page_title: El Salvador
section_title: Economy
hierarchical_section_title: El Salvador / Economy
caption_attribution_description: English: El Salvador Export Treemap from MIT Harvard Economic Complexity Observatory
context_page_description: El Salvador, officially the Republic of El Salvador, is the smallest and the most densely populated country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south by the Pacific Ocean. El Salvador's capital and largest city is San Salvador. As of 2018, the country had a population of approximately 6.42 million, mostly consisting of European and Native American descent.
  El Salvador was, for millennia, controlled by several Mesoamerican nations, especially Lenca, early Mayans, then later the Cuzcatlecs up until the Spanish conquest. Archaeological monuments also suggest an early Olmec presence around the first millennium BCE. In the early 16th century, the Spanish Empire conquered the territory, incorporating it into the Viceroyalty of New Spain ruled from Mexico City. However the Viceroyalty of Mexico had little to no influence in the daily affairs of the Central American isthmus, which would be colonized in 1524.
context_section_description: El Salvador's economy has been hampered at times by natural disasters such as earthquakes and hurricanes, by government policies that mandate large economic subsidies, and by official corruption. Subsidies became such a problem that in April 2012, the International Monetary Fund suspended a $750 million loan to the central government. President Funes' chief of cabinet, Alex Segovia, acknowledged that the economy was at the "point of collapse".
  Antiguo Cuscatlán has the highest per capita income of all the cities in the country, and is a centre of international investment.
  GDP in purchasing power parity (PPP) in 2008 was estimated at US$25.895 billion. The service sector is the largest component of GDP at 64.1%, followed by the industrial sector at 24.7% (2008 est.). Agriculture represents only 11.2% of GDP (2010 est.)
  The GDP grew after 1996 at an annual rate that averaged 3.2% real growth. The government committed to free market initiatives, and the 2007 GDP's real growth rate was 4.7%.
  In December 1999, net international reserves equalled US$1.8 billion or roughly five months of imports. Having this hard currency buffer to work with, the Salvadoran government undertook a monetary integration plan beginning 1 January 2001 by which the U.S. dollar became legal tender alongside the Salvadoran colón, and all formal accounting was done in U.S. dollars. Thus, the government has formally limited the implementing of open market monetary policies to influence short-term variables in the economy. As of September 2007, net international reserves stood at $2.42 billion.
  It has long been a challenge in El Salvador to develop new growth sectors for a more diversified economy. In the past, the country produced gold and silver, but recent attempts to reopen the mining sector, which were expected to add hundreds of millions of dollars to the local economy, collapsed after President Saca shut down the operations of Pacific Rim Mining Corporation.  Nevertheless, according to the Central American Institute for Fiscal Studies (Instituto Centroamericano for Estudios Fiscales, by its acronym in Spanish), the contribution of metallic mining was a minuscule 0.3% of the country's GDP between 2010 and 2015. Saca's decision although not lacking political motives, had strong support from local residents and grassroots movements in the country. According to NACLA, incoming President Funes later rejected a company's application for a further permit based on the risk of cyanide contamination on one of the country's main rivers.
  As with other former colonies, El Salvador was considered a mono-export economy (an economy that depended heavily on one type of export) for many years. During colonial times, El Salvador was a thriving exporter of indigo, but after the invention of synthetic dyes in the 19th century, the newly created modern state turned to coffee as the main export.
  The government has sought to improve the collection of its current revenues, with a focus on indirect taxes. A 10% value-added tax (IVA in Spanish), implemented in September 1992, was raised to 13% in July 1995.
  Inflation has been steady and among the lowest in the region. Since 1997 inflation has averaged 3%, with recent years increasing to nearly 5%. As a result of the free trade agreements, from 2000 to 2006, total exports have grown 19% from $2.94 billion to $3.51 billion, and total imports have risen 54% from $4.95 billion to $7.63 billion. This has resulted in a 102% increase in the trade deficit, from $2.01 billion to $4.12 billion.
  El Salvador has promoted an open trade and investment environment, and has embarked on a wave of privatization extending to telecommunications, electricity distribution, banking, and pension funds. In late 2006, the government and the Millennium Challenge Corporation signed a five-year, $461 million compact to stimulate economic growth and reduce poverty in the country's northern region, the primary conflict zone during the civil war, through investments in education, public services, enterprise development, and transportation infrastructure. W
caption: A proportional representation of El Salvador's exports
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