El Salvador

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El Salvador is one of the Latin American countries that showed a dramatic improvement in its economic freedom. Its rating of 5.0 in 1990 increased to 8.3 in 1997. El Salvador jumped from the 67th position to the 14th in the world ranking. A more market-oriented program is the main reason for this improvement. Price controls in many markets have been eliminated and government participation in the economy has been reduced through an ambitious privatization process, especially in strategic sectors such as communications and electricity. Moreover, policies promoting trade liberalization and more freedom in financial and capital-market transactions have been adopted.

Monetary policy has been less expansionary. The annual rate of monetary growth has been curtailed from 11.5 percent in 1990 to 5.0 percent in 1997. This allowed the country to reduce its inflation rate from 23 percent in 1990 to 4.6 percent in 1997, one of the lowest rates in the Central America region. In addition, legalization of foreign-currency bank accounts, a reduction in government consumption expenditure, relaxation of exchange-rate controls, a stronger legal system and a lower exchange-rate premium in the black market have contributed to the improvement in El Salvador's economic freedom rating.

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Last Modified: Monday, January 10, 2000