Patricia does manicures and pedicures for a living. She used to work at a small nail salon in Antiguo Cuscatlán. However, she has been unable to return to work since the beginning of the national quarantine in mid-March and she is now very concerned, having a hard time paying her bills. She was laid off once the lockdown began, and hasn’t received wages for almost 5 months. She also didn’t receive the $300 aid payment that was announced by the government by the end of March. She used to complement her income with remittances that her son sent from the United States, but now he is having trouble finding a job. Patricia hopes that she will get her job back once beauty salons fully resume operations, potentially in the coming weeks.
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Pedro is a vendor on the streets of downtown San Salvador. In this country, 70 percent of the working population toils in the informal sector, and he is one of them. He doesn’t own or rent a store. Instead, he lives from what he sells by walking the downtown streets. Salvadorians in the informal sector do not pay social security, which means they don´t save for a pension. As they don´t have medical insurance, they have to rely on public hospitals if they get sick. Nonetheless, he tells me that he is more worried about the sudden drop in his income since March than about getting sick from Covid-19, though he is aware that the health system by now is collapsed. He simply cannot afford to stay at home. In other words, if he doesn´t sell, he doesn’t eat. He is eager to know what protocols he and other vendors can implement in order to start selling again on the street and to regain consumers' confidence.
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Verónica and her husband had saved some money, secured a loan, and opened a small restaurant last year. After almost 5 months of being closed, they can no longer continue paying the interests, and sales from food delivery are just a small fraction from what they used to make. By the beginning of May, they couldn't continue paying their employees, so they had to fire the waitresses. Their only chance of repaying the loan would be if the economy reopens soon and customers return.
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Vilma cleans floors at a private school. She is a single mom, and her only income is the minimum wage she used to earn from her job ($300 per month). She said that she received the food basket provided by the government once, and that it lasted two weeks for her and her children. Since then, she hasn’t received any further aid from the government. The company where she used to work tells her that schools will probably reopen next year, and with no income whatsoever, she is becoming increasingly anxious. She now hopes to supplement her income by cleaning houses by the day.
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We economists almost never see or tell the stories behind the statistics we rely on in order to conduct our analyses. We usually refer to the impact of a shock on economic growth, or its expected effect on the total debt. We talk about exports, employment, inflation in summary or by economic aggregates. But although this macro data provides us with a much-needed general picture and helps us to better understand the effects at a national level, it doesn’t depict the consequences and the hardships inflicted on people affected by these shocks. The stories of Patricia, Pedro, Verónica, and Vilma are representative of the impacts being felt by hundreds of thousands of Salvadorans as a consequence of the health and economic crisis.
It comes as no surprise to the reader that a low-middle income country such as El Salvador is being hit hard by the economic crisis. Everyone is being affected, and this is the deepest global recession since World War II. But while developed countries are doing “whatever it takes” to cushion the effects of the economic crisis, most developing countries, including El Salvador, are doing “whatever that they can afford.”
Prior to the pandemic, El Salvador’s total debt accounted for 70 percent of the GDP, a level that was already high given chronic low economic growth. Now, debt is expected to surpass 90 percent of GDP by the end of the year, the highest level on record. That means that more resources will be devoted to the payment of the debt, and the country will have no fiscal room to react if we are hit by a natural disaster or by a second wave of contagion. While an increase in the level of debt was inevitable, one big problem is the government’s lack of transparency in the use of emergency funds. In March, the Congress established a national committee in order to oversee the use of emergency funds. But the government never handed over a report on the use of the funds to the five non-government members, and as a result, on May 11th, they resigned from the Committee. Beyond this lack of transparency, different investigations are also revealing conflict of interests and anomalies in procurement processes during the pandemic.
Before COVID-19, it is estimated that one out of every four households in El Salvador were living in poverty. This figure could double as a consequence of the crisis, which means that about 1.5 million Salvadorans could slide either into poverty or extreme poverty. El Salvador could, in turn, see the gains of two decades of poverty reduction reversed. As for employment, it is estimated that at this moment 100,000 people have lost their formal jobs in the private sector, which is more than double the reduction experienced during the last recession (the 2008 Financial Crisis). This number accounts for more than 14 percent of private sector employment. GDP will probably contract more than 8 percent, a reduction not seen since the beginning of the civil war in 1981. Medium term consequences of the crisis will include a spike in unemployment, followed by more Salvadorans suffering from malnutrition and more deciding to take dangerous migration routes.
El Salvador is facing the biggest challenge since its civil war, and the depth and duration of the impacts on the well-being of Salvadorans will also depend on the quality of public policies and on the correct use of the scarce resources. So much is at stake right now, as hundreds of thousands of households cannot satisfy their basic needs. We are talking about the people behind the macroeconomic stats. Given the extent of human suffering, the government should ensure that the emergency funds are deployed in a timely, efficient, and transparent manner. The current administration has the legal and ethical obligation to substantially increase the accountability in the use of the emergency funds in the current crisis.
