Consortium Legal - El Salvador
March 27, 2015 - El Salvador
El Salvador: Government Efforts To Improve Investment Climate Should Increase
by Eduardo Tomasino
Private sector, investors and experts agree that the Government of El Salvador has to improve the business climate to attract more national and foreign investment that would contribute to increase the Gross Domestic Product and improve in this way the living conditions of the population.
In spite of the State efforts to modernize and improve the legal framework of the country, the experts agree that the government needs to take specific actions to improve the investments climate and guarantee more legal certainty to investors from a legal and physical point of view, enforcing and complying with the laws and fighting crime more efficiently.
To elaborate on this topic, we present below the opinion of Dr. Eduardo Tomasino
1. Is there a legal framework that secures investments in El Salvador?
El Salvador has a legal framework that is propitious and does guarantee the promotion of national and foreign investment through various instruments, including the Monetary Integration Law, the Investments Law, the International Services Law, the Tourism Law, and Free Trade Agreements with several nations: the Dominican Republic, Chile, Panama, the United States and China- Taiwan, among others.
2. Does the State respect this legal framework thoroughly or just partially?
The State is required to respect the legal investment framework fully, implementing clear and accurate rules thus allowing the country to compete internationally, as well as laws and procedures that secure such enforcement, in view of the fact that the State needs to promote economic and social development, by means of an increase in national and foreign investments, which are in turn required to generate jobs and maintain a sustained economic growth.
However, there are doubts with regard to compliance with these laws because the State is not actually working to promote and encourage investments in general, or offering suitable conditions that may attract national and foreign investors, in particular due to the lack of legal certainty and security for citizens, which are two fundamental elements, sought by investors.
3. Is the government working to offer legal certainty and national and foreign investors?
The Government of El Salvador works very little on the legal certainty required by national and foreign investors. There are at this time several bills of laws directed to improve the current situation. This is important for the promotion of national and foreign investments because such improvement would allow El Salvador to transmit message of trust during uncertain times in the country, something crucial to such investments.
The total investment in our country continues decreasing with regard to the GDP, which reduces the potential growth of the economy. There is a negative perception by investors, due to factors such as political and economic uncertainty and crime.
A simple law is not enough to give legal stability to the investments in the country. In fact, there cannot be effective stability without respect to the rules of the economic, social and political game, a business investment climate based on trust and a State that facilitates business and employment.
The government is making some efforts day by day to have a better scenario to attract foreign and local investment, which would help to make the economy of the country more dynamic, applying policies of promotion of investment in sectors such as food, recreation, transport and others.
In spite of all these efforts, the State still has a lot to do to achieve its objective, because it does not have the elements and tools required to promote all these projects in the country that would help to attract more and higher investments and achieve in this way a stable economy.
4. Is there sufficient legal certainty in the country by means of actions, laws, judgments and public policies?
Certain actions have been implemented in our country as well as in several Central American countries; for example, the granting of land at symbolic prices, tax exemptions, development of free zones, creation of agencies to attract foreign capital, providing facilities for the establishment of foreign companies, and simplification of proceedings, among others; all within the legal framework, supported by laws as the Investments Law, the Industrial and Commercialization Free Zones Law, the Law of Promotion and Protection of Intellectual Property and the Export Reactivation Law.
There are about 20 international bilateral treaties, and many public policies. The entity in charge of seeing to the enforcement of these laws is the Ministry of Economy (MINEC), which works together with the offices in charge of applying policies directed to achieve full compliance. This will guarantee that investors would consider investing in our country.
5. Which would be the legal consequences for the country if the Government fails to enforce a judgment of an international court?
In general, there would be political and economic consequences at international level, because the country can be punished with large fines, or the relations with other countries may be damaged, even resulting in a blockage by international organizations in the future, when considering that the country refuses to enforce international resolutions.
6. Which would be your recommendations in order that the Government may generate trust among investors?
One of the main recommendations is to fight against and attempt to eradicate the various problems affecting both, local and foreign investment, as well as high level of crime and political uncertainty that is affecting our country.
It is necessary to continue implementing new actions, laws and public policies that would promote growth and investment in our country, apply new incentives to Free Zones and export areas in El Salvador, strengthen the country in economic innovation, improve the quality of the entities in charge of the regulation of these laws, educate and train the human resources in charge of providing good services in the various Government entities and provide more legal certainty... If the investor does not have legal certainty, then he would look for another market, one that is going to guarantee that his investment is going to work out and that there would be compliance with any terms agreed upon.
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