2013 Index of Economic Freedom

El Salvador

overall score66.7
world rank53
Rule of Law

Property Rights40.0

Freedom From Corruption34.0

Limited Government

Government Spending85.4

Fiscal Freedom85.7

Regulatory Efficiency

Business Freedom61.8

Labor Freedom62.0

Monetary Freedom79.6

Open Markets

Trade Freedom79.0

Investment Freedom70.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 5.9 million
  • GDP (PPP):
    • $44.6 billion
    • 1.4% growth
    • 0.9% 5-year compound annual growth
    • $7,550 per capita
  • Unemployment:
    • 7.0%
  • Inflation (CPI):
    • 3.6%
  • FDI Inflow:
    • $385.5 million
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El Salvador’s economic freedom score is 66.7, making its economy the 53rd freest in the 2013 Index. Its overall score is 2 points lower than last year, with declines in six of the 10 economic freedoms including investment freedom, the management of public spending, labor freedom, and freedom from corruption. El Salvador is ranked 10th out of 29 countries in the South and Central America/Caribbean region, and its overall score remains above the world average.

The Salvadoran economy, once considered to be among the region’s most promising, has suffered a gradual decline in economic freedom. Institutional weaknesses continue to slow development, and judicial independence and the rule of law have eroded in recent years. Overall competitiveness has been increasingly constrained by chronic fiscal deficits and regulatory inefficiency.

On the positive side, the level of sovereign debt has stabilized, and open-market policies that support trade and investment are still in place. An increased perception of corruption, however, has undermined confidence.

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Background

Following the end of the civil war in 1992, three successive presidents from the National Republican Alliance (ARENA) delivered economic growth and poverty reduction with aggressive free-market policies. A fourth consecutive ARENA president, Antonio Saca, was less successful and opened the door to left-leaning Mauricio Funes of the Farabundo Marti Liberation Front (FMLN) in 2009. Funes has failed to reduce growing public indebtedness, reverse the upward trend in food prices, or attract foreign investment. High levels of crime and violence continue to threaten social development and economic growth. In early 2012, the government accepted the concept of a peace accord with criminal gangs. In March 2012, ARENA narrowly defeated the FMLN in legislative and mayoral elections. In July, the FMLN provoked a constitutional crisis when it refused to recognize rulings by the Supreme Court. The unconstitutional solution could threaten El Salvador’s access to international assistance.

Rule of LawView Methodology

Property Rights 40.0 Create a Graph using this measurement

Freedom From Corruption 34.0 Create a Graph using this measurement

Property rights are not strongly respected, and law enforcement is inefficient and uneven. El Salvador’s murder rate remains one of the world’s highest. The judicial system is not fully independent and remains vulnerable to political influence and corruption. In the absence of effective measures to protect intellectual property rights, the market for pirated goods has been expanding. Perceptions of corruption have spiked dramatically in the past year.

Limited GovernmentView Methodology

The top income and corporate tax rates are 25 percent. Other taxes include a value-added tax (VAT) and excise taxes. The overall tax burden corresponds to 13.6 percent of total domestic income. Government spending amounts to 22.1 percent of total domestic output. The government budget is chronically in deficit, but public debt has stabilized at about 50 percent of GDP.

Regulatory EfficiencyView Methodology

A significant reduction in the minimum capital requirement has made the business start-up process less burdensome, but obtaining the necessary permits still takes more than 150 days and costs more than the level of average annual income. The inefficient labor market lacks flexibility, and imbalances persist in the demand and supply of skilled workers. Inflation has risen, and price controls are imposed on a range of goods and services.

Open MarketsView Methodology

The trade-weighted average tariff rate is 5.5 percent, but there are relatively few non-tariff barriers. The investment regime is open and transparent, with equal treatment for foreign and domestic investors. Newly aggressive enforcement of environmental regulations has been characterized as “creeping expropriation” of mining enterprises. Banking is highly concentrated, with four private banks accounting for over 70 percent of total assets.

Country's Score Over Time

Bar Graph of El Salvador  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing El Salvador  to other economic country groups

Regional Ranking

rank country overall change
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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