Online Extra: El Salvador's CAFTA Imperative

President Saca believes a free-trade agreement with the U.S. is essential to his country's and the region's growth and stability

It's not often that a radio sportscaster becomes the president of a country, but that's exactly what Elías Antonio Saca of El Salvador did in 2004, when he won a five-year term. Saca, 40, also headed the National Association of Private-Sector Companies before launching his bid for the presidency.

He hails from the right-wing Arena party, which has ruled El Salvador since the country ended a 12-year civil war in 1992. In the past decade, El Salvador has privatized banks, pensions, telecommunications, and other government services. In 2001, it adopted the U.S. dollar as its national currency.

BusinessWeek's chief Latin America correspondent, Geri Smith, met with President Saca on June 2 in the presidential palace in San Salvador. The following are excerpts from their conversation:

Q: There doesn't seem to be overwhelming support in the U.S. Congress for the CAFTA-DR [Central American-Dominican Republic Free Trade Agreement]. What happens if it doesn't win approval?


I have the impression that CAFTA will pass. I believe the [Bush] Administration has put all of its political strength and maneuvering ability into winning passage of this project that is so important not only for the U.S. but also for Central America.

Central America buys [nearly] $16 billion in goods from the U.S. each year. That makes our region one of the most important trade partners for the U.S. Also, national security is involved in CAFTA: Having a stable region with friends and allies who are economically stable will generate local jobs and will prevent so many people from migrating [illegally] to the U.S.

Q: Why is CAFTA important for Central America?


First, because it will send a good signal from our ally, the U.S. Second, it will make permanent all of the [zero-tariff] provisions that [the U.S.] has unilaterally given us through the Caribbean Basin Initiative. Third, it will make Central America interesting for investors, because of its good labor force and infrastructure.

Q: What happens if CAFTA doesn't pass?


We would have to ask the U.S. to widen the range of export goods that would qualify [for duty-free access to the U.S.] under the Caribbean Basin Initiative. Without CAFTA, we would be at a frank disadvantage against China. We would have a lot of unemployment. This region has believed in democracy and in free trade, and now that we are prepared with solid institutions and infrastructure, if we don't achieve free trade with the largest market in the world, that would send a very bad signal to Central America.

Still, it wouldn't be the end of the world. [Either way], we are going to launch a new housing-construction and industrialization program. We will take measures to boost job creation. If CAFTA doesn't pass, I'll have some sleepless nights, but I will gradually get used to sleeping again.

Q: How worried are you about competition from China for the low-cost goods you export?


For us, CAFTA is the best vaccine against China. It's impossible for Central America to compete against a monster like China, a monster that the whole world accepts under a double standard. Great hypocrisy surrounds China: They violate human rights, there is no democracy, and they pay $3 dollars [a day] to make clothing.

We pay decent salaries -- El Salvador has the second-best minimum wage in Central America -- and we respect labor conditions. There may be isolated cases of labor violations in this country, but the Ministry of Labor is making efforts to modernize.

Q: Did you study Mexico's experience with NAFTA in order to avoid problems they have had, for example, in agriculture?


The difference with NAFTA is that, in Central America, we don't make many products that compete with American products. We don't grow wheat, for example [like Mexico does]. Our economy is complementary to that of the U.S. But we did draw lessons from NAFTA, and that's why we have been given periods of up to 20 years to protect some [agricultural] goods, such as rice and pork.

We know that in CAFTA, there will be winners and losers. I would say the majority will be winners, but we must prepare certain kinds of aid for the losers.

Q: How will you diversify your exports?


[I'm optimistic about] our ability to export more and more of what we call "nostalgia" products aimed at the 2.5 million Salvadorans living in the U.S. We already export about $50 million a year in corn tamales, chilies, and pupusas [tortilla pancakes stuffed with cheese and fried pork rinds] to the U.S. With CAFTA, we could probably export $500 million of those products.

Q: Why has El Salvador's economy grown just 1.2% a year for the past decade?


Because we didn't have an attractive set of economic policies, which we are implementing now. In the one year I've been in the government, we have already received $1 billion in foreign investment. With CAFTA, the region will be attractive to investors. We're drafting a plan of investment incentives -- land, infrastructure, highways. The other countries in Central America will be doing the same thing.

We also have the best highway infrastructure in Central America, the best airport in the region, and we are planning to link the two oceans [Atlantic and Pacific] through a dry canal across the skinniest section of El Salvador...and a train that will be able to move containers from the Pacific to the Atlantic in five hours.

Q: Are the remittances El Salvador receives from migrants in the U.S. a blessing or a curse?


We export around $3.3 billion a year, and the remittances we receive total nearly $3 billion. Some ask if the remittances are contributing to sloth [on the part of the recipient families] or whether they are being used for productive purposes. The government is designing programs so that the remittances can be used better -- for education, for the purchase of housing, construction of parks, health clinics, day-care centers, etc.

Some specialists say that just $1 billion in remittances should cover the basic needs of the recipient families, so if the country is receiving $3 billion, we should be able to channel at least 20%, or $600 million, of that to productive [job-creating] activities. Can you imagine the impact that would have?

Q: Why did El Salvador send troops to Iraq? Do you think the U.S. "owes" you CAFTA in partial thanks?


I want to say very emphatically that we did not exchange soldiers for CAFTA, because when we were asked to send soldiers, we were already negotiating CAFTA. We are in Iraq out of our own conviction. El Salvador lived through its own terrible war, and we had a lot of help from international peacekeeping forces who came to the country during very difficult times.

When the international coalition against terrorism asked for help from us, a country that suffered terrorism itself, we couldn't deny that help.

Q: How long will your 380 troops remain?


[By law,] I have to make a decision on the troops in August. Iraq held elections, and today it is freer than it was before, [but] I think we have to keep helping them -- the work is not finished yet.

If you ask me what my decision will be, it will be along the lines of helping our friends and allies if they still need us.

Edited by Patricia O'Connell

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