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surge in foreign investment in El Salvador

Unprecedented Surge in Foreign Investment in El Salvador

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Contact the Central American Group to explore the foreign investment options in El Salvador and Costa Rica.

El Salvador is experiencing an unprecedented surge in foreign investment, primarily due to President Nayib Bukele’s bold policies, which have transformed the country’s economic landscape. Since taking office, Bukele has introduced business-friendly policies, made significant strides in improving security, and adopted Bitcoin, creating an environment that attracts international investors and revitalizes El Salvador’s economy.

Last week, President Bukele hosted a high-profile meeting with foreign investors at a significant event to showcase the country’s economic advantages. Among the distinguished guests were international figures and notable business leaders, including Carlos Slim, a Mexican telecommunications magnate with significant investments in El Salvador’s market. The forum, entitled The Competitive Advantage of Nations, brought together local and foreign business leaders to discuss the surge in foreign investment in El Salvador and its growing economic potential.

Business-Friendly Policies Drive Economic Growth

One key factor behind this growth is the business-friendly environment fostered by Bukele’s administration. The Salvadoran government has reduced bureaucracy, simplified business registration processes, and introduced tax incentives to encourage investment from local and foreign companies. Among the most notable policies is the creation of the Bitcoin Law in 2021, making El Salvador the first country in the world to adopt Bitcoin as legal tender.

This pioneering move has garnered the attention of global cryptocurrency investors while the government has continued to promote technological innovation and the development of digital infrastructure. The policy has also drawn Bitcoin miners, who leverage El Salvador’s abundant geothermal energy resources to operate sustainably. The Bitcoin initiative and other financial reforms have been a key driver of the surge in foreign investment in El Salvador, as businesses recognize the potential of operating in a progressive, crypto-friendly economy.

Security Improvements Build Confidence

For years, El Salvador struggled with one of the highest crime rates in the world. However, Bukele’s administration has made remarkable progress in improving public security, a crucial factor in attracting foreign investment. The government’s comprehensive security plan, the Territorial Control Plan, has significantly reduced crime rates and restored confidence in the country’s safety.

The security improvements have had a tangible impact on tourism and real estate investment. In the past, many investors hesitated to commit to projects in El Salvador due to security concerns. With crime rates dropping dramatically, international investors feel more secure in making investment decisions in the country. This shift has triggered a new surge in foreign investment in El Salvador, encouraging the Salvadoran diaspora to reinvest in their homeland.

Bitcoin Adoption and Tourism Boom

The adoption of Bitcoin as legal tender has also played a central role in the country’s economic resurgence. Promoting Bitcoin as a national currency has had an immediate impact, attracting cryptocurrency businesses to El Salvador to capitalize on the nation’s progressive stance on digital currencies. The integration of Bitcoin has led to the growth of Bitcoin-related companies and infrastructure, creating thousands of new jobs.

Tourism has also experienced a dramatic increase, particularly among cryptocurrency enthusiasts and digital nomads. El Salvador’s focus on becoming a crypto-friendly nation has made it an attractive destination for international travelers. Bitcoin Beach, a project launched in El Zonte, has become a symbol of the country’s commitment to cryptocurrency adoption, drawing visitors eager to experience the future of digital finance. The tourism boom is another sector benefiting from the surge in foreign investment in El Salvador as businesses expand their operations to cater to a growing number of international visitors.

Real Estate Boom: A New Era for Property Investment

The influx of foreign investment and growing confidence in the country’s security and economic stability have significantly increased property prices. Foreign investors and members of the Salvadoran diaspora are purchasing real estate in growing numbers, further fueling economic growth.

“Property prices have risen in some areas, especially in San Salvador, the capital, as well as in coastal regions popular among tourists and expatriates,” said Michael McCluskey, co-founder of El Salvador’s real estate app Vivo Latam. “The demand for both residential and commercial properties has skyrocketed. Business-friendly policies and enhanced security are key factors driving this boom.”

The real estate market is experiencing strong interest from international buyers, not only in residential properties but also in commercial developments. This interest is helping to diversify the country’s economy, reducing its traditional reliance on agriculture. Foreign developers are increasingly interested in prime locations for luxury hotels, resorts, and other large-scale projects, creating new opportunities for local workers and businesses. As a result, the surge in foreign investment in El Salvador is significantly reshaping the country’s real estate market.

The Role of the Salvadoran Diaspora in Economic Growth

The Salvadoran diaspora, which has long maintained strong ties to the country, also plays a key role in El Salvador’s economic resurgence. Many diaspora members are returning to invest in businesses and real estate, driven by improved security, favorable policies, and expanding opportunities. Bukele says these investments are crucial to the country’s future as they contribute to job creation, infrastructure development, and economic modernization.

A Bright Future Ahead

El Salvador’s economic trajectory shows no signs of slowing down. By combining business-friendly policies, security enhancements, and Bitcoin adoption, the country has positioned itself globally as a hotspot for investment. As foreign investors continue to flock to El Salvador, the country is poised to enter a new era of economic prosperity driven by innovation, digital currencies, and robust growth in key sectors such as real estate and tourism.

With the surge in foreign investment in El Salvador fueling economic expansion, the nation is emerging as a model for other developing economies seeking to attract global capital and modernize their industries.

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Ascential Medical and Life Sciences

Manufacturing in Costa Rica with Ascential Medical and Life Sciences

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Contact the Central American Group if you want to establish a  manufacturing facility in Costa Rica. 

Sergio Vargas
General Manager
Ascential Medical and Life Sciences
sergio.vargas@ascentialtech.com

The Central American Group: Hello. Welcome to this episode of the Central American Group podcast. Because of our operations in Central America, mainly in Costa Rica and El Salvador, we can talk to some very interesting people. Today, our guest is Sergio Vargas. Sergio is the general manager of Ascential Medical and Life Sciences. Sergio, how are you today?

Sergio Vargas: Hi, Steven. Good morning. I’m doing well. Thank you for having me.

The Central American Group: Can you tell us a little bit about yourself and your company?

Sergio Vargas: My name is Sergio Vargas, and I’m the general manager of Ascential Medical and Life Sciences. I’ve been with the company for almost 10 years. I moved to Costa Rica a year ago to help the company with essential Latin America.

The Central American Group: Where were you before that, Sergio?

Sergio Vargas: I’ve been in a different place. I started in California almost 10 years ago. I stayed in California for eight years, then moved to our main facility in Minnesota.

The Central American Group: How many years have you been with Ascential?

Sergio Vargas: Almost ten. It will be 10 years this year.

The Central American Group: Okay. Well, let’s ask the first question then. What are the products that Ascential Medical and Life Sciences manufactures?

Sergio Vargas: We build custom automation solutions for diverse industries but focus mainly on the medical industry.

The Central American Group: You focus mainly on the medical industry, but do your products serve any other industries as well?

Sergio Vargas: Yes. They can help almost every industry that needs automation, such as electronics, auto space, and food and beverage.

The Central American Group: Is Ascential Medical and Life Sciences a manufacturer of dedicated products, or do you work as a subcontract manufacturer for other companies?

Sergio Vargas: Right now, we don’t have our product. We specialize in helping our customers develop their automation solutions. So, if a customer has a, we help them improve their processes, quality, and production.

The Central American Group: Besides manufacturing products for these companies, does your company provide engineering services to help them design products that fit their needs?

Sergio Vargas: Correct. That being said, we have engineering services. If a customer has a production line that needs automation, our engineering team helps them select the right solution to automate their process.

The Central American Group: Okay. Given that you have many facilities, and again, you can mention where the facilities are that Ascential Medical and Life Sciences has.

Sergio Vargas: Again, for automation, our central location is in Minnesota, but we also have locations in Ireland, Singapore, and San Diego, California

The Central American Group: Besides those locations, what led your company to set up in Costa Rica?

Sergio Vargas: As you know, Costa Rica has a prominent medical device hub. It was a no-brainer for us to be here next to our partners to help them with their needs.

The Central American Group: In addition to your other manufacturing locations, what do you see as being the primary advantageous reasons for being in Costa Rica?

Sergio Vargas: One of the main reasons for being in Costa Rica is the high-skill workforce. Being here in Costa Rica, I was surprised by the highly skilled talent, and the young team I have here, my engineering team, has stepped up. They are talented. Also, the tax advantages have been, for example, in the Green Park free zone, where the tax incentive that the government provides is a huge advantage for companies like Ascential Medical and Life Sciences.

The Central American Group: Yes, and if you’re a listener, we have podcasts on a free zone regime in Costa Rica, and you can learn about that by listening to some of our other podcasts. But let’s go to the next question. What challenges do you face in Costa Rica manufacturing, and how do you address them?

Sergio Vargas: As a high-tech company, sometimes we are not able to find the right components locally. We work with international and local suppliers to try to accommodate our needs. We have an ERP system that allows us to work with our different facilities to try to find the right components at the right time.

The Central American Group: It’s always a challenge to find individuals in the labor force who can fill companies’ skill requirements. So, what I’d like to know is, does Green Park provide any assistance to you in finding persons to fill the jobs that you need to have filled?

Sergio Vargas: Yes. Once we identify a position that we need to fill and have a job description, we usually send an email to the Green Park Free Zone. Green Park helps us by publishing job descriptions on its website or on its social media. Green Park also helps us receive applications, and that’s been working really, really well for us.

The Central American Group: Now, one of the concerns that many companies have everywhere is workforce availability. Do you find that when you request these positions, you get the number of candidates that allow you to make a choice that is beneficial for your business?

Sergio Vargas: We do. Costa Rica has a really great technical workforce, so we have not had any issues finding the right talent.

The Central American Group: When you find talent, what’s your approach to developing it and training it? I know this is probably of great importance to you because of the technology you use and the rapid changes in that technology these days.

Sergio Vargas: We are constantly looking for the best training for our engineers. One of our advantages is that being a global company, our engineers work together with other partners around the world. The knowledge transfer is really beneficial for our locals. So, in addition to the workforce, another thing that’s very important is managing the supply chain.

The Central American Group: What factors influence Ascential’s choice of suppliers in Costa Rica or internationally?

Sergio Vargas: We follow ISO 9001 standards. We go through a qualification process to select a provider, which is the main reason we choose them. Unfortunately, if they don’t qualify, we cannot use them.

The Central American Group: One of the things that happens when folks listen to our podcast is specific questions they have. Sometimes, they direct those questions to me. But what I like to do is create a way in which they can communicate directly with the people that we host on these podcasts. So, if somebody has a question about Ascential, how can they contact you?

Sergio Vargas: They can email me at sergio.vargas@ascentialtech.com or follow me on my social media or LinkedIn.

The Central American Group: Okay, so we’ll put a link to your LinkedIn page and your company in the transcript section of the podcast on the web page. We’ll also include your email address so that people with questions can contact you directly. Is that okay?

Sergio Vargas: That’s perfect. Thank you so much for that.

The Central American Group: We want to thank you for joining us today. We wish you luck in Costa Rica and in all your other endeavors. Thank you very much for being with us this morning. We appreciate your presence.

Sergio Vargas: Thank you.

The Central American Group: Hello. Welcome to this episode of the Central American Group podcast. Because of our operations in Central America, mainly in Costa Rica and El Salvador, we have the ability to talk to some very interesting people. Today, our guest is Sergio Vargas. Sergio is the general manager of Ascential Medical and Life Sciences. Sergio, how are you today?

Sergio Vargas: Hi, Steven. Good morning. I’m doing well. Thank you for having me.

The Central American Group: Can you tell us a little bit about yourself and your company?

Sergio Vargas: My name is Sergio Vargas, and I’m the general manager of Ascential Medical and Life Sciences. I’ve been with the company for almost 10 years. I moved to Costa Rica a year ago to help the company with essential Latin America.

The Central American Group: Where were you before that, Sergio?

Sergio Vargas: I’ve been in a different place. I started in California almost 10 years ago. I stayed in California for eight years, then moved to our main facility in Minnesota.

The Central American Group: How many years have you been with Acsential?

Sergio Vargas: Almost ten. It will be 10 years this year.

The Central American Group: Okay. Well, let’s ask the first question then. What are the products that Ascential Medical and Life Sciences manufactures?

Sergio Vargas: We build custom automation solutions for diverse industries but focus mainly on the medical industry.

The Central American Group: You focus mainly on the medical industry, but do your products serve any other industries as well?

Sergio Vargas: Yes. They can help almost every industry that needs automation, such as electronics, automotive, and food and beverage.

The Central American Group: Is Ascential Medical and Life Sciences a manufacturer of dedicated products, or do you work as a subcontract manufacturer for other companies?

Sergio Vargas: Right now, we don’t have our own product. We specialize in helping our customers develop their own automation solutions. So, if a customer has a, we help them improve their processes, quality, and production.

The Central American Group: In addition to manufacturing products for these companies, does your company provide engineering services to help them design products that fit their needs?

Sergio Vargas: Correct. That being said, we have engineering services. If a customer has a production line that needs automation, our engineering team helps them select the right solution to automate their process.

The Central American Group: Okay. Given that you have many facilities, and again, you can mention where the facilities are that Ascential Medical and Life Sciences has.

Sergio Vargas: Again, for automation, our central location is in Minnesota, but we also have locations in Ireland, Singapore, and San Diego, California

The Central American Group: Besides those locations, what led your company to choose to set up in Costa Rica?

Sergio Vargas: As you know, Costa Rica has a prominent medical device hub. It was a no-brainer for us to be here next to our partners to help them with their needs.

The Central American Group: In addition, or in comparison to your other manufacturing locations, what do you see as being the primary advantageous reasons for being in Costa Rica?

Sergio Vargas: One of the main reasons for being in Costa Rica is the highly skilled workforce. I was surprised by the talent here, and the young team I have here, my engineering team, has stepped up. They are talented. Also, the tax advantages have been, for example, in the Green Park Free Zone, where the tax incentive that the government provides is a huge advantage for companies like Ascential Medical and Life Sciences.

The Central American Group: Yes, and if you’re a listener, we have podcasts on a free zone regime in Costa Rica, and you can learn about that by listening to some of our other podcasts. But let’s go to the next question. What challenges do you face in Costa Rica manufacturing, and how do you address them

Sergio Vargas: As a high-tech company, sometimes we are not able to find the right components locally. We work with international and local suppliers to try to accommodate our needs. We have an ERP system that allows us to work with our different facilities to try to find the right components at the right time.

The Central American Group: It’s always a challenge to find individuals in the labor force who can fill companies’ skill requirements. So, what I’d like to know is, does Green Park provide any assistance to you in finding persons to fill the jobs that you need to have filled?

Sergio Vargas: Yes. Once we identify a position that we need to fill and have a job description, we usually send an email to the Green Park Free Zone. Green Park helps us by publishing job descriptions on its website or on its social media. Green Park also helps us receive applications, and that’s been working really, really well for us.

The Central American Group: Now, one of the concerns that many companies have everywhere is workforce availability. Do you find that when you request these positions, you get the number of candidates that allow you to make a choice that is beneficial for your business?

Sergio Vargas: We do. Costa Rica has a really great technical workforce, so we have not had any issues finding the right talent.

The Central American Group: When you find talent, what’s your approach to developing it and training it? I know this is probably of great importance to you because of the technology you use and the rapid changes in that technology these days.

Sergio Vargas: We are constantly looking for the best training for our engineers. One of our advantages is that being a global company, our engineers work together with other partners around the world. The knowledge transfer is really beneficial for our locals. So, in addition to the workforce, another thing that’s very important is managing the supply chain.

The Central American Group: What factors influence Ascential’s choice of suppliers in Costa Rica or internationally?

Sergio Vargas: We follow ISO 9001 standards. We go through a qualification process to select a provider, so that’s the main reason we choose a provider. Unfortunately, if they don’t qualify, we cannot use that provider.

The Central American Group: One of the things that happens when folks listen to our podcast is that specific questions come up that they have. Sometimes, they direct those questions to me. But what I like to do is create a way in which they can communicate directly with the people that we host on these podcasts. So, if somebody has a question about Ascential, how can they contact you?

Sergio Vargas: They can email me at sergio.vargas@ascentialtech.com or follow me on my social media or LinkedIn.

The Central American Group: Okay, so we’ll put a link to your LinkedIn page and your company in the transcript section of the podcast on the web page. We’ll also include your email address so that people with questions can contact you directly. Is that okay?
Sergio Vargas: That’s perfect. Thank you so much for that

The Central American Group: We want to thank you for joining us today. We wish you luck in Costa Rica and in all your other Thank you very much for being with us this morning. We very much appreciate your presence.

Sergio Vargas: Thank you.

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investment in infrastructure in El Salvador

Development in the East is a Reality: Nayib Bukele Highlights Billion-Dollar Investment in Infrastructure in El Salvador

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Contact the Central American Group to explore the foreign investment options in El Salvador and Costa Rica.

Under President Nayib Bukele’s leadership, the El Salvador government has committed an unprecedented $1.4248 billion to develop infrastructure in the eastern part of the country. This investment does not yet include future projects such as the Pacific Airport, tourism developments, and economic revitalization efforts in San Miguel.

During the groundbreaking ceremony for the Pacific Airport, Bukele emphasized that previous governments—led by the ARENA and FMLN parties—had repeatedly promised development in the East but failed to deliver. His administration, however, has taken concrete steps to ensure that long-overdue infrastructure projects finally become a reality.

Among these key initiatives is the San Miguel bypass, a project that past administrations had announced multiple times but never executed. Bukele’s government revived and successfully completed this project, demonstrating a commitment to the region’s progress.

Major Infrastructure Projects Underway

The investment in infrastructure in El Salvador brings new opportunities to the eastern region, significantly improving transportation, economic activity, and overall quality of life. Some of the most important projects include:

  • Port of La Unión ($400 million) – The modernization of this strategic port, in collaboration with the Gilport company, is already underway. The port has begun to receive ships, signaling a revival of maritime trade and logistics in the region.
  • Gerardo Barrios Beltway ($160 million for phase one) – This vital highway in San Miguel is being developed in multiple stages to improve connectivity and ease traffic congestion.
  • San Antonio Bridge ($11 million) – A key bridge project to improve accessibility and transportation efficiency.
  • Bridge in Carolina ($12.5 million) – Enhancing road safety and connectivity in the eastern region.
  • Road to Punta Mango ($41 million) – This road will promote tourism and local economic development by improving access to one of El Salvador’s most beautiful coastal areas.
  • Reconstruction in El Mozote ($28 million) – This includes building a memorial park, a school, a church, a sports complex, and new housing to preserve historical memory while improving local infrastructure.
  • Additional investments in Morazán and Concepción de Oriente ($385 million+).

These projects are part of a broader investment in infrastructure in El Salvador, designed to transform the country’s eastern region into a hub of economic growth, tourism, and opportunity.

Addressing Years of Overlooked Needs

For years, previous governments largely ignored El Salvador’s eastern region. Despite being rich in natural resources and having immense tourism potential, the region suffered from underdevelopment due to a lack of political will and insufficient public investment.

President Bukele acknowledged this long-standing neglect and assured Salvadorans that his government would break the cycle of unfulfilled promises. Unlike past administrations that repeatedly announced projects without execution, his government is focused on tangible results that directly benefit the population.

The new roads, bridges, and ports will facilitate travel, attract investors, create jobs, and boost trade. The investment in infrastructure in El Salvador is expected to stimulate regional economic growth and provide new opportunities for businesses and residents.

Economic Growth and Job Creation

These infrastructure developments will majorly impact the creation of thousands of jobs. The construction sector sees increased demand for skilled and unskilled labor, benefiting local workers and businesses. Additionally, improved infrastructure will support agriculture, manufacturing, and tourism, further driving economic expansion.

For example, the modernization of the Port of La Unión will make the region more attractive for international trade, potentially turning it into a key logistics hub for Central America. Similarly, projects like the road to Punta Mango will enhance tourism opportunities, bringing in more visitors and investment to the coastal areas.

Bukele’s administration sees investment in infrastructure in El Salvador as a crucial pillar of economic development. By improving roads, ports, and public spaces, the government is laying the groundwork for long-term prosperity.

Future Projects and Long-Term Vision

While the $1.4248 billion investment already represents a massive commitment, the government has hinted at even more developments in the pipeline.

The Pacific Airport project is one of the most anticipated initiatives. It is expected to revolutionize air travel in the region and attract more foreign direct investment. Additionally, tourism-focused projects will bring international visitors to the East’s beaches, historical sites, and eco-tourism locations.

Bukele has assured the public that his government’s infrastructure efforts will continue. These efforts will focus on roads and ports and improving education, healthcare, and security. This comprehensive approach will ensure that investment in infrastructure in El Salvador leads to sustained economic and social progress.

A New Era for Eastern El Salvador

With these historic investments, the East of El Salvador is finally receiving the attention it deserves. Development, investment, jobs, and economic growth are political promises and emerging realities.

As Bukele himself stated, this marks a turning point for the region. With ongoing and future projects, the eastern part of the country is set to become a center of opportunity, benefiting its residents and the entire nation.

Through strategic investment in infrastructure in El Salvador, the government is building a stronger, more connected, and more prosperous future for all Salvadorans.

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costa rica a free trade zone

Juan Carlos Hidalgo Proposes Making All of Costa Rica a Free Trade Zone

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Contact the Central American Group to explore the foreign investment options in El Salvador and Costa Rica.

Juan Carlos Hidalgo, a candidate for the Christian Social Unity Party (PUSC), has proposed a bold economic vision for Costa Rica: to turn the entire country into a massive free trade zone. According to Hidalgo, the proposal would bring an influx of foreign investment, create thousands of new jobs, and increase the country’s state revenues. This would significantly shift the country’s economic strategy, potentially revolutionizing areas that traditional economic development models have long overlooked.

The Proposal: Reducing Corporate Tax Rates to Boost Investment

At the heart of Hidalgo’s proposal is reducing the corporate income tax for companies operating in Costa Rica. Under the current regime, companies must pay a tax rate of 30% on their profits. Hidalgo’s vision is to gradually reduce this rate to 15%, aligning the tax contributions of companies operating in the current definitive regime and those already benefiting from the special free trade zone regime. This reduction, he argues, would incentivize foreign businesses to invest in Costa Rica and stimulate job creation, particularly in areas outside the capital.

Hidalgo draws inspiration from Ireland, which successfully implemented a similar strategy. Ireland began with a high tax rate of 50% but reduced it gradually over time, eventually reaching a rate of 12.5%. This change signaled to the global market that the country was open to business, and foreign investment poured in. Hidalgo believes Costa Rica can follow this successful model, reducing its corporate tax rate from 30% to 15%, with a compressed timeline to expedite the process.

Benefits for the National Economy

According to Hidalgo, the proposal to make Costa Rica a free trade zone would bring numerous benefits to the nation. Firstly, by lowering the corporate tax rate, Costa Rica would become more attractive to foreign companies, bringing capital and expertise. This would increase productivity and wages and create a more diversified economy.

Additionally, Hidalgo believes that reducing corporate taxes would lead to higher state revenues in the long term. He highlights the example of Ireland, which now collects three times as much in taxes with a 12.5% corporate tax rate than it did when the rate was 50%. By aligning the tax policies and creating a more straightforward pathway for investment, Costa Rica could experience similar economic growth.

Hidalgo envisions a countrywide growth rate of 6% to 7% per year, a marked improvement over the current rate of 4%. He argues that Costa Rica can only improve the quality of life for its citizens, particularly those living outside the capital, through high and sustained economic growth. With more foreign investment and job creation, the proposal to make Costa Rica a free trade zone would benefit the country, from the coasts to rural areas.

Free Trade Zones: A Success Story in Costa Rica

The free trade zone regime in Costa Rica has proven to be a key driver of economic success. This regime allows companies to operate in a special tax-exempt environment, where they can avoid paying certain taxes, such as corporate income tax, in exchange for investing in the country. The free trade zone sector currently generates around 12% of the country’s GDP.

According to a 2023 Promotora del Comercio Exterior (Procomer) study, companies operating under the free trade zone regime have produced a remarkable economic impact. Costa Rica receives $2.8 in benefits for every dollar exempted from taxes in this regime. From 2019 to 2023, companies in the free trade zones avoided paying over $8.2 billion in taxes, but they brought in over $29.9 billion in benefits. These benefits include direct revenue and indirect economic effects, such as increased demand for local goods and services and higher levels of consumer spending.

Job Creation and Economic Growth

Free trade zones are also a significant source of employment in Costa Rica. These zones generate over 250,000 direct and indirect jobs, providing much-needed employment opportunities, particularly in areas outside the capital. Workers in free trade zones earn an average of 1.8 times the salary of those in the private sector, which helps improve the living standards of many Costa Ricans.

While the free trade zones have created a thriving economy, the definitive regime, which encompasses 85% of the country’s economy, has struggled in comparison. Many small and medium-sized enterprises (SMEs) face significant challenges, including high production costs, a heavy tax burden, and critical social charges. As a result, over 80% of SMEs fail within their first few years of operation. Hidalgo argues that the definitive regime needs significant reforms to remain competitive and that the expansion of the free trade zone regime could provide the solution.

Challenges to Overcome

Hidalgo acknowledges that the transition to a national free trade zone would not be without challenges. The Costa Rican government would need to carefully balance the tax reductions to avoid losing revenue in the short term while ensuring long-term economic growth. Additionally, certain sectors of the economy may resist the proposal because they are concerned about its potential impacts on their businesses.

The dollar exchange rate is another obstacle to growth, as fluctuations in the dollar’s value can make it more difficult for companies to produce goods at competitive prices. High production costs and the tax burden on non-free trade zone companies remain significant issues, and addressing these concerns will be key to the proposal’s success.

Free Trade Zones: A Path to National Development

Despite these challenges, Hidalgo is optimistic that turning Costa Rica into a free trade zone would be a powerful way to encourage investment, create jobs, and stimulate growth. Costa Rica could attract more foreign capital and foster a more competitive economy by reducing corporate tax rates and offering incentives for businesses to invest in the country. This would benefit all regions of the country, not just the capital, and create new opportunities for Costa Ricans.

The proposal to make Costa Rica a free trade zone is about reducing taxes and creating a vision for the country’s future. By following Ireland’s example, Costa Rica could transform its economy and improve the lives of its citizens, ensuring long-term prosperity for the entire nation.

Conclusion

Juan Carlos Hidalgo, a Costa Rica’s Christian Social Unity Party candidate, has proposed making all of Costa Rica a free trade zone by reducing corporate income tax rates from 30% to 15%. This bold strategy aims to attract foreign investment, create jobs, and stimulate economic growth, particularly in areas outside the capital. Drawing inspiration from Ireland’s successful tax reforms, Hidalgo believes that turning Costa Rica into a free trade zone would boost productivity and wages and increase state revenues over time. While challenges such as balancing tax cuts and addressing sector resistance remain, Hidalgo envisions this approach as a key driver of long-term prosperity for the nation.

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salvadoran exported products

These Were the Top 5 Salvadoran Exported Products in 2024

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Contact the Central American Group to explore the foreign investment options in El Salvador and Costa Rica.

T-shirts and sweaters accounted for 15.17% of Salvadoran exports, making them the “kings” of the export basket. According to the Central Reserve Bank (BCR), despite the global decline in demand for textile products, T-shirts remained El Salvador’s top export product. Following T-shirts on the list were sweaters, plastic packaging or transportation articles, cane sugar, and toilet paper. These five products collectively represented 25.68% of the total registered goods exports by the end of 2024, which amounted to just over $6.4475 billion.

T-shirt exports totaled over $590.9 million in 2024, equivalent to 9.17% of the export basket. Although this figure appears impressive, it marked a sharp decline of $104.5 million compared to 2023, when exports reached $695.5 million—a 15% drop. Sweaters, pullovers, and cardigans accounted for 6% of total exports, surpassing $386.6 million. This category also suffered a 16.2% decline compared to the $461.9 million recorded in 2023, representing a reduction of $74.9 million.

Both products dominate the export basket with a combined share of 15.17%, reaffirming the economic model adopted after the civil war, when the country opened up to investment in the textile industry, leading to a significant displacement of agricultural products—most notably coffee, which had reigned as the country’s top export for nearly a century.

Plastic Packaging and Transportation Articles See Growth

Plastic packaging and transportation articles recorded $306.2 million in exports, accounting for 4.74%. Sales of this product increased by $9.5 million compared to the $296.6 million recorded in 2023, reflecting a 3.2% growth. The steady increase in demand for these products can be attributed to the rise of global e-commerce and improved logistics infrastructure, which have increased the need for durable packaging solutions. These materials are widely used across industries such as food and beverage, pharmaceuticals, and consumer goods, helping El Salvador maintain its foothold in this competitive market.

Top 5 Salvadoran Exported Products

  • T-shirts: $590.99 million
  • Sweaters: $386.66 million
  • Packaging/transportation articles: $306.22 million
  • Sugar: $241.26 million
  • Toilet paper: $191.9 million
  • Sugar: A Resilient Agricultural Export

Sugar remains the top agricultural export product. The Central Bank reported that shipments totaled $241.2 million, reflecting an increase of $5.5 million (2.4%) compared to 2023. This product accounted for 3.74% of total exports. The sugar industry has remained a pillar of El Salvador’s agricultural sector, bolstered by favorable trade agreements and consistent demand from key markets. The country’s efficient production methods and favorable climate contribute to maintaining its competitive edge.

To illustrate the decline of coffee, BCR records show that sugar exports in 2024 were 1.7 times greater than those of the once-dominant crop. Coffee exports totaled just $137.1 million, ranking 13th among the top 50 products sold by Salvadoran businesses. While coffee remains vital to El Salvador’s cultural and economic identity, its share of its total exports has diminished significantly.

El Salvador’s Strong Position in the Global Toilet Paper Market

El Salvador proudly holds its position as one of the world’s leading exporters of toilet paper. By the end of 2024, toilet paper exports reached $191.9 million. However, this represented a 13.4% decline from the $221.6 million recorded in 2023—a decrease of $29.7 million.

According to Trade Map, a database managed by the United Nations International Trade Centre (ITC), El Salvador ranks as the ninth-largest toilet paper producer worldwide. China, Germany, Poland, Canada, Italy, Sweden, France, and the United States surpass it. The decline in exports may be due to increased competition in international markets and higher raw material costs affecting production. Despite these challenges, Salvadoran manufacturers continue seeking new markets and growth opportunities.

The Broader Economic Landscape

Salvadoran exported products have played a crucial role in shaping the country’s trade balance and economic stability. While the textile sector still dominates, shifts in global trade dynamics have influenced overall performance. Declines in textile exports highlight the vulnerability of this industry to changes in consumer demand and global economic fluctuations. The continued prominence of plastic packaging and sugar underscores the country’s ability to diversify its export portfolio and adapt to new market demands.

Beyond the top five Salvadoran exported products, other significant contributors to the country’s trade economy include electrical wiring, medical devices, and seafood. El Salvador has also been working on strengthening its ties with trade partners in North America, Central America, and Europe, as these regions serve as major destinations for its exports. Additionally, government efforts to improve infrastructure and streamline trade processes aim to make Salvadoran goods more competitive internationally.

Future Outlook for Salvadoran Exported Products

Looking ahead, experts anticipate that El Salvador will continue to focus on diversifying its export base and enhancing the competitiveness of its key industries. Efforts to modernize textile manufacturing, adopt more sustainable production methods, and expand agricultural exports are expected to help mitigate some of the declines experienced in 2024. Also, advancements in logistics and trade facilitation could further strengthen El Salvador’s position as a reliable exporter.

The performance of Salvadoran exported products will also depend on global economic conditions, trade policies, and shifts in consumer preferences. If demand for apparel rebounds, the textile sector could regain some of its lost momentum. Meanwhile, industries like packaging and agriculture may grow as global supply chains adapt to changing economic landscapes.

In conclusion, while 2024 presented opportunities and challenges, Salvadoran exported products remain vital to the country’s economy. By focusing on innovation, market expansion, and trade partnerships, El Salvador can position itself for sustained growth in the future.

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turn costa rica into a technological power

The United States Plans to Turn Costa Rica Into a Technological Power to Compete With China

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Costa Rica is positioning itself as a regional leader in attracting investments, driving its development in the technology sector. To challenge China’s supremacy in the technological field, the United States has turned its attention to this Latin American country with the ambitious goal of transforming it into an emerging technological power. Costa Rica has begun to gain ground in the high-tech sector, particularly in the semiconductor and microchip manufacturing industries.

Recognized for its economic stability and highly skilled workforce, this country has started receiving substantial investments in the semiconductor industry. These funds are helping solidify its position as a key player in microchip production outside of Asia. This development is part of a broader strategy by the U.S. to secure supply chains and reduce dependence on China for critical components used in consumer electronics, automobiles, and military applications. By leveraging its strategic advantages, the U.S. aims to turn Costa Rica into a technological power that strengthens the Western Hemisphere’s semiconductor ecosystem.

Costa Rica Can Become a Technological Power

This Central American country has steadily built a reputation as a destination for high-tech industries, and now, it is attracting even more attention from major global players. One of the most significant recent investments comes from Applied Materials, a U.S. multinational specializing in manufacturing components for household appliances, solar devices, and semiconductors.

According to company executives, this move will strengthen the U.S. semiconductor industry and reduce reliance on China for critical technology components. Applied Materials’ expansion into Costa Rica is expected to enhance the country’s technological capabilities, create thousands of high-value jobs, and position it as a strategic location for research, development, and production. As more multinational corporations invest, the efforts to turn Costa Rica into a technological power continue to gain momentum, reinforcing the country’s position in the global supply chain.

Additionally, the restrictions imposed by the United States on Chinese technology firms, such as Huawei, are part of a broader strategy to maintain global leadership in the technology sector. These measures aim to limit China’s access to key markets and protect U.S. technological infrastructure from potential cybersecurity risks and growing competition in high-tech industries. As the U.S. seeks to reinforce its dominance in the semiconductor supply chain, investing in Costa Rica aligns with its goal of securing production closer to home while leveraging the country’s skilled labor force.

Why Could Costa Rica Become a Technological Power?

Costa Rica has emerged as an ideal location for high-tech investments due to several critical factors that make it attractive to multinational companies:

A Highly Educated Workforce

Costa Rica boasts one of the most educated workforces in Latin America. Many of its population hold university degrees, particularly in engineering, information technology, and sciences. This talent pool has made it easier for companies to find skilled professionals in software development, hardware engineering, and semiconductor manufacturing. As these industries continue to grow, they are helping to turn Costa Rica into a technological power capable of competing globally.

A Favorable Investment Climate

Costa Rica has long been recognized for its business-friendly policies encouraging foreign direct investment. The country offers tax incentives, special free-trade zones, and a regulatory environment facilitating international business operations. These advantages have attracted companies like Intel, which operates semiconductor assembly and testing facilities in Costa Rica, further boosting the country’s position in the global technology industry.

Political and Economic Stability

Unlike other Latin American nations that experience economic volatility and political uncertainty, Costa Rica has a stable democracy and a strong institutional framework that ensures transparency and legal protections for investors. This stability has been key in drawing multinational corporations looking for secure and predictable business environments.

A Strong Sustainability Commitment

Another advantage Costa Rica offers is its commitment to sustainability and clean energy. The country has a strong track record of generating electricity from renewable sources, making it an attractive destination for companies prioritizing environmentally friendly operations. Many tech firms seek locations that align with their sustainability goals, and Costa Rica’s green energy initiatives add to its appeal. This focus on sustainability further complements efforts to turn Costa Rica into a technological power that aligns with global environmental priorities.

How Does Costa Rica Compare to Other Latin American Countries?

Costa Rica is not the only Latin American country positioning itself as a technological hub. While it stands out due to its strategic advantages, other nations in the region also make strides in technological development.

Colombia has been growing its technology sector through government initiatives that support innovation and entrepreneurship. The country has invested in digital transformation and startups, fostering a strong software development and IT services ecosystem. Additionally, 22.2% of its university population is engaged in STEM-related fields, reinforcing its potential as a rising tech hub.

Mexico has long been a key player in the global tech industry, with a well-established electronics manufacturing sector. It is home to a robust automotive and aerospace technology sector, and its growing number of tech parks and innovation centers make it a strong competitor in the region. Additionally, Mexico benefits from its geographical proximity to the United States, making it a key part of North American supply chains.

Despite these competitors, Costa Rica has unique advantages that set it apart. Its specialization in high-value-added industries, particularly in semiconductors, medical technology, and software development, positions it as an essential player in the future of Latin America’s technological advancement. With the right policies and sustained investment, the country has the potential to turn Costa Rica into a technological power that serves as a model for the region.

The Future of Costa Rica as a Technological Power

The investments from Applied Materials and other multinational corporations mark a pivotal moment in Costa Rica’s transformation into a global tech hub. As the country continues to develop its technological infrastructure and strengthen its human capital, it will likely attract even more high-tech companies looking to relocate or expand operations outside of Asia.

Costa Rica’s political stability, educated workforce, sustainability initiatives, and welcoming business environment make it an optimal destination for semiconductor and advanced manufacturing companies. If the momentum continues, the nation could become a cornerstone of the Western Hemisphere’s high-tech supply chain, helping the U.S. maintain its technological leadership while reducing dependency on China.

Ultimately, Costa Rica’s growing role in the global technology landscape signals a new era for Latin America, where strategic investments and innovation-driven policies can transform economies and place the region on the map as a critical player in the 21st-century digital economy.

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El Salvador Bitcoin Law Reform

El Salvador Bitcoin Law Reform: The Country No Longer Be Mandatory to Accept It for Payments and Transactions

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El Salvador’s Congress has approved a significant Bitcoin law reform, removing the requirement for businesses and individuals to accept cryptocurrency for payments and transactions. Although the law still recognizes Bitcoin as “legal tender,” this change means it will no longer hold the same status as an official currency, as it originally did when the country became the first in the world to adopt it in 2021.

The decision to amend the law comes from efforts to secure a $1.4 billion loan agreement with the International Monetary Fund (IMF). The mandatory acceptance of Bitcoin had been a point of contention in negotiations, with the IMF and other global financial institutions expressing concerns over the cryptocurrency’s volatility, lack of regulation, and potential risks to the country’s economic stability.

A recent survey by the Central American University revealed that 92% of Salvadorans did not use Bitcoin for transactions in 2024, reinforcing the perception that President Nayib Bukele’s financial experiment with the cryptocurrency has not achieved widespread adoption. Despite this El Salvador Bitcoin law reform, the Salvadoran government has stated that it will continue purchasing Bitcoin and maintaining its reserves in digital assets, signaling that it remains a part of the country’s financial strategy.

Why Was Bitcoin Adopted as Legal Tender in El Salvador?

In September 2021, El Salvador became the first nation in the world to declare Bitcoin as legal tender, a decision championed by President Nayib Bukele. The initiative was framed as an innovative move to attract foreign investment, modernize the economy, and provide financial alternatives for millions of Salvadorans who lacked access to traditional banking services. At its implementation, the government argued that Bitcoin would help reduce remittance fees, encourage financial inclusion, and establish El Salvador as a global leader in digital finance.

However, from the outset, Bitcoin’s adoption faced significant hurdles. Many Salvadorans remained skeptical of the cryptocurrency, and technical issues with the government-backed Chivo Wallet, designed to facilitate Bitcoin transactions, further hampered its use. Additionally, Bitcoin’s price volatility created uncertainty, discouraging widespread adoption among businesses and consumers.

What Changes Does the El Salvador Bitcoin Law Reform Introduce?

The most significant change introduced by the El Salvador Bitcoin law reform is that businesses and individuals in El Salvador are no longer legally required to accept Bitcoin as a form of payment. Under the original law, all commercial establishments were obligated to accept Bitcoin if a customer chose to pay with it. This provision was widely criticized, as many small business owners found it impractical or unnecessary to handle cryptocurrency transactions.

Although the reform maintains Bitcoin’s designation as “legal tender,” it makes its use optional. Businesses wishing to accept Bitcoin can continue but are no longer compelled to integrate it into their payment systems. This shift places Bitcoin in a more flexible position, similar to how some businesses voluntarily accept alternative digital or foreign currencies alongside their primary legal tender.

Why Did the Government Modify the Law?

The primary motivation behind the El Salvador Bitcoin law reform is the country’s need to secure financial support from the IMF. The government is negotiating a $1.4 billion loan, and one of the international lender’s key conditions was removing Bitcoin’s mandatory status as legal tender.

Since adopting Bitcoin, El Salvador has faced scrutiny from international financial institutions, credit rating agencies, and global markets. Concerns have been raised about the country’s ability to manage economic risks associated with the highly volatile nature of Bitcoin. The IMF, in particular, has repeatedly advised El Salvador to reverse its Bitcoin policies, arguing that they pose risks to fiscal stability, investor confidence, and the broader economy. By making Bitcoin optional rather than mandatory, the government aims to ease these concerns and improve its standing with global financial institutions.

What Impact Did Bitcoin Have on the Salvadoran Economy?

Despite initial optimism from the government, Bitcoin’s impact on the Salvadoran economy has been minimal, if not disappointing. According to the survey conducted by the Central American University, an overwhelming 92% of Salvadorans did not use Bitcoin for transactions in 2024. The country’s economy continues to function primarily on the U.S. dollar, which has been the official currency since 2001.

One of the biggest obstacles to Bitcoin adoption has been its price volatility. Many Salvadorans who experimented with Bitcoin saw the value of their holdings fluctuate unpredictably, discouraging them from using it as a means of payment. Additionally, small businesses often found integrating Bitcoin into their operations difficult, leading many to avoid it altogether.

What Happened to Bitcoin City, Bukele’s Flagship Project?

One of the most ambitious projects tied to El Salvador’s Bitcoin strategy was the proposed construction of Bitcoin City, a futuristic metropolis powered by cryptocurrency mining using geothermal energy from the country’s volcanoes. President Bukele envisioned the city as a tax-free, tech-driven economic hub that would attract global investors and position El Salvador as a leader in digital finance.

However, more than two years after its announcement, Bitcoin City remains largely theoretical. The project has not moved beyond the initial promotional phase, and no significant construction or development has occurred. While some Bitcoin-friendly communities exist in areas like El Zonte Beach and the city of Berlin, they are primarily composed of foreign crypto enthusiasts and tourists rather than the local population.

What Will Happen to the Government’s Bitcoin Reserves?

Despite scaling back its Bitcoin policy through the El Salvador Bitcoin law reform, the Salvadoran government continues to hold a significant amount of Bitcoin in its reserves. As of 2024, the country reportedly holds 6,050 Bitcoins, valued at approximately $634.8 million based on current market prices.

Bukele’s administration has indicated that it remains committed to accumulating Bitcoin, believing its value will increase over time. However, critics argue that these investments lack transparency, and the government has not provided detailed reports on how it manages its cryptocurrency assets. Economists warn that holding large reserves of a highly volatile asset could threaten the country’s fiscal health, particularly if Bitcoin experiences another sharp decline in value.

What’s Next?

The El Salvador Bitcoin law reform will take effect 90 days after its publication in the Official Gazette. During this transition period, businesses and consumers will have time to adjust to the new legal framework, while the government will continue to promote Bitcoin’s use—albeit without the coercive measures that initially accompanied its adoption.

The long-term future of Bitcoin in El Salvador remains uncertain. While the government continues to support the cryptocurrency, its success will largely depend on broader economic factors, including Bitcoin’s market value and the administration’s ability to manage financial risks. Meanwhile, the agreement with the IMF will provide El Salvador with much-needed financial relief. However, it comes at the cost of modifying one of Bukele’s most ambitious and controversial economic policies.

As the country moves forward, the impact of the El Salvador Bitcoin law reform will be closely watched by Salvadorans and the international community as they assess whether the Bitcoin experiment was a bold innovation or a costly miscalculation.

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Harland Medical Costa Rica

Harland Medical Systems Launches Operations in Costa Rica: A Milestone for the MedTech Industry

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Harland Medical Systems, a U.S.-based leader in specialized coatings for the medical device industry, has announced the launch of its operations in Costa Rica. This strategic move marks a significant milestone as Costa Rica becomes home to its first provider of hydrophilic coatings, a crucial service that supports the rapidly growing MedTech sector.

A Strategic Location in The Green Park Free Zone

The new state-of-the-art facility is in the Green Park Free Zone in Alajuela, a region known for its innovation-friendly environment and excellent connectivity. This location positions Harland Medical Systems to serve its global customer base better while taking advantage of Costa Rica’s strategic location as a gateway to the Americas.

Scheduled to begin operations in July, the facility is equipped to specialize in high-throughput coating services and provide technical support to medical device manufacturers. The services will cater to key sectors, including neurology, cardiology, vascular access, ophthalmology, urology, and orthopedics. These specialized coatings are critical in ensuring the safety, effectiveness, and performance of medical devices used in life-saving procedures worldwide.

A Message from Leadership

Jon Anderson, Founder and CEO of Harland Medical Systems, shared his enthusiasm for this new chapter in the company’s growth. “Harland is thrilled to expand our operations to Costa Rica, enabling us to better support our customers at every stage of their coating journey. We are eager to embrace Costa Rica’s rich culture, dynamic workforce, and fresh perspectives. This investment marks an exciting step toward serving even more customers worldwide with the same dedication and greater capacity soon.”

Anderson’s statement reflects Harland’s commitment to innovation and customer-centric solutions. By establishing this facility, the company enhances its ability to streamline the supply chain, reduces turnaround times, and addresses the increasing global demand for high-quality coatings.

Why Costa Rica?

Costa Rica is a premier destination for foreign direct investment, particularly in the life sciences and advanced manufacturing sectors. The country’s highly skilled workforce, favorable business environment, and robust infrastructure make it an attractive choice for global companies like Harland Medical Systems.

Marianela Urgellés, Managing Director of CINDE, Costa Rica’s investment promotion agency, highlighted the significance of this development: “Harland Medical’s decision to invest in Costa Rica highlights our strategic advantages as a hub for life sciences, addressing industry demand and strengthening the services provided by our country. With a highly skilled workforce and a favorable business environment, Costa Rica continues to attract world-class companies seeking to innovate and expand in the Americas.”

Global Growth Strategy

Harland Medical Systems’ expansion into Costa Rica is a key component of the company’s global growth strategy. Building upon its successful operations in Ireland and Israel, the Costa Rica facility demonstrates Harland’s commitment to operational excellence and continuous improvement. The company’s investment in Costa Rica aligns with its mission to deliver cutting-edge solutions while fostering innovation across the life sciences sector.

The facility is designed to create high-value career opportunities for the local workforce, focusing on roles that require specialized training and technical expertise. By investing in talent development, Harland Medical Systems contributes to the professional growth of Costa Rican workers and strengthens the country’s knowledge economy.

Hydrophilic Coatings: A Critical Service for MedTech

Hydrophilic coatings are a vital component in the medical device manufacturing process. These coatings enhance the functionality of devices by reducing friction, improving durability, and ensuring biocompatibility. As the first company to offer this service in Costa Rica, Harland Medical Systems is filling a critical gap in the local market while supporting the needs of MedTech companies operating in the region.

The Costa Rica facility’s high-throughput capabilities will allow Harland Medical Systems to deliver faster turnaround times and greater efficiency. These improvements are particularly valuable for medical device manufacturers working on tight production schedules and demanding quality standards.

Strengthening Costa Rica’s MedTech Ecosystem

The launch of Harland Medical Systems in Costa Rica further reinforces the country’s position as a global leader in medical innovation and advanced manufacturing. Over the past decade, Costa Rica has attracted numerous multinational companies in the life sciences sector, creating a thriving ecosystem of manufacturers, suppliers, and service providers.

Harland’s presence is expected to generate a ripple effect, encouraging further investment in Costa Rica and boosting the competitiveness of the local MedTech industry. This development aligns with Costa Rica’s long-term vision of becoming a hub for innovation, sustainability, and high-value manufacturing.

Looking Ahead

Harland Medical Systems’ expansion into Costa Rica is a testament to its forward-thinking approach and dedication to meeting its customers’ evolving needs. By leveraging Costa Rica’s strategic advantages, Harland Medical Systems is well-positioned to achieve new milestones and drive innovation in the medical device industry.

As the facility begins operations, it will support global customers and contribute to Costa Rica’s economic growth and technological advancement. The collaboration between Harland Medical Systems and Costa Rica exemplifies the power of strategic partnerships in shaping the future of healthcare and life sciences.

This milestone underscores the importance of innovation, collaboration, and investment in advancing the MedTech industry, solidifying Harland Medical Systems’ role as a leader in specialized coatings worldwide.

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credit ratings for el salvador

Fitch Upgrades the Credit Rating for El Salvador to B-, Stable Outlook

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The main driver of the upgrade is the agreement with the IMF, pending ratification by its Executive Board in February. Fitch included a summary of the country’s finances, noting that public debt reached 87.7% of GDP in 2024.

Credit rating agency Fitch announced on Tuesday that it upgraded El Salvador’s Long-Term Foreign Currency Issuer Default Rating (IDR) from CCC+ to B-. The outlook is stable.

According to Fitch, the upgrade reflects “reduced financing needs and easing of funding constraints,” supported by the country’s regained access to international markets and, most notably, the IMF program announced in December.

The IMF and the Salvadoran government reached a staff-level agreement on a 40-month Extended Fund Facility (EFF) program worth $1.4 billion to support government reforms. The deal is subject to approval by the IMF Executive Board in February.

“Fitch expects the program to support the implementation of fiscal consolidation measures that, along with a reduction in outstanding short-term debt to domestic banks and the external debt buybacks carried out through liability management operations last year, should reduce financing needs. Successful consolidation could also boost investor confidence in El Salvador’s debt sustainability and enable further bond issuances,” Fitch wrote in the upgrade announcement.

This announcement marks the second time in recent years that Fitch has upgraded the credit rating for El Salvador, signaling growing confidence in the nation’s fiscal trajectory.

The Impact of the IMF Agreement on El Salvador’s Economic Outlook

The agreement with the IMF is pivotal in Fitch’s upgraded credit rating for El Salvador. The Extended Fund Facility (EFF) is designed to bolster government reforms and provide fiscal stability, aiming to address the nation’s high public debt and deficit levels. By including budgetary consolidation measures, such as reducing short-term domestic debt and external debt buybacks, the program lays a foundation for financial improvement.

Despite these positive indicators, challenges remain. Fitch’s projections underscore a delicate balance between fiscal responsibility and the potential for economic strain, emphasizing the need to carefully monitor public sentiment and investment confidence.

A Summary of El Salvador’s Finances

Fitch estimates the Non-Financial Public Sector deficit at 4.7% of GDP in 2024, unchanged from 2023.

The agency includes an estimate of the pension deficit, which is not reflected in official data. It notes that revenues grew by around 9%, driven by increased consumption and income taxes. Meanwhile, expenditures rose by about 14% due to higher wages, interest payments, and capital expenditures.

Fitch explains that the higher wage expenses include a one-time severance payment to public employees who opted for voluntary early retirement packages. Interest payments increased due to the higher cost of borrowing, partly reflecting the extended maturities resulting from previous liability management operations.

However, the agency states that the interest burden benefits from a four-year grace period on pension-related debt granted to the government after completing a debt swap with private pension funds (AFP) in May 2023, during which interest payments are capitalized.

“Fitch classified this as a distressed debt exchange,” it noted.

The agency also highlighted that the 2025 budget aims for a global balance adjustment by 1.9% of GDP through significant spending cuts (e.g., a general wage freeze for public sector employees) and projected revenue increases (e.g., improved tax administration). Fitch provides an optimistic estimate, predicting that the deficit will decline to 2.9% of GDP in 2025, down 1.8 percentage points from 2024.

This fiscal discipline is another reason why Fitch upgraded El Salvador’s credit rating, showcasing the government’s ability to implement difficult reforms.

Fitch estimates total public debt reached 87.7% of GDP in 2024, up from 84.9% in 2023. It expects this ratio to remain around this level in 2025 and decrease slowly to 87% by the end of 2026.

“However, as in previous pension debt swaps, the debt-to-GDP ratio could rise significantly in 2027 due to the repayment of accrued interest from the 2023 grace period extension,” the agency clarified.

Growth of 1.9% for 2024

Fitch forecasts El Salvador’s real GDP growth will slow to 1.9% in 2024, down from 3.5% in 2023. This significantly lowers the outlook compared to the Central Reserve Bank (BCR), which had optimistically projected 4% growth.

It is also much lower than the growth estimates of 3% by the International Monetary Fund and 2.9% by the World Bank.

On the other hand, Fitch expects growth to rise to 2.3% in 2025 and then gradually return to its low historical average of 2% (2001–2019) in the medium term.

The agency considers the outlook to have mixed risks. It sees upside potential if the government’s efforts to improve security lead to stronger investment prospects or if higher-than-expected U.S. growth positively impacts remittances and exports. The United States is El Salvador’s leading trading partner and the destination for one-third of its goods.

“Conversely, the reelection of Donald Trump as U.S. president could lead to stricter immigration policies and a more protectionist U.S. trade stance, negatively affecting remittances (which mostly come from the U.S. and account for 24% of GDP) and exports,” Fitch added.

The improved credit rating for El Salvador underscores both the progress made through fiscal reforms and the challenges posed by broader economic uncertainties. Fitch’s decision to upgrade the credit rating for El Salvador highlights the nation’s potential to create a more stable financial environment. By focusing on sustainable fiscal policies, the country could enhance its investment climate and achieve more stable economic growth.

Conclusion

El Salvador’s upgraded credit rating reflects a critical juncture in its economic trajectory as it seeks to balance fiscal consolidation with sustainable growth. While the IMF agreement and government reforms offer a pathway to improved financial stability and investor confidence, challenges such as high public debt, slower GDP growth, and external vulnerabilities remain significant. El Salvador’s ability to implement effective policies, maintain fiscal discipline, and capitalize on opportunities to attract investment will determine its success in building a resilient and prosperous economy.

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economic sciences research institute of the university of costa rica

The Economic Sciences Research Institute of the University of Costa Rica predicts that the national economy’s GDP will grow by around 4.2% in 2025.

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On January 14, 2025, the Economic Sciences Research Institute (IICE) of the University of Costa Rica (UCR) published its Quarterly Economic Analysis: Third Quarter 2024 and Projections for the First Quarter of 2025 and the Full Year.

The researchers emphasized that the country could sustain economic growth in 2025, similar to the previous year. However, this will depend on various conditions of national and international stability. The Economic Sciences Research Institute of the University of Costa Rica noted that maintaining steady household consumption and effective economic policies would be critical in achieving these projections.

The IICE’s first report of the year projects GDP growth between 3.8% and 4.7% by the end of 2025. For the close of the first quarter of this year, a higher growth rate is expected, reaching 5.1% (with an estimated range of 4.5% to 5.8%). The Economic Sciences Research Institute of the University of Costa Rica attributed this potential growth to robust performance in the special regime (including free trade zones), which is leading this growth with a projected 10.9% increase by the end of the year (range: 8.1% to 13.8%). In comparison, the definitive regime is expected to grow by 3.1% (range: 2.5% to 3.7%).

The institute’s analysis highlights that although domestic demand declined in the third quarter of last year, household consumption has remained strong. On the other hand, the Economic Sciences Research Institute of the University of Costa Rica observed that the year-on-year change in family spending represented 1.28% of GDP in the third quarter of 2024, almost half of the 3.72% recorded in the same period in 2023. Despite the decrease, it remains the main component of domestic demand.

The year-on-year final household consumption expenditure growth fell from 6.04% in the third quarter of 2023 to 2.94% in 2024. Of this change, 1.21 percentage points came from services (less than half the previous year’s 3.9 p.p.), 0.72 p.p. from non-durable goods, 0.55 p.p. from durable goods, and 0.46 p.p. from semi-durable goods.

In terms of economic activity, the main contributors to year-on-year GDP growth in the third quarter were professional, scientific, and technical activities (0.98 p.p.), followed by manufacturing (0.88 p.p.). Most other categories showed small but positive or nearly flat growth, except for electricity, water, and sanitation services (-0.1 p.p.) and construction (-0.43 p.p.).

Employment

Year-on-year increases were recorded in employment levels and hours worked in primary jobs. Employment grew by 8.6% between the third quarters of 2023 and 2024, while hours worked increased by 6.7%.

In the mobile quarter from August to October, employment saw a year-on-year increase of 7.61%, with 10 out of 14 evaluated labor activities contributing to this rise. The sectors that stood out the most were trade and repair (1.99 p.p.), professional and administrative support activities (1.84 p.p.), and transport and storage (1.84 p.p.).

On the other hand, the activities that showed a year-on-year decline were agriculture, livestock, and fishing (-0.85 p.p.), “unspecified” (-0.37 p.p.), manufacturing (-0.34 p.p.), and construction (-0.30 p.p.). Productivity per hour worked dropped by 2.88% between the third quarters of 2023 and 2024.

Prices

According to the Economic Sciences Research Institute of the University of Costa Rica, prices remain below the inflation target. The year-on-year General Consumer Price Index (CPI) remained below zero from September to November, although it exited negative territory in December. While the CPI in September stood at -0.14%, it fell to -0.79% in October, rebounding to -0.09% in November. By December, it had risen to 0.84%.

Additionally, the IICE projects that the March year-on-year CPI change will range between 1.06% and -0.11%.

Interest Rates and Currency

In January 2025, the Central Bank of Costa Rica (BCCR) reduced its Monetary Policy Rate (MPR) to 4.0%, a rate similar to the Basic Passive Rate (BPR) of 4.15%. Daniela Córdoba Solano, coordinator of the analysis, explained:

“The reductions in the MPR have also put downward pressure on passive rates in the economy. In the case of active rates, the decline has been much slower. These rates have remained high for longer. That explains why loans have not grown significantly. However, we have started to see a slightly greater reduction in active rates recently, which has favored an annual increase in the credit balances of the banking system to the non-financial private sector, especially for consumption, trade, and services.”

Furthermore, the Economic Sciences Research Institute of the University of Costa Rica highlighted the 3.5% appreciation of the colon’s value between October 2023 and October 2024, surpassing the 3.3% revaluation recorded in recent months.

Between November 2023 and October 2024, exports grew by 4.9% in the definitive regime and 10.8% in the special regime, representing 66% of total exports. The precision and medical equipment sector led exports, accounting for 67% in October. The electrical and electronics sector grew from just 2% of the total in January of the previous year to 38% by October. Meanwhile, the agricultural industry experienced a significant reduction, dropping from 15% to 6% over the same months.

Lastly, imports under the definitive regime increased by 8.6%, while those under the special regime fell by 9.7%.

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