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El Salvador, Economy

Salvadorans, planter class, subsistence farming, price controls, major export

Traditionally, the Salvadoran economy depended heavily on agriculture. For much of the colonial period in the 16th and 17th centuries, subsistence farming and ranching occupied most of the population. In the 18th century Spanish economic policy promoted new agricultural products for export, and Salvadoran indigo became Central Americaís leading crop. In the 19th century indigo lost importance after the discovery of chemical dyes, and coffee replaced it as the principal Salvadoran export. A small group of coffee planters gained economic and political power, leading El Salvador to depend on international coffee markets. Coffee brought El Salvador enough wealth to build impressive new ports, railways, and paved highways, and to modernize San Salvador.

In the 1940s the planter class took over more land along the Pacific Coast and expanded into other export crops, such as cotton, sugar, rice, and beef. Peasants were forced off their land, and domestic food production lagged behind rapid population growth. While the small group of landowners became richer, most Salvadorans faced hunger and malnutrition that was among the worst in the world. This economic condition led to serious social and political problems and eventually to the civil war of the 1980s. The war devastated the economy, causing an estimated $2 billion in economic damage. Investment and production declined sharply at the beginning of the war, then grew slowly. In the 1980s El Salvador relied on more than $5 billion in foreign aid, mostly from the United States.

Since the war, El Salvador has made notable progress in restoring production and investment. Recent reforms have eliminated many price controls, broken up government monopolies over agricultural exports, reduced trade barriers, maintained interest rates, and reduced the deficit. The postwar governments have worked to privatize government-owned activities and expand the nationís roads, communication services and other facilities.

Agriculture in 2000 accounted for 10 percent of El Salvadorís $13.2 billion gross domestic product (GDP). Coffee remains the major export, accounting for one-third of export revenues, but is a declining percentage of total economic activity, as investment has widened the base of both the domestic and export economy. Manufacturing now accounts for 23 percent of the GDP. Annual growth in the GDP averaged 4.7 percent in the period 1990-2000. The per capita GDP for 2000 was $2,110, but when inflation was taken into account, wages declined in the 1990s.

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Article key phrases:

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