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Economy of El Salvador and business opportunities

Economy of El Salvador

Compared to other developing countries, El Salvador has experienced relatively low rates of GDP growth. Rates have not risen above the low single digits in nearly two decades - part of broader environment of macroeconomic instability which the integration of the US dollar has done little to improve. One problem that the Salvadoran economy faces is the inequality in the distribution of income. In 2011, El Salvador had a Gini Coefficient of .485, which although similar to that of the United States, leaves 37.8% of the population below the poverty line, due to lower aggregate income. The richest 10% of the population receives approximately 15 times the income of the poorest 40%.

As of 3 November 2014, the IMF reports official reserve assets to be $3.192B. Foreign currency reserves (in convertible foreign currencies) are $2.675B. Securities are $2.577B with total currency and deposits at $94.9M. Securities with other national central banks (BIS and IMF) are $81.10M. Securities with banks headquartered outside the reporting country $13.80M. SDRs are at $245.5M. Gold reserves (including gold deposits and, if appropriate, gold swapped) reported at $271.4M with volume in millions of fine Troy ounces at $200k. Other reserve assets are financial derivatives valued at $2.7M.

The change to the dollar also precipitated a trend toward lower interest rates in El Salvador, helping many to secure credit in order to buy a house or a car; over time, displeasure with the change has largely disappeared, though the issue resurfaces as a political tool when elections are on the horizon.

A challenge in El Salvador has been developing new growth sectors for a more diversified economy. As many other former colonies, for many years El Salvador was considered a monoexporter economy. This means, an economy that depended heavily on one type of export. During colonial times, the Spanish decided that El Salvador would produce and export indigo, but after the invention of synthetic dyes in the 19th century, Salvadoran authorities and the newly created modern state turned to coffee as the main export of the economy.

Sectors

Remittances

Remittances from Salvadorans working in the United States sent to family members are a major source of foreign income and offset the substantial trade deficit of around $2.9 billion. Remittances have increased steadily in the last decade and reached an all-time high of $2.9 billion in 2005 -approximately 17.1% of gross national product (GNP).

Agriculture

The ultimate goal was to develop a rural middle class with a stake in a peaceful and prosperous future for El Salvador. At least 525,000 people-more than 12% of El Salvador's population at the time and perhaps 25% of the rural poor-benefited from agrarian reform, and more than 22% of El Salvador's total farmland was transferred to those who previously worked the land but did not own it.

Manufacturing

El Salvador historically has been the most industrialized nation in Central America, though a decade of war eroded this position. In 1999, manufacturing accounted for 22% of GDP. The industrial sector has shifted since 1993 from a primarily domestic orientation to include free zone (maquiladora) manufacturing for export. Maquila exports have led the growth in the export sector and in the last 3 years have made an important contribution to the Salvadoran economy.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Economy Of El Salvador"

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