El Salvador:

Aid Compensates for Economic Losses but Achieves Little Growth

NSIAD-91-97: Published: Feb 15, 1991. Publicly Released: Feb 15, 1991.

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Pursuant to a congressional request, GAO reviewed U.S. economic assistance to El Salvador, focusing on: (1) how El Salvador used the funds; and (2) whether the Agency for International Development (AID) met its assistance goals.

GAO found that: (1) AID provided about half of its $3 billion in economic assistance to El Salvador in the form of balance-of-payment support to finance imported goods; (2) AID assistance helped stabilize El Salvador's economy, but at a level lower than before the leftist insurgency; (3) economic growth rates less than AID projected; (4) as recommended by AID, El Salvador initiated comprehensive economic reforms, including exchange rate revisions, income tax and tariff rate changes, and actions to lessen state control of the banking system; (5) continued violence detracted from AID and Salvadoran efforts to promote exports and overall business activity; (6) economic reforms improved prospects for achieving higher growth rates and foreign aid; (7) AID and El Salvador encouraged nontraditional exports to lessen dependency on coffee; (8) despite AID funding for temporary infastructure repairs, El Salvador would have to invest millions of dollars for new construction when the insurgency subsides; (9) aid for Salvadoran social programs helped compensate for decreased Salvadoran spending; and (10) poor allocation of resources reduced services to the most needy.

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