El Salvador - GFDRR

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106 | El Salvador: Damage, Loss, and Needs Assesment As a result of the deep contraction in internal demand, as well as a nearly 50% reduction in the petroleum bill, it is estimated that imports of goods will contract by about 25%. In terms of volume, the principal reductions were observed in imports of durable goods as well as capital goods. Consequently, for the entire year it is expected that the deficit in the balance of goods and services will decrease by over US$1.7 billion, reaching US$3.26 billion (14.9% of the GDP). In contrast to the above, a slight increase in the deficit of the revenue balance is expected, and a reduction of about US$400 million in flows of remittances, which represent approximately 16% of the GDP. Thus, it is estimated that the deficit in the current account will decrease by over US$1.2 billion, reaching US$418 billion, a figure equivalent to 2% of the GDP. In terms of DFI, it estimated that in 2009 the flow toward El Salvador would be reduced by approximately US$700 million, whereby only US$88 million would have been received in 2009. For 2010, a normalization and a reactivation of both external and internal demand is forecasted, which implies that net exports will again become negative. Although an increase in the flow of remittances is expected, these will be insufficient to avoid a slight increase in the current account deficit, which will reach a level equivalent to 3% of the GDP. c) Expected Economic Evolution in 2009 after the Disaster i) Key trends. The November 2009 floods caused by Hurricane Ida per se do not represent a problem of imbalance in key macroeconomic aggregates. 47 However, the GDP may experience a drop, depending on the speed of reconstruction works. In fact, considering the expansion of external demand through construction and the possible increase in remittances, a certain boost in economic activity may be expected by late 2009 and especially in early 2010. Thus, in the baseline scenario (which has a greater probability of occurrence), a 2.54% decrease in the GDP for 2009 is observed. For 2010, it is estimated that recovery may occur, with a 1% growth until reaching a 4% increase in the GDP in 2014. Here, it should be noted that, taking into account the effects of the disaster caused by Hurricane Ida, we will have a decrease in the GDP of only 0.07% in 2009, while reconstruction efforts and a greater boost in consumption would provide gains of nearly 0.5% in the GDP for 2010, later adjusting to their trend by 2014. However, if one considers the disasters that have occurred from 1982 to the present one in 2009 (six events), an accumulated reduction in the GDP over this period, equivalent to 0.9%, can be observed. Although the impact seems relatively minor, this has misaligned the country’s path toward theoretical equilibrium in the long term and has limited its possibilities for potential growth (see graph 11) 48 . 47 The cumulative effects of disasters and their inter-temporal dynamics have effects that can be quantified using techniques whose application is beyond the purpose of this document. 48 The data in this graph come from preliminary estimates for both, and thus may not adequately represent the reality but rather a GDP trend, and thus the results obtained in this exercise should serve merely as an approximation and may change subject to the availability of more recent information.
IV. ECONOMIC IMPACT | 107 GRAPH 11. EXPECTED PERFORMANCE OF GDP BEFORE AND AFTER THE DISASTERS, 2000–2010 (In rates of real annual variation) Source: CEPAL estimates. With regard to the external sector, taking into account the increase in the import component caused by Hurricane Ida in the fourth quarter of 2009, there will continue to be a slight deficit in the balance of the current account. Once again, free-trade zones, foreign exchange from tourism, and remittances would help to buffer the economic tightening. The disaster’s impact will divert resources and generate various fiscal pressures under a context of fiscal reform aimed at reducing public spending and achieving greater sustainability of the public debt. This will be moderated in the remainder of the fourth quarter and will be felt with relatively greater strength between 2010 as 2014, depending on how the reconstruction process develops. ii) Economic policy. Fiscal policy in the event of disasters. The President of the Republic declared a State of National Emergency whereby the government could allocate special funds to deal with the emergency. In addition, with this declaration of a national emergency the country can receive international aid to care for victims. In turn, the next day the Legislative Assembly decreed a State of Emergency, Public Catastrophe and Disaster, in order to streamline the appropriation of expenditures and the redistribution of budget allocations. In order to have resources available for the emergency, at President Funes’ request the Legislative Assembly approved the reallocation of US$300 million from an IDB loan that were originally contracted for the Special Social Investment Program (Programa Extraordinario de Inversión Social -PEIS), allocating US$150 million for expenditures associated with the emergency and reconstruction, and US$150 million to finance the Global Anticrisis Plan (Plan Global Anticrisis -PGA) which still lacked sources of financing. Moreover, the Assembly authorized the placement of securities for an additional US$300 million to finance the PEIS beginning in 2010. Finally, the Government asked the IDB for an emergency loan of US$20 million to deal with the first stage of rehabilitation and damage repair following the emergency. With respect to grants from the international community, the government has asked the United Nations for support
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El Salvador Damage, Loss, and Needs
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| iii ACKNOWLEDGEMENTS We wish to e
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Acknowledgement | v The external su
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| 1 PRESENTATION At the request of
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| 3 SUMMARY AND CONCLUSIONS Through
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| 5 I. DESCRIPTION OF THE EVENT A.
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I. DESCRIPTION OF THE EVENT | 7 The
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El Salvador - GFDRR

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