Privatisation: a process with cracks

Jeannette Alvarado; Rosarlin Hernández; Gloria Guzmán; Mario Antonio Paniagua
Social Watch, El Salvador; Asociación de Mujeres por la Dignidad y la Vida (LAS DIGNAS); Asociación Maquilishuatl (FUMA); Asociación Intersectorial para el Desarrollo Económico y el Progreso Social (CIDEP)

The privatisation discourse promised to reduce the size of the State, reduce the deficit, provide better services and supply the State with immediate resources, which would be used to cancel the short-term debt and be invested in infrastructure or social expenditure. However, even the private sector has recognised that there has been a lack of transparency in decision making. In fact, the implementation of privatisation has involved many sacrifices, including privatisation of banking and de-nationalisation of the public assets.

Thesiren’s song of the privatisation discourse

Duringthe 1990s, the Salvadorean economic context was oriented towards strengtheningthe market, reducing and modifying the State’s role, reforming taxes,liberalising the economy, privatising part of the State’s assets[1]and modernising and opening up to global markets. These objectives are based onthe programmes for Stabilisation and Structural Adjustment, determining anincrease in the price of services, in tax collection and a restrictive monetaryand tax policy.[2]

Theprivatisation discourse promised to reduce the size of the State and the fiscaldeficit, provide better services and supply the State with immediate resources,which would be used to cancel the short-term debt and be invested ininfrastructure or social expenditure. However, even the private sector hasrecognised that there has been a lack of transparency in decision making.[3]For the developing Salvadorean economy, the implementation of privatisation hasinvolved many sacrifices, including privatisation of banking andde-nationalisation of the public assets.

Duringthe past three five-year periods, big business has been favoured to thedetriment of the quality of life of the majority. For example, tax reform hasbeen regressive: to replace the loss of income from privatisations, theCristiani administration introduced a 10% value added tax (VAT); the CalderónSol administration increased it to 13%, and the present Flores Pérezadministration eliminated exceptions to VAT applied to drugs, grains and otherfood staples. Reports indicate that each week the treasury does not collect USD654,500 VAT paid by consumers due to tax evasion by Salvadorian businesses.[4]

Table1.- Programme of neo-liberal measures in El Salvador




President Alfredo Cristiani (1989-1994)


-Privatisation of coffee and sugar exports



-Privatisation of the Hotel Presidente



-Privatisation of banking, oil imports and external consultations of the health care system

-Closing of the Supply Regulation Institute (Instituto Regulador de Abastecimientos - IRA) and the Urban Housing Institute (Instituto de Vivienda Urbana - IVU)

-Implementation of Value Added Tax

-Reduction in tariffs



-Privatisation of the National Agricultural College

President Armando Calderón Sol (1994-1999)


-Privatisation of the sugar mills



-Privatisation of electricity distribution, telecommunications, pension system and some public hospital services



-Privatisation of the car licensing system

President Francisco Flores Pérez (1999- 2004)


- Dollarisation



-Concession of security and boarding for Social Security, Port and health services

Source: Social Watch El Salvador

Therules of the game indicate that the country has adopted the rationale of aconcentrated and exclusionary model, responding to a traditional neo-liberalconception, applied uncompromisingly.[5]According to an editorial entitled “Privatisation: the economic fanatism ofmodernization” published by the Magazine of Central American Studies,[6]the most scandalous privatisation was that of banking due to its lack oftransparency. Even though the law was clearly openly broken to enabletwenty-three family groups to take over banking, no public body has been willingto investigate this egregious criminal operation. Undoubtedly, private bankingis more efficient now after privatisation, but the orientation of its creditsand high interest rates have not encouraged national production nor strengthenedthe weaker areas of the economy.

Theprivatisation of telecommunications is indicative of the process as a whole.Various studies showed that the National Telecommunication Administration(ANTEL) was a profitable public institution which did not needto be privatised, when the true solution was modernisation.[7]

Thepension fund and the distribution of electricity now faces a high concentrationof wealth in a few hands. Not coincidentally, the same business groups buyingshares are the same as those holding political power. In addition to controllingthe financial and banking systems, these family and business groups control thecompanies related to them, coffee exports, the distribution of fertilisers, theproduction of cement, beer, non-alcoholic beverages, bottled water, new cars,air transport, shopping centres and hotels.[8]

Socialsecurity: neglect of wide vulnerable sectors

Beforethe reforms in El Salvador (1996-1998), the public pension system certainly hadsome serious problems, such as the population coverage, the cost of socialsecurity, and employer evasion and default. The State used the problems withsocial security to justify privatisation, arguing that the paying populationwould reap enormous benefits.

Fiveyears have passed since the privatisation of the pension system was launched,and the results show that the future regarding social security for workers isuncertain and discouraging.[9]In spite of the fact that the coverage increased between 1997 and 1999, goingfrom 10.6% to 31% of the EAP, the system still has problems: wide segments ofthe population, such as those undertaking informal activities or under-employed,agricultural workers and people providing services in the domestic area, areleft out.

Thecosts of such a system have fallen on a population whose minimum wage has notchanged in the past four years. Before the reform, the workers’ contributionto the social security system represented 1.5% of their salary. In 1998 thisamount increased to 4.5%, representing a 300% increase in the cost, and by 2002,contributions represented 6.25% of the salary, an increase of 417%.

Thedata indicate that in spite of the increase in contributions, workers are stillnot guaranteed an adequate pension upon retirement. Additional factors arenegatively affecting the amount of such a pension: commissions collected by thepension fund administrators, presently 36% per year for the management of suchindividual funds, which can be increased according to the free will of thepension administrators.

Linkingthis modus operandi with the inequity existing regarding men’s participation(61%) and that of women (39%) in the formal labour sector, a labour structurebased on sexual division of work becomes obvious, in which women are excludedfrom the present pension system.

Electricenergy: higher costs and worse service

TheUCA submitted an analysis showing that the administration of Calderón Sol hadbecome trapped between the promise of not increasing the price of electricityand the legal conditions under which the operation was sold to privateenterprise. The government hoped that, in the short term, the price ofdistributing electric energy would drop and the service would improve. However,this did not happen and the problem persists.

Presently,the main disagreement is over the absence of a balance between the quality andthe cost of the service. Between 2000 and 2002, electricity was cut 44,000times, and the public made over half a million complaints. The companies andofficials attributed this to the damage suffered by the network because of thewar and the earthquakes in 2001. Furthermore, the main electric energydistributor in the country’s central zone receives one complaint per threeusers, in part because of the loss of the subsidy, which the governmenteliminated in 2000.[10]

Hence,the companies’ recent announcement that they are revising the charge fordistribution or use of the network, representing 25% of the monthly rate paid byusers, has generated controversy. Over the past five years, the price of clientservice has constantly risen. According to the distributor, the increases mayreach as much as 81%. Of the total cost of the invoice, only 61% corresponds toenergy consumed; the remaining 39% is shared between network use and clientservice.[11]

Health:more expensive services and dwindling accesibility

Thepredominance of the market rationale for health services has become a seriousproblem when complying with the right to health. The first crisis of the publicsector took place between April and May 1998. At that time, the SalvadoreanMedical Association (CMES) promoted a trade union movement demandingimprovements in national public health:[12]termination of the purely governmental procedure to reform the health system;reactivation of the search for a viable solution to the health sector reform;the ratification of the loss of credibility in the Ministry of Public Health andSocial Welfare as an institution able to promote the necessary changes; andrecognition of CMES leadership in the health sector.

Fortwo years now, health care policy has dropped from public view. However, theprocess of change has not halted, and structural reforms to facilitate the saleof some basic health care services have been carried out from the top down.Recently, a proposal made during the Third National Meeting of PrivateEnterprise (ENADE 2002) on the urgent need to modernise the Salvadorean SocialSecurity Institute (ISSS) renewed the awareness of a crisis in the public healthsector. The proposal consisted of establishing modalities for concession,purchase of services and free choice, which always involve privatisation.

Facingthe different forms of medical service sales, the interruption of dialogue andother orchestrated forms, the ISSS workers decided to suspend their tasksprogressively and gradually hand over the various hospitals to the insuranceauthorities.

Privatisationof social security and other public health network services will not only makeservices more expensive, but access to health services will depend onfamilies’ financial conditions. According to the Housing Survey on MultiplePurposes for 2002, presently 60% of the total expenditure on health comesdirectly from users. That is, sustainability of expenditure on health depends onthe population’s payments, either through taxes or in direct investment.

Conclusion:the facts belie the theory

Clearly,privatisation is not a synonym of efficiency and even less a necessary conditionfor achieving the sustainable national development of a country.

In ElSalvador, the privatisation process has raised fears and hopes. Official sourcesare presenting free trade as a means to strengthen the country’s economy. However,concern arises when the large countries that support this hypothesis, do notfulfil their own commitments towards the countries of the South. The contradiction is strengthened when wealth is concentrated among thenational business groups, when government deficit grows, when the foreign debtreaches 32.6% of the GDP in 2001 and when the State fails to ensureconstitutional functions such as free basic social services. Ultimately, we canconclude that the theory of privatisation has not fulfilled its promises.


[1] Privatisation is defined as transferring State assets to private business groups, that is, with “the transfer of goods and services from the public sector to the private sector.. M.I. Guerra et al., «La privatización, sus formas y su proceso”», Realidad, No. 49, January-February 1996, p.age 26.

[2] Assessment of the World Summit of Social Development, 1995-2000, p. 19.

[3] National Meeting of Private Enterprise (ENADE) 2001, p. 10.

[4] El Diario de Hoy. Business section, 7 September 2002.

[5] Assessment of the World Summit of Social Development, 1995-2000, p. 19.

[6] Revista de Estudios Centroamericanos (ECA), March 1998.

[7] Interview with Father Francisco Javier Ibizate, an economist and professor at the Central American University, UCA.

[8] Revista de Estudios Centroamericanos (ECA), July-August, 2002, p.age 595.

[9] According to ILO/2000 report, the situation of pension funds throughout the world indicates that 90% of the world’s workers never receive any type of old age benefit or pension, either because the funds for such a purpose are insufficient or non-existent or because the funds record increasingly larger deficits as the population ages and the cost of pension benefits rise.

[10] Enfoques. La Prensa Gráfica. 6 October 2002,. p. 3c-7c.

[11] Enfoques, op. cit.

[12] Citizen Proposal for Health, Salvadorean Medical Association, July, 1999.

The authors appreciate the collaboration of César Villalona, researcher and economist; Francisco Javier Ibisate, University chairholder; and Action for Health in El Salvador, APSAL