making the VAT
implicit in all new prices instead of detailing the tax, which
clearly favors speculation. Furthermore, the government is
responsible for the current inflation spiral to the extent that it
decreed the VAT at the same time as higher electricity rates and
public transportation fares, which forced prices up even higher.
     The contingency measures adopted by the government in order to
alleviate price increases are not enough to even minimally
compensate for their effects. Although speculation has been an
important component of recent price increases, the root cause has
been the economic policies which favor increasing government
revenues by means of taxes which place a disproportionate burden on
the most disadvantaged sectors.
 

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