El Salvador is the country with the least foreign direct investment (FDI) in Latin America according to a report released last week by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). The country experienced a 79 percent decline in investment compared to the previous year, with total investment amounting to a meager $89 million.
As the report was being quoted in local media outlets an avalanche of political opportunism ensued. For one, members of the private sector—citing recent rifts between the judicial and legislative branches over some controversial decisions related to electoral reform—cited judicial security as the source of lagging investment. Alternatively, President Funes blamed the private sector for not investing in El Salvador. This criticism was reinforced in the report’s analysis, which noted that Salvadoran businesses were the largest investors in Central America with a capital outflow greater than those of their regional competitors.
The ghosts of political instability and public insecurity in a country with endemic homicide rates resonated widely. But while we become entrenched in politically charged bouts, we fail to evaluate information for what it is.
Why is El Salvador posting such low numbers? Part of it is due to changes in the formal accounting principles used to aggregate foreign direct investment, according to ECLAC. Then they cite “endogenous factors like citizen insecurity, increasing operation costs of foreign businesses and the erosion of certain incentives associated to special sectors.”