Caribbean & Central America - August 2024

El Salvador’s President Nayib Bukele has announced measures designed to make basic goods more affordable as he searches for ways to address growing economic concerns at the beginning of his second term in office.

On 6 July President Bukele said that he would use similar tactics against importers and wholesalers that engage in price gouging as he did against the street gangs as part of his security crackdown. He said that some had been involved in tax evasion, bribery, and contraband importation, which are criminal offences that could lead to imprisonment. “We are not playing around,” he said. “I expect the prices to come down by tomorrow or there are going to be problems.”

Bukele also announced that the agriculture ministry (MAG) would roll out mobile markets which will provide goods such as tomatoes, onions, potatoes, lettuce, and other vegetables at lower prices. Then on 16 July the president announced a proposal to suspend tariffs on all basic food basket products and 70 additional food items for a ten-year period, with the aim of reducing prices, which has since been rubber-stamped by the 60-member unicameral legislature in which his Nuevas Ideas (NI) party has 56 seats. He later announced that tariffs on fertilisers, animal feed, and other agricultural inputs would also be eliminated to boost competitiveness.

The government consumer protection agency has swung into action, pledging to identify and prevent abusive pricing practices for basic goods, and on 26 July it said it had made 8,500 inspections. It also announced an investigation into price gouging on insect repellent amid an outbreak of dengue fever in the country. The agency said it would act “firmly” against those found to be making unjustified price increases or restricting sales of repellent.

These measures are designed to help people afford the basic basket of goods, which has risen faster than salaries. Figures from the central bank (BCR) widely cited in the media put the cost of the basic food basket at US$256.56 per month, against a minimum wage of US$243 in agriculture, US$359 in maquilas, and US$365 in trade and industry.

However, critics have questioned whether Bukele’s moves will help to make goods more affordable. A report published on 27 July by national daily La Prensa Gráfica cites Luis Treminio, the president of farming association Asociación Cámara Salvadoreña de Pequeños y Medianos Productores Agropecuarios (Campo), as saying that the country is highly reliant on food imports, with 93% of fruit and vegetables imported as well as up to 60% of meat and cheese. However, many items from the basic basket of goods have already been benefiting from tariff exemptions since March 2022, when the legislative assembly passed an anti-inflation law which has since been extended to March 2026. Given that the cost of the basic basket of goods has continued to rise despite this law, it is not clear how effective tariff eliminations will be in reducing prices. Local economist Rafael Lemus was cited by the local media as saying that the move will incentivise importation over local production.

Carlos Acevedo, economist and ex-president (2009-2013) of El Salvador’s central bank (BCR), told La Prensa Gráfica that the move will have only a “marginal” effect on prices. In an article published 17 July, he said that the best solution is to focus on boosting local production. The same article cites another economist José Luis Magaña as saying that the focus should be on strengthening small producers, as a lack of local production means the government has a limited ability to affect food prices because the price of imported products is set outside the country.

However local farmers have also suffered due to unpredictable weather patterns in recent months. In an article also published 17 July, corn vendors in the city of Usulután told La Prensa Gráfica that prices have more than doubled since April due to a lack of rain and repeated storms.

With the majority of imports already free from tariffs and local farmers struggling with unpredictable growing conditions, it is not clear how Bukele will be able to affect food prices in the short-term. It is possible that his investigations into price gouging will encourage importers and wholesalers to introduce some discounts in order to keep the authoritarian leader on side, but they will risk going out of business unless the government subsidises the cost of imports, which are set by international markets.

Bukele may hope that his economic policies drive growth and creates well-paying jobs that help more Salvadoreans pay the increased cost of the basic basket of goods, but the country’s perilous fiscal situation [EB-24-06] means that he does not have the funds to invest in projects that would spur economic activity and make the country a more attractive place to invest.

In the meantime, poverty rates continue to rise and pressure will grow on Bukele to address worsening living standards. Failing to do so would risk social unrest as daily life gets harder for a greater number of people, wiping out the goodwill towards the president which has built up due to his security policies.

Public concern

A survey by Universidad Centroamericana’s Instituto Universitario de Opinión Pública (Iudop), published on 26 June, showed 74% of respondents cited economic issues such as the cost of the basic basket of goods, high cost of living, and poverty, as El Salvador’s main problem. The survey showed 61.3% of respondents as saying that the government had done little or nothing to combat rising prices, with a third saying that the government should introduce price controls and a third believing that officials should focus on generating jobs.