Republic of El Salvador

El Salvador, known as the land of volcanoes because of its frequent earthquakes and significant volcanic activity, is also often at the mercy of hurricanes. The country shares borders with Guatemala and Honduras, but is mainly mountainous with a narrow coastal strip and a central plateau.

The country has been independent from Spain since 1821 and left the United Provinces of Central America in 1839. Recent history was marked by a 12-year civil war that ended in 1992 with a death toll of 75,000. Since then, the country has undergone a democratic changeover.

El Salvador's population increased from 1.9 million in 1950 to 4.7 million in 1984 and is estimated to be around 6.3 million in 2021, which implies a high population density given the small size of the country (21,041 km2). The population is predominantly of mixed race, i.e. a mixture of indigenous Amerindians/European descent and indigenous peoples; 64% of the population lives in cities.

Despite its small size, El Salvador is one of the important economies of Central America and is the fifth largest economy in the region in terms of GDP per capita. However, the economy suffered badly with the global recession in 2008. The economy has since recovered thanks to greater political stability, improved exports and increased remittances from Salvadorans living abroad. Remittances represented 26.1% of GDP in 2021. Remittances to El Salvador have a much greater impact on the country's economy than foreign aid.

In 2006, El Salvador was the first country to ratify the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), which boosted exports of food, sugar and ethanol, and supported investment in the textile sector in the face of increased Asian competition and the expiry of the Multi-Fibre Agreement in 2005. El Salvador has promoted an opening of its economy and improved the investment climate by launching a wave of privatisations from telecommunications to electricity distribution, banking and pension fund management.

With the adoption of the US dollar as the official currency in 2001, El Salvador lost control of its monetary policy. Any counter-cyclical policy response to the crisis must be through fiscal policy, which is limited by legislative requirements and the already high level of debt.

A new cooperation model was put in place when the last Indicative Cooperation Programme expired in 2015, and El Salvador was transformed from a "priority partner country" to a "project country". Since 2016, the execution of bilateral cooperation is ensured by the Salvadoran Government, while LuxDev's role is limited to the accompaniment and monitoring of bilateral projects, through the SVD/024 project (1.8 MEUR for 2016-2024). This new cooperation model is fully in line with the international principles of aid effectiveness and allows the implementation of innovative projects, in particular in three areas:

• support for the Government's social policy;
• support for civil society via the "Fondo Concursable", managed by the Salvadoran Government;
• support for South-South and triangular cooperation through the implementation of projects in which El Salvador acts either as a beneficiary or as a provider of aid and expertise to other Latin American countries.

As a complementary component to the bilateral projects, Luxembourg also supports fiscal transparency and the fight against corruption through its long-standing partner, the NGO FUNDE (EUR 400,000 for 2019-2021), as well as the OAS Commission against Impunity (EUR 400,000 for 2020-2022).