In April 2012, for the first time in three years, El Salvador experienced a full 24-hour period without a single recorded murder. A laudable accomplishment one might think, but the magnitude of such a milestone only becomes clear when one realises that El Salvador – a small country about the same size of the US state of Massachusetts and with only about 6 million inhabitants – recorded more than 4300 murders in 2011. This was the highest rate of homicides since 1992, the year that marked the end of the country's 12-year civil war.

Known as maras in Spanish, El Salvador’s voluminous street gangs – with an estimated 64,000 members between them – are responsible for the vast majority of homicides in the country. Largely formed of Salvadoran immigrants to the US during the civil war, the two largest maras – Mara Salvatrucha and the 18th Street Gang, which takes its name from a street in the Rampart area of Los Angeles – announced a truce in March 2012, backed by imprisoned gang chieftains and the Catholic church. By July, that truce had cut the country’s murder rate in half.


Violent reaction

Salvadoran website El Faro has claimed that the government of president Mauricio Funes struck a deal with the gangs to help stem the violence. Mr Funes has maintained that his government did not offer any favours to the maras in exchange for the truce, but a number of gang leaders have been moved from maximum security prisons to less stark penitentiaries offering more benefits to those incarcerated there since the truce.

The truce comes at a pivotal and politically sensitive time for El Salvador which, despite being the smallest country in Central America, boasts the third largest economy in the region. In 2011, an analysis on the constraints to growth in the country, conducted by   economists from the governments of El Salvador and the US, identified crime and insecurity as the country's major impediments. 

Mr Funes, the first successful presidential candidate from the left-wing Farabundo Martí para la Liberación Nacional (FMLN) party – which began as a guerilla organisation during the civil war – was inaugurated as El Salvador’s president in June 2009. Since then the former journalist – who was once awarded the prestigious Maria Moors Cabot prize from Columbia University for his work – has governed largely as a centrist, much to the chagrin of some in his party.

Mr Funes – whose brother was killed during the 1980-1992 conflict – was also the first FMLN candidate to not have personally fought in the civil war, although his vice-president, Salvador Sánchez Cerén, is a former FMLN guerilla commander and widely viewed as a hard-left ideologue.

El Salvador had previously been governed for an unbroken 20-year stretch by the Alianza Republicana Nacionalista (Arena) party, despite the party's extreme right position throughout the civil war, and the actions of its co-founder, Roberto D'Aubuisson, a former military officer who organised what were known as death squads. Mr D'Aubuisson ran for presidency in 1984, but lost to the Christian Democrat party candidate José Napoleón Duarte.

Tension in the ranks

In recent months, despite the signing of a Partnership for Growth agreement between the governments of El Salvador and the US, which is designed to improve infrastructure, reinforce the country’s human capital and encourage foreign investment, signs of political uncertainty have begun to shake investor confidence.

The government is currently locked in a bitter dispute with El Salvador’s judiciary, which in June 2012 annulled the selection earlier in the year of 20 judges by the country's FMLN-dominated congress. Mr Funes has taken the case to the Corte Centroamericana de Justicia – the Central American Court of Justice – a body dominated by allies of Nicaragua’s president Daniel Ortega and widely seen as an FMLN ally.

Meanwhile, current vice-president Mr Cerén has been selected as the FMLN’s candidate for the 2014 presidential elections, leading some to speculate that the party intends to hew a more rigid line in the coming electoral contest. Following legislative elections in May 2012, Arena now holds 33 of the national assembly's 84 seats and the mayorship of the country's capital, San Salvador.

“Mr Funes proved himself to be a very pragmatic and moderate president,” says Heather Berkman, a Latin America analyst with the Eurasia Group, a global political risk research and consulting firm. “But there is still uncertainty about precisely what the FMLN will do [if it wins the next presidential election]. There is still the possibility of some drastic economic policy changes.”

Holding fire

By regional standards, the structure of El Salvador’s political parties remains extraordinarily closed, with both FMLN and Arena passing up open primary elections in favour of the selection of candidates by a handful of party elites, a process that has led to rather extreme ideological orientations.

The Agencia de Promoción de Exportaciones e Inversiones de El Salvador (Agency for Promotion of Exports and Investments of El Salvador) has had a somewhat steeper task in attracting foreign investment to the country compared with some of the country’s neighbors. With the relatively piecemeal regulatory system, a labyrinthine legal apparatus and the ongoing crime problem undercutting the great cost-effectiveness that El Salvador has to offer.

Nevertheless, El Salvador saw $528.6m in foreign investment in 2010, and with the completion of a deep-water port in the gulf of Fonseca in 2009 – which began operations in June 2010 – the country hopes to welcome more. The contribution to El Salvador’s economy by Salvadorans living abroad also remains significant. El Salvador’s central bank, the Banco Central de Reserva de El Salvador, estimated that during 2011 remittances into the country totaled $3.6bn.

With its aspirations to become a shipping and logistics hub for the Central American region springing out of the gulf of Fonseca, all eyes are on El Salvador’s gangsters and politicians to see if fire can be held, literally and metaphorically, to push the country forward to a new era of economic and political maturity. El Salvador’s future as an investment destination may depend on their ability to do so.