VZCZCXRO1013
RR RUEHLMC
DE RUEHSN #0230/01 0752300
ZNR UUUUU ZZH
R 162300Z MAR 09
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC 0839
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC

UNCLAS SECTION 01 OF 02 SAN SALVADOR 000230 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINV ES
SUBJECT: EL SALVADOR: 2008 EXPORTS UP BUT SHOW SIGNS OF WEAKNESS 
 
Summary 
------- 
 
¶1. El Salvador's total exports and imports increased by 14.2 percent 
and 12 percent respectively during 2008.  Exports to the United 
States increased by 7.7 percent, while exports to other Central 
American countries increased by 21.3 percent.  Traditional exports 
of coffee, sugar, and shrimp increased by 28.9 percent, 
non-traditional exports increased by 19 percent and maquila (textile 
and garment) exports increased by 6.6 percent.  However, El 
Salvador's trade deficit increased by 10.1 percent to $5.2 billion. 
Despite the overall strong performance, exports weakened late in the 
year, especially in the maquila sector, where monthly exports 
dropped 32 percent from November to December.  Similarly, in January 
2009, overall exports dropped by 18.4 percent compared to January 
¶2008.  El Salvador's strong 2008 numbers, especially in 
non-traditional exports, reflect the continued benefits of CAFTA-DR 
to Salvadoran exporters and represented a bright spot in an 
otherwise slowing economy.  With a four-to-six month lag between the 
U.S. economy and the Salvadoran economy, however, the negative trend 
in late 2008 and early 2009 is expected to continue.  End summary. 
 
Strong Export Growth in 2008 
---------------------------- 
 
¶2. According to Central Bank figures, El Salvador's 2008 exports 
grew by 14.2 percent to $4.549 billion.  Exports to the United 
States represented 48 percent of total exports and grew by 7.7 
percent from 2007.  Exports to other Central American countries, 36 
percent of total exports, grew by 21.3 percent. 
 
¶3. The traditional exports of coffee, sugar, and shrimp increased 
28.9 percent to $334.7 million.  Coffee exports, taking advantage of 
higher prices, increased by 38.2 percent in value, to $258.7 
million, and by 20.7 percent in volume. 
 
¶4. Non-traditional exports increased 19 percent, to $2.286 billion, 
and now account for 50.25 percent of total exports. Non-traditional 
exports to Central America increased by 18.5 percent.  Ethyl alcohol 
accounts for about 9 percent of non-traditional exports and 14.5 
percent of non-traditional export growth.  Other important exports 
include iron, steel and related products, cotton yarn, preared 
medicines, fruit juice, chemical products, nd boxes. 
 
¶5. Maquila (garment and textile) expots accounted for 42 percent of 
total exports and rew by 6.9 percent to $1.928 billion. 
 
Imports Aso Up, Trade Deficit Grows 
----------------------------------- 
 
¶6. Overall, imports increased by12 percent for 2008, to $9.754 
billion.  Thirty-our percent of exports, or $3.34 billion, came 
frm the United States.  Consumer goods represented 3.5 percent of 
imports, intermediate goods (e.g., crude oil, gasoline, fertilizer, 
and construction materials) 42.6 percent, capital goods 13.8 
percent, and inputs for maquilas 13.1 percent.  El Salvador's trade 
deficit grew by 10.1 percent to $5.205 billion. 
 
Slowing down in December and January 
------------------------------------ 
 
¶7. El Salvador's export growth slowed abruptly at the end of 2008. 
December 2008 exports fell 13.7 percent compared to December 2007. 
Maquila exports dropped 32 percent from November to December 2008. 
 
 
¶8. The Central Bank's preliminary January 2009 figures show this 
trend worsening.  The value of total exports fell 5.5 percent 
compared to January 2008, while the volume of total exports fell 
20.6 percent.  Maquila exports fell 22.7 percent, while traditional 
exports dropped 2.1 percent.  Non-traditional exports, however, 
continued to post gains, growing 7.8 percent compared to January 
¶2008.  Exports to the United States fell 13.7 percent. 
 
¶9. While the maquila sector has been hit hard by the recession in 
the United States, there has been some good news as well.  Just last 
week, Hanes-brands Inc. inaugurated a new $70 million hosiery plant 
in San Juan Opico that is expected to employ 1200 people by the end 
of 2009. 
 
¶10. Imports likewise dropped by 25.3 percent compared to January 
¶2008.  Imports of maquila inputs fell by 41.2 percent.  Overall 
imports from the United States were down 34.31 percent compared to 
January 2008. 
 
Comment 
------- 
 
¶11. El Salvador's 2008 exports were a bright spot in the overall 
economy, especially the non-traditional sector, which has enjoyed 
 
SAN SALVAD 00000230  002 OF 002 
 
 
the strongest growth under CAFTA-DR.  The negative trend in December 
and January 2008, however, is likely to continue and may worsen. 
Most local economists estimate that El Salvador's economy 
experiences a 4-6 month lag relative to the U.S., its largest 
trading partner.  These numbers may only reflect conditions as of 
July or August in the United States.  The maquila sector, which has 
seen the largest decline, represents the majority of exports to the 
U.S., and is the most vulnerable to deteriorating worldwide economic 
conditions.  One maquila owner told us his spring orders had dropped 
by 30% and his fall orders were even worse, dropping 50%.  With 
investors already wary, due to the March 15 election and difficult 
worldwide economic situation, 2009 will be a rough year for El 
Salvador.  However, without its open trade regime and sustainable 
economic policies, things could be much worse. 
 
Blau