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El Salvador: Dollarization Brings Chaos

by Néfer MuñozInter Press Service
January 5th, 2001

SAN JOSE -- A sense of bewilderment prevailed among El Salvador's poor majority after the introduction of the dollar as legal tender this week, as many people in the informal sector of the economy did not even know how to make change in dollars.

The lack of an educational campaign on the use of the dollar has led to long queues outside shops and other businesses, and has triggered confusion over the exchange rate. Another problem is the circulation of counterfeit bills since the new monetary strategy went into effect on Jan. 1.

''The great majority of people are in a state of shock, because they don't understand what's happening,'' Alma Benítez, a Salvadoran who works as a prosecutor with the Central American Commission for the Defence of Human Rights, told IPS.

The Law on Monetary Integration, the legal basis for the government of Francisco Flores' plan aimed at reactivating the economy of this impoverished Central American nation, came into force on Jan 1.

The new law freed up circulation of the dollar, which became the monetary unit used by the banking system, suspended the emission of the local currency, the colon, and set a fixed exchange rate of 8.75 colons to the dollar.

Benítez said that most of El Salvador's six million people, a majority of whom are poor, have failed to assimilate the change because many of them do not even know how to read or write.

Many supermarkets and small businesses, as well as the street vendors comprising the large informal sector, have hung up signs reading ''Dollars Not Accepted'', even in violation of the new law, due to the confusion triggered by the new system.

Illiteracy in El Salvador, which stands at 22.2 percent according to studies by the United Nations Development Programme (UNDP), is standing in the way of the dollarisation process, said analysts consulted by IPS.

''This is just one big mess. We'll have to get used to this by force,'' Mirella Cáceres, a journalist with 'El Diario de Hoy', one of the most popular daily newspapers in El Salvador, told IPS.

Cáceres pointed out that many street vendors and other merchants did not know what change to give their customers when they were paid in dollars and had to make change in colons, or vice versa.

It is difficult to enforce the exchange rate of 8.75 colons to the dollar in small daily transactions, like buying newspapers or paying for bus tickets or meals in restaurants.

The habit of fudging the exchange rate has turned into a real headache for Salvadorans, when busdrivers or merchants simply keep the change.

''I took a bus that should have cost 23 cents of a dollar, but the driver kept the 25 cents I gave him, claiming he didn't have change. That is happening to many people,'' Elida Moreno, who works in San Salvador, the capital, told IPS.

Many people have decided not to risk losing money in their transactions, and passers-by working out exchange rates and other operations on pocket calculators are a common site in the streets.

One illustration of the confusion caused by the adoption of the dollar occurred when TV cameras followed Finance Minister José Luis Trigueros on a foray out into the streets to see things for himself.

When the minister stopped to buy candy in a supermarket and paid the young woman attending him in dollars, she knitted her brows and asked what the coins were, explaining that she wasn't familiar with them.

''What can be seen in the streets is a rejection of the dollar,'' Lilliam Vega, an economist with the private José Simeón Cañas Central American University (UCA), commented to IPS.

Vega said intellectual and academic circles in the country were taken by surprise by the adoption of the dollar, because President Flores announced his new monetary plan in late November, and in less than a week it had achieved parliamentary approval.

The scant information provided to the public and the belief among some sectors of the government that dollarisation will be the economic salvation of El Salvador are two of the biggest talking points in the country, said the economist.

El Salvador's Consumer Protection Office confirmed that the biggest problem in the first few days after the dollar was adopted was the arbitrary rounding up of prices by merchants, who merely kept the change they owed their customers.

Another frequent abuse reported by Consumer Protection Office inspectors is the absence of price tags on products, as required by law.

The sense of impotence felt by many Salvadorans when they change one currency for another and receive less than they are owed was summed up by one woman who was interviewed by the local press.

When she went into a San Salvador bank to change 10.86 dollars, her calculator indicated that according to the exchange rate, she should receive 95.3 colons. The clerk, however, said decimal points did not show up on his computer - and the woman was not hesitant in describing what had happened as robbery.

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