Fiscal Policy and the Budget Process
Salvadoran law stipulated that fiscal budgets of the central
government, the decentralized agencies, and public enterprises
such as Incafe and Inazucar had to be approved by the Legislative
(see The Legislature
, ch. 4). Budgets were generally
approved for one fiscal year
(FY--see Glossary) at a time.
Special projects, such as those funded by the United States
Agency for International Development (AID) and other foreign
agencies, were considered extrabudgetary operations, however, and
were not subject to legislative approval.
In nominal terms, government spending doubled between 1976
and 1982, from US$335 million to US$658 million. Government
spending was stable relative to GDP, however; government
expenditures represented 12.8 percent of GDP in 1972, compared
with 12.9 percent in 1986. In 1986 the government maintained a
surplus in its current account and an overall deficit equal to
5.4 percent of GDP.
The central government's fiscal deficit increased
significantly as a share of GDP during the 1980s as compared with
the 1970s. The deficit was 0.5 percent of GDP in 1976 but reached
3.4 percent in 1986. Most of the capital needed to cover the
growing fiscal deficits between 1979 and 1987 was obtained from
the Central Reserve Bank. The government could in fact cover
about 85 percent of its annual fiscal deficit with financing from
the Central Reserve Bank. In order to fund operations of public
enterprises and additional development programs, however, the
government had to rely heavily on foreign aid and international
loans. The government owed only US$88 million to foreign
creditors in 1970, but this indebtedness had increased to US$1.5
billion by 1986.
United States assistance greatly increased in importance to
the Salvadoran economy during the 1980s. Between 1980 and 1986,
the United States provided a total of US$2.5 billion in economic
and military aid. This represented an increase of more than 3,000
percent over the US$7 million in economic, military, and
development aid sent during the entire 1970-79 period. By 1987
United States assistance totaled US$608 million, larger than the
fiscal budget of the Salvadoran government of US$582 million.
Data as of November 1988