Insecurity Hurting El Salvador’s Economy: Banks

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El Salvador’s banking sector has stated that insecurity is one of the biggest obstacles to increasing economic output, pointing to high levels of violence as a deterrent for investment.

Armando Arias, President of the Salvadoran Banking Association (Abansa), said insecurity is one of the most significant barriers to kick-starting El Salvador’s sluggish economy, reported El Salvador.com. According to figures from the Central Reserve Bank, the country’s economy grew just 2 percent last year, reportedly the lowest economic growth rate in Central America.

Specifically, Arias noted that the country’s unstable security situation has limited the ability and interest of small and medium-sized businesses in investing and applying for loans to grow their companies. “To reverse this tendency, the country must reduce criminality and guarantee physical security,” Arias said. 

Meanwhile, Genaro Ramirez, head of the Salvadoran bus owner’s association (AEAS), recently estimated that bus companies pay gangs a total of at least $34 million dollars a year in extortion fees. “Public transportation has been and remains the sector most affected by the violence plaguing this country,” Ramirez stated.

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Considering that the past year has been the most violent 12-month stretch in El Salvador since the end of the country’s civil war, it stands to reason that insecurity would have a noticeable effect on the economy. As indicated by Arias, the country’s security situation appears to have the greatest impact on local businesses. In 2013, Salvadoran business organizations estimated that two small businesses shut down every week, mainly as a result of extortion. 

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In addition, Ramirez’s estimate that bus companies lose $34 million dollars a year to extortion suggests El Salvador’s transportation sector continues to be a principal target for street gangs. In 2013, bus owners lost roughly the same amount — around $36 million dollars — to criminal groups, paying between 10 and 25 percent of their monthly income to meet extortion demands. Indeed, the extortion of this industry has become so problematic that authorities have even deployed an elite anti-terrorism unit to patrol bus routes in capital city San Salvador. 

The negative impact of violence and insecurity on economic growth is an issue facing countries throughout Latin America. Earlier this year, the World Bank highlighted violence as one of the primary factors that could stunt the development of Latin American economies.

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