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El Salvador

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Topographic Map of El Salvador

El Salvador shares borders with Guatemala and Honduras, the total national boundary length is 546 km (339 mi): 126 miles (203 km) with Guatemala and 343 km (213 mi) with Honduras. It is the only Central American country that has no Caribbean coastline. The coastline on the Pacific is 307 km (191 mi) long.

Two parallel mountain ranges cross El Salvador to the west with a central plateau between them and a narrow coastal plain hugging the Pacific. These physical features divide the country into two physiographic regions. The mountain ranges and central plateau, covering 85% of the land, comprise the interior highlands. The remaining coastal plains are referred to as the Pacific lowlands.

Economy:

El Salvador’s economy has been hampered at times by natural disasters such as earthquakes and hurricanes, by government policies that mandate large economic subsidies, and by official corruption. Subsidies became such a problem that in April 2012, the International Monetary Fund suspended a $750 million loan to the central government. President Funes’ chief of cabinet, Alex Segovia, acknowledged that the economy was at the “point of collapse.”

In December 1999 the Salvadoran government undertook a monetary integration plan beginning January 1, 2001 by which the U.S. dollar became legal tender alongside the Salvadoran colón, and all formal accounting was done in U.S. dollars.

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Salvadoran Colon

It has long been a challenge in El Salvador to develop new growth sectors for a more diversified economy. In the past, the country produced gold and silver, but recent attempts to reopen the mining sector, which were expected to add hundreds of millions of dollars to the local economy, collapsed after President Saca shut down the operations of Pacific Rim Mining Corporation. Nevertheless, according to the Central American Institute for Fiscal Studies (Instituto Centroamericano for Estudios Fiscales, by its acronym in Spanish), the contribution of metallic mining was a minuscule 0.3% of the country’s GDP between 2010 and 2015. Saca’s decision although not lacking political motives, had strong support from local residents and grassroots movements in the country. According to NACLA, incoming President Funes later rejected a company’s application for a further permit based on the risk of cyanide contamination on one of the country’s main rivers.

As with other former colonies, El Salvador was considered a mono-export economy (an economy that depended heavily on one type of export) for many years. During colonial times, El Salvador was a thriving exporter of indigo, but after the invention of synthetic dyes in the 19th century, the newly created modern state turned to coffee as the main export.

The government has sought to improve the collection of its current revenues, with a focus on indirect taxes. A 10% value-added tax (IVA in Spanish), implemented in September 1992, was raised to 13% in July 1995.

Inflation has been steady and among the lowest in the region. Since 1997 inflation has averaged 3%, with recent years increasing to nearly 5%. As a result of the free trade agreements, from 2000 to 2006, total exports have grown 19% from $2.94 billion to $3.51 billion, and total imports have risen 54% from $4.95 billion to $7.63 billion. This has resulted in a 102% increase in the trade deficit, from $2.01 billion to $4.12 billion.

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