27-28 August 1998
Civil Society Perspectives on Structural Adjustment Policies
El Salvador convened its Opening National SAPRI Forum in San Salvador on 27-28 August. The Fundacisn Nacional para el Desarrollo (FUNDE), the lead organization in El Salvador, together with the local SAPRIN civil-society steering committee, organized the event, in which some 340 people participated, representing a broad spectrum of Salvadoran society. Women, small farmers, business people and academics joined with environmentalists, human-rights activists, union members and church groups to assess the impact of adjustment measures on their country and peoples' lives. Congressional representatives and a member of the armed forces also attended. Since the Salvadoran government had unilaterally withdrawn from SAPRI earlier in the process, there was no official government representation, although some officials from the Ministry of Education did attend. The Forum followed 18 months of local outreach and organizing around the country, including a series of sectoral workshops on structural adjustment in which the key policy measures to be assessed were identified. The number of organizations formally affiliated with the SAPRI exercise in El Salvador has grown to nearly 70.
After an opening plenary session the Forum divided into three groups, each focused on the effects of a significant adjustment measure. These policy measures -- privatization of public services, labor-market flexibility, and liberalization of the financial system -- will be the focus of the participatory research and assessment in the next stages of the exercise. Below is a brief summary of the key points made during the Forum regarding the impact of these policy measures, as well as some recommended alternatives.
I. Privatization of Public Services: Impact on the Poor and Low-Income Sectors of Society
The participants emphasized that the privatization of public services cannot be viewed as a series of isolated measures, but should be seen as a "chain reaction" in which the privatization of one service impacts numerous other services and sectors. They noted that this privatization process has led to price increases, limiting the ability of low-income people to access these services and, indirectly, other goods and services as well. Ultimately, this has had a negative impact on the quality of life of many people, reflected in increased economic vulnerability and higher poverty rates. They added that a lack of transparency in the privatization process has led to a low level of public confidence in the overall supervision of the program and in the negotiation and allocation of revenues generated from the sale of public services. Participants described a makeshift approach in the design and implementation of privatization measures, which they say has resulted in private monopoly structures, contradicting World Bank recommendations on privatization.
The group divided in half to examine the privatization process in two public services: electricity distribution and specialist health-care services. Forum participants agreed that, in both areas, privatization has resulted in increased costs to consumers, reduced access for low-income people and a notable decline in the quality of service. In the area of electricity distribution, a lack of transparency in bidding processes and an overall lack of regulation of the private-sector providers have contributed to these negative results. In terms of the specialist health-care services provided by the Salvadoran Social Security Institute (ISSS), the first area of the health sector to be privatized, participants noted that substantial increases after privatization in the price of services and medicines occurred not only with private providers but for public services as well, effectively restricting treatment to those who can afford to pay. Although basic health-care services have not yet been privatized, user fees have increased. One effect of the price increases is a growing tendency for people to use traditional treatments or to self-medicate in spite of the risks this entails.
To pay for increased electricity rates, families have been forced to cut back on other expenditures and ration their use of electricity. In an effort to reduce household costs, many rural families are resorting to more traditional energy sources -- especially collecting and burning wood -- which contributes to deforestation and generates a significant additional workload, most often for women. Women tend to bear the greatest burden of increased prices because they have greater domestic and child-rearing responsibilities, often in addition to paid work outside the home. Children have also been negatively affected by price increases, which have led families to reduce their expenditures on education and recreation. In an effort to supplement the family income, children are sent to work, contributing to an increase in child labor.1 The impact of price increases is also seen among micro and small enterprises, and higher electricity bills have been a factor contributing to the forced closing of some of these businesses.
Access to electricity has also been restricted. Participants noted that low-income communities in rural areas have been hardest hit, since the newly privatized electricity-distribution companies do not see most rural areas as sufficiently profitable and therefore prefer to export power to neighboring countries. The existence of a monopoly (within each geographic region) and the consequent profit-driven mentality, the forum participants argued, have dwarfed concerns about quality and expansion of services. As a result, the quality of service has deteriorated considerably. There are regular and prolonged blackouts, customer complaints are not addressed, customers are not provided with basic service and billing information, and overcharging is a common practice.
In the area of health care, the participants noted a decline in the quality of service from both private providers and public-service providers. They blamed the lack of a national health policy that would address the problems of the health sector in a global manner, instead of the current system of fragmented, band-aid remedies and poor coordination among the various health agencies. Since the privatization process did not involve consultations with health-sector workers, there are ongoing conflicts between physicians' trade unions and health institutions, which cannot help but affect services. All of these problems are reflected in a trend toward higher mortality and lower life-expectancy rates.
To address these problems, forum participants made a series of recommendations. Overall, they insisted that the agencies overseeing the privatization process must provide a full accounting of the finances involved and ensure that revenue generated be allocated to meet social needs. In addition, participants argued that there must be a clear definition of the roles, policies and strategies being followed by different public agencies that provide services, as well as a mechanism for ensuring that they complement, rather than contradict, each others' work. Finally, the participants in this session emphasized the need to promote the active involvement of civil-society and community groups in the privatization process in an effort to ensure that social and environmental needs are taken into consideration. An emphasis on local development and coordination among local agencies, it was argued, would help to strengthen civil society's ability to participate in and influence the privatization process.
In the area of electricity distribution, the participants emphasized the need to overhaul the regulatory agencies in order to ensure that they do a better job of overseeing rates, quality of service and the profits of the private companies. Other suggestions include: a law requiring electric companies to fund projects to minimize the negative environmental impact of their activities; a tax on electric companies to pay for environmental protection projects; differential rates (according to income level and usage); and targeted subsidies for the most vulnerable sectors of the population. Participants emphasized the need, over the long term, for civil-society organizations to educate and empower consumers in order to protect their rights, and to work with government agencies to promote the use of alternative, clean energy sources. To improve the health-care system, they called for the decentralization of health services in order to increase local participation and develop a more adequate response to the needs of each community. This should be accompanied by a high level of coordination among local institutions and an emphasis on collecting better data in order to design more effective health-care strategies for low-income sectors of the population.
II. Labor Market Flexibility: Impact on Workers
The policy of introducing more flexibility into the Salvadoran labor market has had a number of negative consequences for workers and their families. The policy encourages increased use of temporary, part-time workers, which has made employment more unstable. Work hours have also become more "flexible", often leading to longer work days with no overtime pay. According to the observations of forum participants, in many instances the "flexible" labor policy appears to be abused by employers, who have taken advantage of the indifference of the Labor Ministry and the relative weakness of labor unions to violate labor laws. For example, the firing of union workers and their replacement soon after with non-union employees is a recurrent problem. In the countryside, there is an increasing reliance on temporary day laborers, creating greater instability for rural families. In response, family members are migrating in larger numbers to already overcrowded urban areas, contributing to social and environmental problems. Women are usually the greatest victims of labor violations after migration since they are forced to work in maquila factories or as domestic workers, situations in which even the most basic labor laws are often ignored.
The policy of liberalizing wages has resulted in declining purchasing power. There were numerous complaints among forum participants that companies, taking advantage of the abundance of manual labor, do not comply with minimum-wage laws. What's more, increased efficiency and productivity is rarely rewarded with higher wages. Low salaries and long work days are having a harmful effect on workers' health and nutrition and making it increasingly difficult for them to find affordable housing. More and more children are now entering the labor force in an effort to supplement declining family incomes. These children are usually forced to drop out of school to take jobs that pay "apprentice" salaries far below the minimum wage, although their duties are similar to those of regular, adult employees.
Given the nature of the problem, the forum participants emphasized that solutions must involve the government, businesses and organized labor. To start, participants insisted that the government must establish a living minimum wage and fulfill its duty to crack down on any company that does not comply. Other ideas included the use of tax revenues to start job-creation programs (with a particular emphasis on programs for women and youth); job training programs for employees as a means of improving productivity; and a greater involvement of workers in more democratic decisionmaking structures in the workplace.
III. Liberalization of the Financial System: Impact on Access to Credit by Small-Scale Enterprises
The third policy measure addressed in the SAPRI Forum was the liberalization of the financial system and its impact on access to credit by micro and small enterprises. It was agreed that financial-sector liberalization has led to increased intermediation costs and a reduction in credit for these businesses, which is contributing to a concentration of wealth.
Since the adjustment program was initiated, active interest rates (charged on loans) have gone way up, while passive rates (given on savings) have declined. This illustrates reduced efficiency in the sector, which is contrary to the stated purpose of liberalization. In addition, banks are charging higher commissions when they approve loans, further cutting into small businesses' capital. There is also a problem with special "moratorium" rates, which are imposed on overdue loans, and the practice of charging interest on the interest on loans. This has forced many businesses into bankruptcy as their debt spirals out of control.
Another result of liberalizing the financial system has been the concentration of credit in the commercial and service sectors, which now receive favorable treatment from financial institutions. Very little credit is channeled to strategic, although less directly profitable, sectors such as agriculture (along with rural enterprises) and infrastructure, and the role of development banks and agencies that support these and certain industrial sectors has been considerably weakened. The requirements for obtaining credit are often too restrictive for small businesses. For example, artisans have difficulties accessing credit, even when they present national and international purchase contracts, because the banks refuse to recognize these contracts as collateral. Women also have a harder time getting credit because of the strict requirements set by banks.
The obstacles that small and micro enterprises face in getting formal-sector loans have led to a preponderance of loan sharks and usury. Although these lenders place fewer restrictions on their loans, they charge even higher interest rates, thus putting the small-scale producer at an even greater disadvantage relative to their more established counterparts. All of these factors negatively affect attempts to diversify the Salvadoran economy, which is an important element in ensuring long-term sustainable development. The participants argued that since SAPs were introduced, more collateral is required to receive credit, and long-term loans are harder to obtain for small-scale enterprises. Often, they said, properties and commodities used as collateral are appraised at below market value. At the same time, banks frequently require the value of collateral to be higher than the amount of the loan. The financial system offers no special programs for small start-up companies or women-owned enterprises, further contributing to the concentration of credit in the hands of a small number of already favored businesses and economic sectors.
The participants in this work group felt an overhaul of the financial system is needed. Central to such a reform would be a policy of differential interest rates according to the business' financial situation, its access to markets, and its strategic role in the economy. Overall lending for strategic activities should be increased, they argued, especially for environmentally sustainable projects and environmental protection programs. Other suggestions for financial reforms included: training for micro and small enterprises on financial management; the use of alternative forms of collateral (such as production and sales contracts); a program to encourage large businesses to guarantee loans to small-business associates; the creation of special programs to train and finance entrepreneurs, especially women; and the formation of business or union associations to serve as guarantors of loans to their members. In addition, development banking was seen as necessary to foster growth of micro and small enterprises and ensure diversification of the economy.
The participants in the SAPRI Forum shared a wealth of personal experiences and related knowledge in this participatory assessment of adjustment measures in El Salvador. While there were specific findings and recommendations related to the various sectors discussed in each work group, there were also some common themes regarding the adjustment process and the policies being implemented.
There was general agreement that the adjustment process has lacked transparency. In addition to generating a public distrust, this lack of openness has had a negative impact on the efficiency and effectiveness of policy measures. One area of criticism related to the issue of poor program design and implementation, or simply corrupt practices. Although the World Bank may argue that this does not reflect on adjustment policies per se, it was noted that the promotion of privatization and liberalization policies without first ensuring that proper safeguards are in place is a problem with the adjustment process itself.
Finally, there was great interest among the civil-society representatives in becoming more active participants in these processes from the beginning, i.e., prior to program design. They believe that with more active citizen participation, policy measures can be adapted to meet the needs of low-income communities and to support long-term, more sustainable economic development alternatives.
1. UNICEF's figures were cited, which show that the number of working children has doubled during the last five years.