On July 16, Nayib Bukele announced his six-phase “Economic Plan”, the first policy the Salvadoran president has announced during his second term. At his inauguration on June 1, Bukele repeated his call for “bitter medicine” to treat an economy he said was sick. The first phase of the Economic Plan, which deals with food and nutrition, includes the creation of 30 agromercados, or “farmer’s markets”, as he has called them in English on social media, that will eventually be replaced by larger food distribution centers (centrales de abasto). It also eliminates import tariffs on 116 products included in the canasta básica, or basic food basket, for ten years. Tariffs on inputs used by farmers and producers, such as fertilizers, manure, and animal feed, will also be eliminated.
The announcement comes after Bukele, in a July 5 national television broadcast, attacked what he calls “business mafias”: food importers and distributors he accuses of unjustifiably raising prices. Bukele sent them a message similar to the one he sent to gang members when he declared war on them: “Stop abusing the Salvadoran people or don’t complain later.”
The speech was delivered during the inauguration of the “Altius Tech Park” in Ciudad Arce, a municipality located some 38 kilometers from San Salvador. According to Bukele, it is the first industrial tech park in the country, and cost around $70 million to build. The event was attended by the U.S. Ambassador, William Duncan; El Salvador’s Minister of Justice and Security, Gustavo Villatoro; the Minister of Economy, María Luisa Hayem; the Secretary of Commerce, Jorge Kattán; and the president of the government’s exports and investment promotion agency, Invest, Rodrigo Ayala. In a short 22-minute presentation, Bukele outlined the first two phases of his six phase Economic Plan: food and technology. Throughout the presentation, he reiterated that the park promises to become the “second largest data center in the region.” But regarding the plan to alleviate the main problem faced by Salvadorans —food insecurity— Bukele offered little more than a few sentences and some simple slides.
The measures announced by the president are in apparent response to the discontent of Salvadorans, the majority of whom —69.9 percent, Central American University pollsters found in 2023— consider the issue of the economy to be the country’s main problem. In 2019, when Bukele came to power, the cost of the basic food basket was $202.02; now it is $256.02, according to the Consumer Price Index (CPI).
The details of the Economic Plan announced by Bukele have yet to be made public, as was the case with the “Territorial Control” security plan and the Covid-19 vaccination plan during his first term. The nature of the other phases of the plan also remains unknown. Thus far, all that has been announced pertains primarily to actions in the area of food distribution and importation. The official announcement gave no indication of measures the government has already taken to implement the plan —cutting staff at government agencies, debt issuance, attempting to reach an agreement with the International Monetary Fund— or the measures suggested by experts, such as eliminating the Value Added Tax (VAT) on basic food basket products, or increasing the VAT percentage on specific products.
According to the Economic Commission for Latin America and the Caribbean (ECLAC), El Salvador is expected to grow by 3 percent this year, in line with the 2.4 percent average growth rate experienced by the country over the past 10 years, according to the Central Reserve Bank (BCR). This is lower growth than other Central American countries, even Nicaragua, which is expected to grow by 3.5 percent.
There are not enough jobs in El Salvador. By 2023, the unemployed population had grown to 161,400, according to the Multipurpose Household Survey (EHPM). The country also does not produce enough food for domestic consumption. It has the second-highest deficit in food production in Central America and 48.4 percent of the Salvadoran population is food insecure. Bukele’s plan does not explain how he will promote a new growth dynamic for the country.
Regarding the technological side of the plan, Bukele says that a cornerstone of the “Altius Tech Park” will be a data center called the “Data Trust” (both names are originally in English), which will require $30 million in private investment and seeks to become the “second largest data center in the region.” The center is the first of seven others slated to be built in the tech park, and has a Tier III certification from the Uptime Institute, which guarantees that it has a high level of reliability, availability, and tolerance to earthquakes. Bukele says that the center has a public cloud and “will offer installation services, the ability to lease physical space to store electronic equipment, and will offer services to the public and private sector.” In its scale, the proposed innovation is reminiscent of Bukele’s Bitcoin endeavors, which have failed to produce significant effects on the Salvadoran economy.
Regarding the food phase of his plan, Bukele said that his idea for agromercados resembles the farmer’s markets of the United States. “They’re very good because they’re organic, they have less toxic chemicals, and they’re cheaper,” he claimed. “The producers earn a little bit more and the products are always cheaper than in traditional markets and stores.” The markets would be gradually closed after centralized supply centers become established in different parts of the country, the first of which is located in Soyapango, a densely populated district east of San Salvador. The distribution centers will function to supply “wholesalers and retailers, and will also be for the people.”
In his speech, Bukele expressed a political concern. He said that the Economic Plan must “ensure the growth of the country” while also protecting “the pocketbook of the people.” “Some might claim that macroeconomics can survive without microeconomics. Yes, for a while, until the protests oust the regime governing at that moment and another one is installed in its place. People get tired of waiting for the trickle down,” he said.
An idea on repeat
Economist Lorena Valle Cuéllar explained to El Faro that since the 1990s, under free trade agreements, El Salvador and other Central American countries have eliminated or established minimum tariffs for the importation of essential products. “Since those years, we could say that several products in the basic food basket have had no tariffs or that the tariffs have been extremely low,” she said.
In March 2022, the Bukele administration eliminated import taxes on 20 products for one year. Under the slogan “11 measures against global inflation,” oil and shortening, fertilizer, rice, sugar, onions, chilies, black beans, red beans, corn flour, wheat flour, milk, yellow corn, white corn, oranges, potatoes, bananas, cabbage, tomatoes, cereal wheat, and animal feed were all exempted from import taxes.
The rise in costs associated with the basic food basket in El Salvador suggests that the country is far from covering the core needs of the population with its own domestic production, and is thus forced to import. According to the Center for the Defense of the Consumer, an NGO that produces studies on economic rights, El Salvador imports 93 percent of its vegetables. The country also imports 62 percent of rice, 32 of beans, and 25 of corn. According to the CPI, between November and December 2023, food prices rose an average of 3.98 percent, making El Salvador the country with the highest food price increase in Central America.
Economist Luis Vargas told El Faro that the elimination of tariffs is not a real solution because the tariff on foodstuffs accounts for only a small portion of the final price. There are other, more important cost-contributing factors, such as production and transportation.
In a May 2022 opinion column, Vargas wrote that the elimination of tariffs was a “naïve or misleading measure, because an overwhelming majority of the ‘tax-reduced’ goods were already imported without tariffs, as can be seen in the Foreign Trade Database of the Central Reserve Bank.”
Vargas also believes that this total trade opening should be treated with caution: while it has the benefit of bringing in products that are not produced in the country, it also has the effect of weakening local production.
“In the medium term, what happens is that dependence on the exterior to guarantee food security increases, and with it, the vulnerability of the country and the population, because we become price-acceptors and not price-determiners,” Vargas says. “If the term is for ten years, the effects on local production can be devastating if the competitiveness of local production is not increased.”
Another factor affecting prices is climate change. The annual rainstorms in June impacted 36 percent of crops this year, according to the Ministry of Agriculture. Droughts and high temperatures are also increasing the vulnerability of the country’s food production systems. As a result, there are lower yields, more losses, an increased prevalence of pests, and with it, a higher cost for pesticides.
“The solution to this is not easy and it is a humanitarian challenge, but one thing is for certain: it is not an issue of tariffs, but rather of adaptation and mitigation, and the path forward requires aggressive strategies based on expertise and knowledge. In what has been announced thus far, it doesn’t appear that the government’s strategy is going down that path,” Vargas said.
Salvadoran President Nayib Bukele (center) with Edwin Escobar, CEO of Aristos Inmobiliaria (left) and Jose Escobar, founding president of Grupo Aristos El Salvador (right), during the inauguration of the “Data Trust” technology center in Ciudad Arce, El Salvador, July 16, 2024. El Faro photo: AFP
The new technological promise
The 4,000 jobs that Bukele claims the project will generate represent 2.48 percent of the labor supply required for a country with more than 160,000 unemployed residents.
So far, Bukele’s technological bets have fallen short of his promises to contribute to the country’s development — the most famous being the adoption, in 2021, of Bitcoin cryptocurrency as legal tender.
The promises of Bitcoin included saving a total of $400 million annually in fees for remittances from the United States, promoting financial inclusion in a country where 77 percent of people did not have a bank account in 2016, and growing the economy.
After spending —according to the organization Cristosal— at least $329 million on Bitcoin policy, results have been negligible.
Only 1.3 percent of remittances have been sent using cryptocurrency since the Bitcoin law came into force. The cornerstone of the project, the government’s so-called Chivo Wallet, has failed. Up to 20 percent of the users were fake, and its launch caused “a hemorrhage of public money,” according to one of its creators. Some 80 percent of the Salvadoran population never used Bitcoin even once in 2022, and in general, the currency does not function as a medium of exchange in most of the country. The government itself has not provided any data, but an audit of crypto companies in 2022 revealed that the sector had generated a total of 113 jobs in El Salvador. Bukele has not tweeted in Spanish about Bitcoin since June 2022.
*Translated by Max Granger
