Event

El Salvador became the next Latin American country in line where traditional party politics got penalised by a disenchanted electorate that longs for drastic shifts in the political system. On 3 February, El Salvador elected its youngest president ever after a landslide first-round victory of Nayib Bukele, the ‘anti-establishment’ candidate and former mayor of the capital San Salvador. Bukele got a strong mandate after taking more than 50% of the vote although his lacking majority on the legislative side could undermine his policy ambitions.

Impact

For the first time since the end of the civil war 30 years ago, the new president does not belong to the conservative ARENA or the leftist FMLN party. Bukele’s victory capitalises on an anti-corruption campaign after a series of scandals. He also promised to boost public infrastructure investments and revive the economy that has been stuck in a slow growth trajectory for more than a decade (around 2%). Ahead of his inauguration on 1 June, Bukele will already give an indication of his policy agenda that is likely to focus on corruption and violent crime. El Salvador’s 2018 murder rate moderated but still reached a staggering 51 per 100,000 people.

The high crime levels, limited human capital and institutional weaknesses have been discouraging investments for years, keeping economic performance below its potential. El Salvador’s high dependence on migrant remittance inflows from the United States (over 17% of GDP and about 40% of total foreign exchange earnings) and the extensive investment and financial system linkages with the US, form important vulnerabilities. Therefore, further anti-migration policies under Trump’s administration pose a significant risk to the country’s financial outlook. The previous government was gradually addressing the high level of public debt (estimated at close to 70% of GDP in 2018) through fiscal adjustments and pension reforms. It remains to be seen whether the new administration can actually tackle El Salvador’s structural weaknesses and boost economic performance while keeping its financial and budgetary position sustainable. For now, Credendo’s MLT political risk outlook remains stable.

Analyst: Louise Van Cauwenbergh – l.vancauwenbergh@credendo.com