El Salvador: Dollarization Brings Chaos

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

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

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.

AMP Section Name:CorpWatch

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