5. THE EFFECTS OF GLOBALIZATION ON WORKING CONDITIONS: EL SALVADOR, 1995–2005
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In El Salvador and other countries of the region, including Mexico, the historical perspective is important to gaining an understanding of the evolution of maquila exports. The expiration of the MFA, which eliminated quotas regulating the flow in textiles around the world on January 1, 2005,9 was a critical event in the development of the maquila sector. After the first round of economic reforms and liberalization in El Salvador, maquila exports took off, increasing from close to zero in 1990, to over US$1.6 billion in 2000. After that, growth in maquila (mostly apparel and textiles) slowed, reaching a peak in 2004 of nearly US$1.9 billion. Maquila decreased to US$1.6 billion in 2006. The resulting loss in employment was considerable. Employment growth fell each year from 2001 through 2005, suggesting that even before the expiration of the MFA, some companies had begun shifting production elsewhere. India, Bangladesh, China, and perhaps Indonesia have lower wages and possibly higher productivity than El Salvador. Their rising participation in world trade may have contributed to the relative decline in El Salvador’s maquila sector after 2000. If growth in the maquila sector improves or worsens working conditions, its contraction may have the opposite effect. Trends in the composition of imports. Among the four major import aggregates— maquila, consumption, intermediate, and capital goods—imports of intermediate goods are the largest and increased from US$629 million in 1990 to US$2.8 billion in 2006. The second largest component comprises consumption goods imports, which increased from US$399 million in 1990 to US$2.4 billion in 2006, and increased their share of total imports from 24.6 percent in 1991 to 31.5 percent in 2006 (figure 5.3).10 Similar to maquila exports, maquila imports increased rapidly from 1991 to 2000, but during 2000–05, maquila imports grew at a very mild rate, even reducing their share in total imports. Imports of capital goods increased rapidly between 1990 and 1995, stabilized between 1996 and 1999, and increased again in 2000. They stayed at similar levels until 2006, but have been decreasing in share overall since 1999. Foreign Direct Investment
Systematic FDI data are available beginning with 1997, when the Central Bank adopted the standards of the International Monetary Fund’s fifth edition of the Balance of Payments Manual. Between 1997 and 2006, FDI (not including intercompany transactions) increased ninefold, from US$480 million in 1997 to US$4.37 billion in March 2006 (tables 5.2 and 5.3). The dynamics of CAFTA and large investments in the banking sector created new opportunities that brought an additional US$1 billion in FDI between 2006 and 2007. Most of this increase came from the acquisition of controlling equity interests of the three largest banks in the country by Citibank, HSBC, and Bancolombia. The main FDI partner is the United States, followed by Mexico (with large investments in the telecom sector), and the British Virgin Islands. FDI in El Salvador is biased toward the nontradable sector.11 Privatization of electricity and communications attracted the first large inflows of FDI in 1998, bringing the total stock to US$1.6 billion in that year (table 5.3). The nontradable sector share in FDI went from 44.3 percent in 1997 to 71.1 percent in 1998, and remained close to 70 percent through 2004. Privatization of the banking sector and financial liberalization occurred in the early 1990s, but equity was mainly acquired by local investors. Since 2006, however, FDI has gone into the banking sector, with acquisitions of national and regional (Central