Caribbean & Central America - December 2016 (ISSN 1741-4458)

After domestic and international admonition, El Salvador’s main political parties finally managed to agree on 10 November on a fiscal pact which has averted a default, at least in the short-term. The ruling left-wing Frente Farabundo Martí para la Liberación Nacional (FMLN) and the main opposition party, the right-wing Alianza Republicana Nacionalista (Arena) had been widely criticised for fiddling while Rome burnt. Crisis talks dragged on for a full six weeks before Arena eventually agreed to approve a US$550m bond emission, less than half the amount sought by the government (US$1.2bn) but enough to tide it over for now.

Arena has 35 deputies in the 84-seat legislative assembly, rendering its approval necessary for bond emissions, which require a two-thirds majority of 56. Arena conditioned its legislative backing for the bonds upon the approval of a fiscal responsibility law.

Of the US$550m total, US$307m is to be converted into local short-term debt (Letes) eurobonds with longer maturity; US$82m is assigned to pay the economic and social development fund (Fondes) owed to El Salvador’s mayoralties since September; US$65m to pay public sector salaries; US$50m to repay government suppliers; and US$46m for energy subsidies.