Historical background

El Salvador achieved independence from Spain in 1821 and from the Central American Federation in 1839. A 12-year civil war, which cost about 75,000 lives, was brought to a close in 1992 when the government and leftist rebels signed a treaty that provided for military and political reforms.

Economic overview

The smallest country in Central America, El Salvador has the third largest economy, but growth has been modest in recent years. Economic growth will decelerate in 2009 due to the global slowdown and to El Salvador's dependence on exports to the US and remittances from the US. El Salvador leads the region in remittances per capita with inflows equivalent to nearly all export income. In 2006 El Salvador was the first country to ratify the Central America-Dominican Republic Free Trade Agreement (CAFTA). CAFTA has bolstered the export of processed foods, sugar, and ethanol, and supported investment in the maquila sector. The SACA administration has sought to diversify the economy, focusing on regional transportation and tourism. El Salvador has promoted an open trade and investment environment, and has embarked on a wave of privatizations extending to telecom, electricity distribution, banking, and pension funds. In late 2006, the government and the Millennium Challenge Corporation signed a five-year, $461 million compact to stimulate economic growth and reduce poverty in the country's northern region through investments in education, public services, enterprise development, and transportation infrastructure. With the adoption of the US dollar as its currency in 2001, El Salvador lost control over monetary policy and must concentrate on maintaining a disciplined fiscal policy.