El Salvador: A recipe for corruption

This blog is part of our series, Tracking the Trillions, which takes a closer look at how the International Monetary Fund (IMF) can tackle corruption, while promoting transparency and accountability.

In El Salvador, a troubling trend in corruption is currently playing out.

Authoritarianism and governmental opacity + COVID-19 pandemic + enormous amounts of emergency assistance + relaxation/elimination of oversight = an open door to corruption.

In this context, on April 14, the International Monetary Fund (IMF) approved a US$389 million loan to mitigate the economic impacts of the COVID-19 pandemic.

This loan is in addition to millions of more assistance the country has received, including:

• US$46 million from Japanese Aid;
• US$491 million in short-term issues (LETES);
• US$483 million also in short-term debt (CETES);
• US$25 million from a transfer of funds from the government-run health service (ISSS);
• US$20 million from the World Bank*; and
• US$250 million in a loan from the Inter-American Development Bank (IADB)*

*Authorized and ratified by the Legislative Assembly, but its approval of the proposed budget reallocation is still missing.

Never in the history of the country has a government had such an enormous budget, nor has this extraordinary budget ever been so cash-rich.

To ensure that this massive amount of money is used to safeguard public health, save lives, and support livelihoods, the implementation of effective transparency and anti-corruption measures is absolutely critical.

Before the outbreak of COVID-19, the Salvadoran government refused to manage public funds in an open and transparent way by obstructing access to information and breaking its campaign promise to create a strong anti-corruption body.

Instead, the Secretary of Transparency and Anti-Corruption was dismantled and the Anti-Corruption Unit within the Ministry of Finance was closed.

During the political campaign, government leaders promised to create the International Commission Against Impunity for El Salvador (CICIES). However, the United Nations was barred from participating in the process, thwarting the creation of a strong, international body with teeth and independence, such as CICIG in Guatemala. As a result, CICIES is managed by the Organization of American States (OAS) without investigative functions.

Despite government promises to publish information and examples of corruption, including those under the previous government, such as reserved expenses budget and information from the State Intelligence Agency (OIE), no such actions occurred. Instead, the information from the OIE was filed under seal, and discretionary/reserved funding was enhanced.

The government also refused to disclose details of the advertising costs incurred by the Office of the President. Despite demands from the Institute for Access to Public Information (IAIP), efforts to publish this information were forestalled by repeated use of the appeal for amparo (protection of constitutional rights) before the Administrative Disputes Chamber of the Supreme Court of Justice.

Finally, when COVID-19 hit, the pandemic became an opportunity to issue executive orders blocking all of the work done by the IAIP, and to prevent the law that regulates public purchases from being enforced.

The authoritarian sensibility of the government has enabled it to issue and implement executive orders without any legislative approval (consequently, with no legal basis), and in violation of the Constitutional Court rulings (therefore, illegal).

Although denying public access to information and weakening oversight institutions, the government still managed to secure millions in donor funds, with little supervision.

The national debt situation is also worrying. In addition to the money the country has already received, it is now also authorized to negotiate the sale of securities for US$3 billion. This is an increase of US$1 billion from an original sum of US$2 billion.

Should this amount be raised further, the national debt would surpass 90 per cent of El Salvador’s GDP, and the risk of default would be exceedingly high. In the meantime, country risk ratings have plummeted, and El Salvador has the highest rates of return on its bonds on the continent, at nearly 10 per cent.

Unfortunately, no anti-corruption measures were put in place as part of the US$389 million IMF loan agreement with El Salvador. The only minor mention of anti-corruption or transparency from the government is as follows:

‘We remain committed to strengthen competitiveness by improving the business environment, reduce public debt, combat corruption, and strengthen the financial supervision and regulatory framework, and the governance and AML/CFT frameworks.’

Taking into account the lack of specificity and/or measurability of this language, we strongly believe this is merely an expression of good intention, rather than a true commitment on behalf the government.

In addition, based on IMF concerns in the most recent IMF Article IV report from May 2019, which includes a recognition of macro-critical corruption vulnerabilities in El Salvador, this expression of good intention is insufficient to ensure transparency in the use of funds.

As part of the IMF loan, the government also mentions its work with CICIES:

‘The President of El Salvador has called on the International Commission Against Impunity for El Salvador (CICIES) of the Organization of American States (OAS) to join efforts with the Salvadorian Court of Audits to oversee accountability and the transparent use of financial resources allocated to fight COVID19’

If we look beyond the IMF loan language, to determine whether the government is taking any tangible action to improve transparency, unfortunately, we find very few positive results.

Instead of strengthening competitiveness and improving business, the government is creating an environment of confrontation with the private sector, which is not contributing to the economic recovery.

Rather than reducing debt, the national debt is growing to new heights and unsustainable levels. Rather than making funds more transparent, the government is reinforcing secrecy and opacity. And instead of combatting corruption, the government is contributing to a weakened anti-corruption institution (CICIES).

Finally, far from strengthening financial supervision, the government denounced the efforts of an independent citizen body, the Committee on the Emergency Fund, Recovery and Economic Reconstruction, which resulted in all non-governmental members resigning. In addition, the government opposes a new legislative proposal for the creation of a Social Comptroller Committee that would oversee funds.

Journalists across the country are also suffering. Recently, the Association of Journalists in El Salvador (APES) expressed growing concern over government attacks against reporters in El Salvador.

Taken together, the latest government efforts are allowing and facilitating corruption risks across the country. In fact, several cases of corruption have already been reported in the media, including:

• The purchase of overpriced masks by the Ministry of Health (MINSAL) from three public officials has been reported to the Government Ethics Court and is being investigated by the Prosecutor's Office. One of the accused officials is the newly appointed Minister of Finance, José Alejandro Zelaya. The former Minister, Nelson Fuentes, apparently resigned by refusing to sign budget transfers that compromised him, as they were illegal.
• MISAL purchased millions of dollars in rubber boots from a company linked to the family of the Minister of Health.
• MISAL purchased millions in medical supplies from a small and opaque Spanish company, which sells spare parts for vehicles. More recently, the media highlighted the purchase of thousands of plastic masks from a Guatemalan company that produces shoe soles. Health professionals have denounced that these masks do not meet the sanitary conditions of virus protection.

• The Court of Accounts (CC) requested information from the Ministry of Agriculture (MAG) on more than US$100 million food purchases, imported from companies in Mexico. The MAG has evaded the delivery of information on these purchases, both to the CC and to the Legislative Assembly. Similarly, the CC found important anomalies in the distribution of US$300 in aid to 100,000 citizens.

• Another case of suspected corruption is the construction of the El Salvador Hospital, which cost the government an estimated US$100 million. The hospital, slated to open in June, was intended to treat COVID-19 patients, however construction remains incomplete, despite significant investment.