Services in El Salvador

Interviewees underlined that within CA El Salvador had been leading economic reforms from the early 1990s. In the spirit of the Washington Consensus recent governments had consequently pursued a course of market orientation and trade liberalization. Especially the financial sector had been the focus of public policies

49Besides the unfavorable cost structure, other indicators such as rates of cargo moved per hour or time of containers lying idle in port revealed severe inefficiencies in administration and logistics management in CA seaports.

6 CAFTA’S IMPLICATIONS ON THE SERVICE SECTOR IN GENERAL

during the first years, then followed, though to a lesser extent, by the telecommuni-cations sector. Trade liberalization had often been implemented in form of unilateral measures exposing domestic service providers to competition from abroad. As a con-sequence of this partly radical treatment practically all interviewees (in all countries) rated El Salvador as the best prepared country for CAFTA. Little impact in form of further domestic restructuring was expected due to CAFTA since market consol-idation was seen as comparatively far advanced as a consequence of the anticipated liberalization over the last years. One interviewee argued that El Salvador could be regarded as the clandestine winner of CAFTA since its neighbor countries were now obliged to liberalize trade and offer access to their markets which El Salvador had already granted them before⁵⁰. However, in the meantime its own service economy had already run through the necessary adjustment and transformation processes and now enjoyed a headstart in terms of competitiveness.

Other interviewees articulated concerns about market fundamentalism in the sense that confidence into the problem-solving power of the markets was so high that the state was not perceived as being in charge (or not being able) of draft-ing and implementdraft-ing a strategic development agenda and of conductdraft-ing industrial policy. The fact that state interventions were seen to be per se dubious and were avoided under most circumstances partly resulted in imposing heavy burdens on the poor who neither received protection nor compensation from losses caused by liberalization.

It has already become apparent from figure 1 that El Salvador experienced a significant shift away from agriculture to services over the last two decades⁵¹. Interviewees stressed that the country was in a position to further this development by ambitions to establish itself as the region’s powerhouse in financial services and its most recent intention to become an important logistics center for CA. Plans for the latter project include for example the construction of a highway from Puerto Cutuco (Pacific coast) to Puerto Cort´es at Honduras’ Caribbean coast in order to offer an alternative to the Panama Canal. Furthermore, with the region’s largest airline, TACA⁵², and its air cargo business as well as the country’s compact size and its comparatively modern roadways El Salvador can boast some comparative advantage toward its neighbors. Implementing this strategy will further benefit the

50 This line of argumentation refers mainly to the service sector.

51Its share of services of the national GDP increased by 11% as compared to 4% in Guatemala and 2% in Honduras.

52 TACA started as a local company and expanded by an aggressive take-over strategy highly successful over the last years, meanwhile serving the entire Western Hemisphere.

6 CAFTA’S IMPLICATIONS ON THE SERVICE SECTOR IN GENERAL

construction sector due to the large investments that will be made in infrastructure.

Additionally, it will allow El Salvador to profit from the increase in economic activity and the higher trade volumes stimulated by CAFTA.

One interviewee held that the country also benefited from the high affinity which it had developed toward services as a consequence of the large number of Salvadore˜nos working in this sector in the USA⁵³. Salvadore˜nos returning home from abroad would provide some kind of knowledge transfer to their families and communities.

Besides finance and transport interviewees named telecommunications services another strategic sector. Comparatively low costs and high quality of telecommu-nications were cited as the main reasons for attracting call centers to the country (DELL, TACA). However, it remained to be seen whether the country could build up on these first successes in order to gain reputation and become more present as an alternative location for US companies’ outsourcing strategies in this field. Services related to air transport were given as an example for lucratively taking advantage of the specific strengths of the country: Maintenance and reparation services for aircrafts could be extended from TACA’s own fleet to the fleets of US airlines since costs are significantly lower than for comparable services within the USA. Though this example is not related to CAFTA it can still illustrate how comparative advan-tages can be found even in highly specialized services under certain circumstances.

In the area of professional services interviewees pointed to the fact that El Salvador posed a special case in CA since it did not have a system of obligatory

’colegiatura’⁵⁴like its neighbor countries. Though a system of supervision and public control existed in these professions, it was less formalized than elsewhere. Some interviewees voiced concerns that this lack might be abused by other CA countries to apply protective measures against El Salvador under the pretext to secure their quality standards. They stressed that harmonization of the national provisions on

’colegiatura’ would be crucial in order to promote trade in professional services within the region; at the same time, interviewees doubted quick progress with respect to the recognition and accreditation of educational standards and titles, especially for the case of El Salvador. According to one interviewee this national particularity prevented liberalization of trade in services in most professions.

53 It should be noted that emigration rates of El Salvador are almost double of those of its neighbors (ESV: -3.67 migrants per 1000, GUA: -1.63 m/1000; HON: -1.95m/1000).

54 The term refers to the graduation from colleges for technical professions.

6 CAFTA’S IMPLICATIONS ON THE SERVICE SECTOR IN GENERAL

The highest potential for exports in professional services was seen in medical services such as dentistry, cardiology, and life-style surgeries. So far, health tourism had been mainly confined to Salvadore˜nos living in the USA and undergoing treat-ments in El Salvador for cost reasons when they visited their families⁵⁵. Several interviewees (also from other countries) attested medical schools in El Salvador to have a good reputation for their standards. Many students specialized abroad before they returned to the country and possessed the necessary professional expertise to extend health tourism beyond emigrated locals and also attract foreigners. Cuba was quoted as an excellent example of how medical services could be combined with a wide range of touristic offers in order to draw visitors from all over the world and benefit from their spendings on various ends of the service spectrum. However, some interviewees remained skeptical whether it was possible to establish El Salvador as a destination for health tourism since they discerned severe deficiencies in the entre-preneurial part of building up this service segment and marketing it appropriately.