The Wall Street Journal: El Salvador’s heavy corruption “under former President Tony Saca”

Foreign Aid and Salvadoran Corruption
By Mary Anastasia O'Grady

In the midst of the financial turmoil that rocked the international capital markets last year, the World Bank proudly announced a new $250 million "assistance package" for this country. A few months later a scandal erupted over why a similar amount of money was never accounted for on the government's books.

In case you missed the connection, let me put it another way: While developed countries have been giving aid to El Salvador to try to make the nation better off, Salvadoran politicians are suspected of dipping into the national till to make themselves better off.

What's wrong with this picture? That question could be asked about foreign aid more broadly. But it is especially relevant for this country, which has been progressing through enlightened economic liberalization for 20 years but is now at risk of being derailed by corruption.

The alleged corruption took place under former right-of-center President Tony Saca, who left office after a five-year term last June and has since been expelled by the Arena Party. The World Bank program we refer to was implemented in July, under the new FMLN government of President Mauricio Funes. But there is a link: As yet, Mr. Funes's government has shown no interest in investigating what happened to all that dough. Instead the ruling party appears to be using the threat of investigation to get Mr. Saca to help them win votes in Congress. It doesn't get much more cynical than that.

All this may seem like the kind of inside baseball in a tiny Central American country that is hard to get worked up about. But the lessons are important.

This country only voted for the left-wing but moderate Mr. Funes and his more hard-core vice president—an unrepentant former Marxist guerrilla—by a narrow margin. It did not elect an FMLN-controlled Congress. But in October, 12 congressmen known to have close ties to Mr. Saca crossed the aisle and began voting with the FMLN.

If a corrupt political class here suddenly begins dragging this country backward toward collectivism and authoritarianism it will foster poverty, underdevelopment and dysfunctional institutions. That's not good for U.S. security interests or the developed world more broadly, and it is the reason why foreign aid to a suspect political system is injudicious.

When Mr. Saca took office in 2004, El Salvador looked like it might become the first country in Latin America to crawl out of poverty under a democratically elected government. Its reforms opened markets and increased competition. The result, according to the United Nations Development Program, was that the number of households in poverty was around 35%, down sharply from 60% in 1991 at the end of the civil war. The poverty rate even sank a bit lower to around 31% by 2005.

Since then it has been trending up, and Mr. Saca bears much of the responsibility. He damaged development in a number of ways, including blocking a new gold mining operation and letting an important port project languish. Worse, transparency decreased. I asked him, in an interview here three weeks ago, to respond to charges that he misused some $250 million in government funds during his time in office. He denied misuse but admitted that around $200 million were rerouted from Congress's budget to a pool of discretionary funds under his control during his presidency. He said he can't recall exactly how it was allocated, but that it was used for "roads, hospitals and emergencies."

It is true that Salvadoran presidents have long had the power to use surplusesfrom the budget for discretionary spending. But under Mr. Saca the order of magnitude changed. Former presidents did not lay their hands on more than $2 million or $3 million over their tenures. Mr. Saca multiplied that number by one hundred.

The slush fund gave him enormous power, and his critics say he was not shy about using it. People inside Arena say he used the money to get control of the party. That's only an allegation, but it is irrefutable that during his presidency he became the Arena boss.

"People used to join Arena because they believed in its values," one disgruntled Salvadoran told me. "But under Saca, everybody got paid." He was the first Arena president who also maintained the presidency of the party.

All of this could be cleared up if El Salvador had an independent body to review the discretionary spending. But the "court of accounts" is not independent. It is under the control of a small political party—the National Conciliation Party—that has been granted its power by the legislature in return for its vote. The public has to trust the court of accounts' assessment that Mr. Saca did no wrong.

If the World Bank really wants to help El Salvador, maybe it should offer to audit Mr. Saca's books. That would be a giant step toward development.

Source The Wall Street Journal - Write to O'Grady@wsj.com

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