The 2023 edition of the Global Peace Index estimates that the economic impact of violence in El Salvador reached $12,543,727,590 in 2022, equivalent to 15 percent of the Gross Domestic Product (GDP, production of goods and services within the country).
The Institute for Economics and Peace (IEP), author of the index, explains that the economic impact of violence refers to the “expasiveness and economic effects related to containing, preventing and addressing the consequences of violence.” The estimated amount for El Salvador is the 13th highest of 163 nations analyzed in the index.
Economist Julia Evelyn Martínez indicated that this impact refers to the estimated production of goods or services that the economy stopped generating in 2022 due to the different types of violence in the country. That is, the agricultural production that was not implemented, the tourism that did not receive the country, sales that stopped being made, among others.
El Salvador’s position in this indicator (militarization) is the number 135 (…). That is, it is located among the countries with the highest percentage of militarization.
Julia Evelyn Martínez, Economist
Economist Tatiana Marroquín also said the $1.5 billion includes the direct cost related to the victim, victim and the government. “Generally speaking, it is the direct cost they assume, like how many deaths, how many people in prison, how many victims; and they make a multiplication to find the direct cost. Added to this direct cost is the indirect cost, which is all indirect costs or losses in economic terms, physically, psychologically and productivity,” he said.
The index also estimates the economic cost of violence, which according to the IEP refers to the “direct and indirect cost” of this scourge. For El Salvador, it was estimated at $8,848,350,227.
“The economic cost of violence is the sum of the costs that a State must incur to deal with the facts or situations of violence, such as care for victims of violence, the purchase of defensive weapons, army and police budgets, the cost of hiring private security services in companies, etc. I mean, being in that position doesn’t mean being OK,” Martinez told LA PRENSA GRANIFIC.
“This is related to state spending and the private about violence,” Marroquín said. “There is no detail of the methodology, but it seems to me that, for example, the costs in high-security prisons, the number of people arrested were taken into account. All those impacts on society have somehow been calculated economically here and that’s why it appears that the cost is quite high,” he added.
In the report, the IEP notes that for every dollar saved in the containment of violence, there will be an additional dollar for economic activity.Although no agency has predicted growth for Nicaragua of more than 4 percent for this year and last year, Daniel Ortega’s regime estimated that the economy could expand to 4.5 percent at the end of the period, according to an update from the Central Bank. By 2023, the government believes growth could have reached up to 5 percent.
In the best results in the second half of 2023, the NCB is projecting that economic growth of 2023 will be in a range of between 4.0 and 5.0 percent and that in 2024 it will be in a range of between 3.5 and 4.5 percent, indicates the maximum bank issuer in its monetary and exchange rate policy report for January.
But the forecasts of international agencies, which then adopt the official figure at the end of the year, do not go down that line. All, including the International Monetary Fund, have pointed out that Nicaragua is heading for a long period of low growth, not even reaching levels prior to the socio-political crisis of 2018.
BM projects lower growth
In 2024 and in the medium term, real GDP is expected to increase by about 3.5 percent, supported mainly by private consumption, below the historical averages (2000-17) of 3.9 percent, given the cautious recovery of investment, limited new approved official financing and the lower contribution of the labour force to growth due to recent emigration, the Fund said in its latest Article IV report to Nicaragua.
For its part, the World Bank, in an update of its global projections in January, predicts that Nicaragua’s GDP over the next two years will not exceed 3.5 percent growth, which would be the best rate since 2021, when a year after the pandemic, it was 10.3 percent.
Meanwhile, the Economic Commission for Latin America and the Caribbean estimated in its third quarter-old update last year that Nicaragua’s growth for this year would be one of the lowest in the hemisphere, with 2.9 percent.
In June last year, The Economist Intelligence Unit (EIU), of the prestigious British publisher The Economist, warned that Ortega will remain in power, but will rest on an economy with mediocre growth. Several of these trends will last in 2024-2027, maintaining growth at an average of 2 percent per year. In their report, they mention that GDP will expand this year 1.2 percent, next year 2.2 percent, in 2025 and 2026 it will grow 1.9 percent each of those years, and in 2027 it will increase 2 percent.
On employment and inflation
Nicaragua’s prospects for economic growth are tarnished by recurrent political conflicts and little confidence in the rule of law – despite the lucrative opportunities in mining, energy and manufacturing. Nicaragua will therefore remain one of the poorest countries in Central America.
The central bank focuses its growth expectations for this year on the evolution that the economy showed in the second half of last year. Thus, by the end of 2023, the Nicaraguan economy has managed to consolidate on a path of sustained growth, registering an expansion driven by the good performance of most economic sectors and domestic demand, while the employment rate remains stable and inflation is reduced.
The Monthly Index of Economic Activity (IMAE) of November 2023 shows that economic activity grew 4.7 percent in accumulated terms, driven mainly by hotels and restaurants, exploitation of mines and quarries, energy and water, trade, financial intermediation and construction.
What the Government does admit is that although it expects a moderate growth rate, employment generation will remain stagnant and price rises will continue, but also at a slower rate than the last two years.
Inflation and other indicators
Inflation by 2024 is expected to converge to a range of between 3 and 4 per cent. The inflationary goal is based on an appropriate fiscal, monetary and exchange rate policy framework, with the Government’s subsidy policies to contain the increase in the cost of living of the population and the establishment of the zero per cent exchange slide rate for this year. While the forecasts for 2024 are positive, these are conditioned on the continuity in the decrease in international price pressures and the prospects for a good cycle of agricultural production.
While the labour market provides for an unemployment rate of between 3 and 3.5 per cent. On the external sector side, the balance of payments is expected to show a current account surplus of between 4.5 and 5.5 per cent of GDP by 2023 and between 3 and 4 per cent of GDP by 2024, he says.
Regarding the córdoba access rate for the national financial system, the Central Bank says it expects to keep it at its current level of 7 percent, being one of the highest in recent years. With regard to MTA (monetary reference rate), the NCB expects that it will remain unchanged at 7.0 per cent in the short term, as long as the MRD continues to contribute to the stability of economic growth, employment and prices, and to facilitate financial intermediation. However, the NCB may make adjustments to the MTA in accordance with international conditions and internal monetary and financial conditions, he said.
Interest rates
And although access to the córdoba is expensive, the NCB says that the NCB’s interest rate policy, together with the rest of its monetary instruments, will continue to focus on promoting financial intermediation and credit mobilization, with the aim of supporting economic growth.
Among the risks, the Central Bank mentions the materialization of shocks from geopolitical conflicts that result in increases in oil and food prices, generating pressures on domestic prices, and the effects of the tightening of global monetary policy to contain more persistent inflation, which could further slow the dynamics of world production and affect exports.
Internally, the risks related to climate events persist, which may have an impact on the evolution of macroeconomic variables.
All these impacts (of violence) on society have somehow been calculated economically here (in El Salvador) and that is why it appears that the cost is quite high.
Tatiana Marroquín, economist
Deterioration of peace
The index also analyses the deterioration of peace. In that section, El Salvador fell from 2022, from 117th to 122nd. Martinez agrees with the ranking and said that the factors analyzed put El Salvador alongside countries such as Honduras, Haiti and Panama.
Martinez argued that peace and security is not only measured by gang action and the number of murders, as that is only one of the 23 index indicators. Others include migration, life expectancy at birth, incarcerated people, human rights and military spending.
“These and other indicators have definitely been worsening in El Salvador, especially as a result of the militarization of public security and the human rights violation that has been normalized during the emergency regime. How can we say that we live in a safe country, when we have reports of systematic violations of the human rights of citizens? How can we sustain this when we have the highest incarceration rate in the world, even higher than that of the United States?” said the economist.
Another point evaluated is the dominance of militarization. In the index, the closest number to 1 means the nation is more peaceful, while the closest to 163 indicates it is less peaceful. The first place is held by Iceland and 29 positions from Israel, which is the last position, is El Salvador, 134th place.
Veronica Reyna, a public security expert with the Passionist Social Service (SSPAS), said the country has suffered a significant decline from the number of military personnel per 100,000 inhabitants, in addition to the number of weapons imported and the number of weapons per 1,000 inhabitants.
El Salvador has had a significant setback in militarization, which is the one that measures investment, in budgetary terms, in the military presence.
Veronica Reyna, Passionist Social Service
“In the report, El Salvador is spending 15 per cent of its Gross Domestic Product and this puts it among the top 15 countries reporting the most spending to address the violence. It is curious, because most countries at the head are faced with an internal armed conflict, with the exception of El Salvador,” he said. Ukraine, Afghanistan and Sudan are the three countries leading that list, according to the study.
Reyna also pointed to the effect of the military presence during the emergency regime.”It is worrying how in the end the issue of militarization has an impact on this type of measurement, precisely because it is a component that ends up pointing out how the approach to violence is prioritized. In this case, the approach has been highly repressive, with mass and arbitrary arrests that do not necessarily address the structural causes of violence,” he said.
In El Salvador, there is an emergency regime that has been suspended since March 2022 and has already had 75,000 captured, but hundreds of complaints of arbitrary detentions and deaths in State custody.
134 position
Of the 163 nations, El Salvador ranks 134th as a country with more military dominance and less peaceful. There’s Israel, Russia and the United States.
9 deterioration
Of the 12 countries that showed the most deterioration of their peace in the region, El Salvador ranked ninth, followed by Nicaragua. Mexico was the 12th.
This article has been translated from the original which first appeared in La Prensa Grafica