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  Number 336 | Julio 2009
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El Salvador

Do the “14 Families” Still Exist? Is There Even Still an Oligarchy?

What power groups is President Funes encountering as he starts his term in office? How have the traditional power structures changed after four ARENA governments since the civil war? In all the shifts, what remains of the old oligarchy?

Carlos Velásquez Carrillo

Abysmal inequalities in social relations and in the structure of power have always marked the history of the republic of El Salvador. The term “oligarchy” refers to the old families that founded the coffee industry and became entrenched during the Liberal reforms of the last quarter of the 19th century. As such, the term has special significance in the public’s mind and is still used to refer to those few who hold the economic power today.

The main question is, “How has the Salvadoran oligarchy changed?” Is it proper to still use the term oligarchy for the new financial power groups? El Salvador has changed rapidly in the last 30 years, from an agricultural exporter to a country based on finance, services and imports that uses the US dollar as its currency. And the oligarchy has changed as well, but in very unequal ways.

The coffee oligarchy:
A century of power

The new oligarchy has traded in its old retrograde, even feudal land-based ideology for the innovative “modernizing” neoliberal doctrine. Even with this ideological shakeup, however, the inequalities of privilege continue. In fact, the power structure has become more consolidated and the social inequalities ever sharper.

Using various methods over the years, the old coffee oligarchy successfully perpetuated its traditional agrarian ideology and maintained presidential power for almost exactly a century, from 1880 until 1979. In the early 1930s the Great Depression dealt a blow to the oligarchy’s political project, creating a crisis of power. The military had to be called in to re-establish order at gunpoint and save a shaky status quo.

The military capped its new interventionist role by massacring 30,000 peasants in January 1932, and didn’t give up its leadership until the signing of the Peace Accords. The point of this brief account is that the ideology of the coffee oligarchy remained intact for most of the 20th century, blocking any initiatives to promote endogenous development that threatened to diversify the base of production or engender a more balanced distribution of the national income. All attempts to industrialize the country, based on an import substitution model, were truncated through intentional negligence. The agro-export oligarchy was the backbone of the Salvadoran economy and its major source of hard currency and profit until the end of the 1970s.

Leaping into the modern
world with Cristiani

A number of factors severely weakened the hold the coffee growers had maintained on the economy since the 19th century. The crisis in coffee prices in the seventies, the October 1979 coup d’état and the US counterinsurgency strategy of the eighties all affected the ideological underpinnings of the old order. The foreign trade of coffee and sugar was taken over by the government, as were the banks, and a limited agrarian reform was designed. All these measures also combined to shatter the accumulation pattern that had reigned since the previous century.

The neoliberal doctrine headed up by the World Bank and the International Monetary Fund, which had become accepted worldwide by the end of the Salvadoran civil war, offered a life raft. When Alfredo Cristiani won the election in 1989, he opened El Salvador up to this new world model. Eagerly latching on to it, the Salvadoran oligarchy made an historic break with its founding ideology, the one that had served it, if not the country, so well for so long . Shaking off its agrarian mentality, it embraced “modernity”: a mode of production rooted in the financial and import sectors and linked to the transnational circuits of capital and services.

From the retrograde oligarchy emerged a supposedly fresh-scrubbed bourgeoisie focusing on services. Among other things, this involved a shift from using semi-feudal serfs to grow its coffee to hiring flexible salaried employees to work in its shopping malls.

The deathblow to the
agro-export sector

This shakeup also had an internal effect. Cristiani’s coming to power was a triumph for the most modernizing wing of the oligarchy, and these new actors didn’t necessarily come from the historically preponderant nucleus of the “14 families.” Starting with his privatizing of the banks and his tax reform, Cristiani’s government attacked the traditional agro-export sector head-on.

Establishing an anti-agricultural, pro-service credit policy, implementing fiscal incentives (drawback) for nontraditional exporters such as the free-trade zone maquila assembly plants and reducing import tariffs all helped marginalize the agro-exporters. Introducing a fixed exchange rate upheld by law delivered the deathblow to this dying sector. But its end, as well as the end of the model that had been attempted during the eighties couldn’t yet forecast the need for a different governmental orientation.

The dominant “eight”

The rupture within the upper class turned into fights within the Nationalist Republican Alliance (ARENA). This party’s traditional wing, which still had a lot of influence and resources, sought a way to get back its power through President Calderón Sol, who followed Cristiani in 1994. But the cards had already been dealt and there was no turning back.

Some of the losers fled to the National Conciliation Party and others opted to stay on the sidelines in the shadows. With them out of the way, ARENA’s business and financial wing hoisted the neoliberal banner, almost completely renouncing its traditional past. The eight new business groups that have dominated El Salvador’s economy since 1989 are Cuscatlán, Banagrícola, Banco Salvadoreño, Banco de Comercio, Agrisal, Grupo Poma, Grupo de Sola and Grupo Hill.

One of the 20 countries
with the worst inequalities

It should come as no surprise that this ideological shakeup in the composition of El Salvador’s oligarchy hasn’t translated into progress for the country. The new power group can’t easily be called a bourgeoisie in the traditional sense of the word because, with its usual greed and stinginess, it closed any spaces that might have opened up to a more inclusive socioeconomic and political accommodation and a more equitable distribution of wealth—of course without this meaning an end to the inequalities that come with capitalism. In other words, the change in the ideology and even composition of the power holders has brought no significant change in the basic power structure… other than to make it even more concentrated.

An example: Social Watch reports that 66% of the earnings from economic activity stayed in the hands of business owners in 1995, leaving 34% to the workers as salary. By 2005 this had changed to 75% for the business owners and 25% as salaries. Simply stated this means, “113,000 owners earn 75% of what 2,591,000 workers produce.”

The Gini Coefficient, which measures the level of income inequality, places El Salvador among the 20% of countries with the highest inequality. In real terms this means that El Salvador’s richest 20% receive 56% of the income, while the poorest 20% receive only 3%, almost 14 times less.

Other groups, same hierarchy

This clear change in the power group’s ideology has also modified how it functions and what it looks like have. The neoliberal business/financial group that has come to power has almost no connections to the agro-export sector. The economy it has created is based on financial capital, services, imports, remittances from outside the country and faith in neoliberal beliefs. But the old social relations and rigid power hierarchy, anchored in historic norms, have been maintained and deepened. Can we call the eight business groups that now drive the Salvadoran economy an oligarchy?

By the time the Peace Accords were signed in 1992, this new power group had ensured its place thanks to the policies of President Cristiani and ARENA. The implementation of the Peace Accords barely touched the country’s socioeconomic system. It focused on eliminating the military as a dominant force and on the institutional transition, without interfering in the course of the neoliberal reforms.

Respecting the principle that each historical stage must be analyzed according to its specific circumstances, including its respective power structure, we can identify two phases of this neoliberal consolidation. The first, or national phase, was characterized by a series of neoliberal policies that ARENA put in place in its role as the instrument for the dominant economic group, exclusively benefiting this group’s interests. At the same time these policies shaped the nature and functioning of the new power structure in El Salvador.

The great swindle and
those who benefited

Hurt by the interventionist policies of the eighties, the oligarchy used the neoliberal precepts of the “Washington Consensus” and the support of the international financial institutions to chart a new course. The first major neoliberal transformation during Cristiani’s term in office was the re-privatization of the banking system, which benefited a small group and laid the foundation for the new financial power we see consolidating itself today.

This was one of the greatest swindles perpetrated against the people of El Salvador in recent years, in which Cristiani paid off the arrears portfolio of the state banks with 3.5 billion colóns from the public coffers and passed these now “clean” banks to his family and friends. The visible beneficiaries included Murray Meza, Simán, Poma, Kriete and President Cristiani himself.

Fifteen years later, these banks were sold to transnational capital for $4 billion. The state treasury is still waiting to receive the capital gains taxes on this multi-million dollar transaction and will surely go right on waiting, because the majority of the shares of stock were registered outside the country and because tax evasion is business as usual in ARENA.

Tax reform: Robin Hood in reverse

Together with the price liberalization policies, the private banks’ new credit policy, which punished those in agriculture and encouraged services, gradually rolled back the agrarian reform of the eighties. Many cooperatives defaulted for lack of government credit and the resulting inability to keep up with the competition. Many landholdings returned to their original owners.

Coffee and sugar commercialization has similarly returned to private hands, and the importing of petroleum has been privatized. President Calderón Sol privatized the pension system and introduced Pension Fund Administrators (AFP), benefiting the large private bankers linked to ARENA, who rolled the AFP funds into their own prosperous financial portfolios. The tax reform pushed by ARENA also had clear winners and losers. Cristiani eliminated the patrimony tax paid by large property owners, reduced by half the income tax for those who earned more, and gradually lowered tariffs, which made it easier for the many new import businesses.

The fiscal gaps created by this tax reform were covered by the Value Added Tax, the most regressive conceivable, from which not even basic foods or medicines are exempt. Economist César Villalona puts it in simple but hard-hitting terms: “El Salvador’s tax system is like Robin Hood in reverse: it takes from the poor and gives to the rich.”

The icing on the cake

Finally, the shift to the US dollar as national currency and signing of the Central American Free Trade Agreement (CAFTA) were the icing on the neoliberal cake the powerful had cooked up. Changing to a dollar-based economy only benefited the banking conglomerates and large importers, as it removed any risk that devaluation of the colón might lower the value of outstanding bank loans or make purchases abroad more expensive.

CAFTA made importing even easier and has destroyed what’s left of the export and agricultural sectors, signaling the definitive shift to the second, or international, phase of the neoliberal consolidation. The Central Reserve Bank reports that the 2008 trade deficit exceeded $5 billion and that 2009 will be the same. Remittances can’t make up for this. Since there’s no longer a healthy export sector to generate currency, it looks like El Salvador’s only option is continued indebtedness in the short run, which will create an even worse situation in the long run.

Kidnapped by a neoliberal state

This short account of the neoliberal policies helps us see the new machinations of power in El Salvador. The service and import economy only benefits the new financial/importer group’s interests while hurting the lower class and the shrinking middle class. The neoliberal economy has been a perfect medium for the oligarchy to recover and consolidate its interests and privileges. Even worse than the fact that El Salvador is now a neoliberal state is that it has been kidnapped by a small group of people with their own defined and untouchable interests.

Neoliberalism has also stripped the Salvadoran government of its regulatory and distributive roles, now performed by the “free” market’s supposed fairness and efficiency and by the business world’s supposed ethics. However, this “free market” concept is a mistaken one, since Salvadoran society is run by monopolies and oligopolies—the actual antithesis of a free market. This has led to a perverse cycle of injustices in the political economy and corruption in the administration of the state. We’re now facing an even greater concentration of national income, fed by economic speculation interested only in short-term gains.

Let’s call them what they are

In sum, the past two decades have favored the interests of large capital, forged into eight business groups, allowing them to take over the national markets for goods, services and financial capital. We have thus watched the consolidation of what I propose calling the Neoliberal Oligarchy Bloc, to conceptualize the fact that they are neoliberal in their economic policies and actions but oligarchic in the way they think about power.

Carlos Velásquez Carrillo is a political analyst and collaborator with the Salvadoran daily Internet magazine, ContraPunto.

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