Chapter

EL SALVADOR

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of December 31, 2003)
Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: November 6, 1946.
Exchange Arrangement
CurrencyThe dollar is the legal tender and circulates freely at a fixed rate of ¢8.75 per $1. Payments may be made in either dollars or colones.
Other legal tenderSilver and gold coins in denominations of ¢150 and ¢2,500, respectively, are legal tender, but do not circulate.
Exchange rate structureUnitary.
Classification
Exchange arrangement with no separate legal tenderThe dollar is used as a unit of account and a medium of exchange, with no limitations. The Central Reserve Bank (CRB) is obligated to exchange colones in circulation for dollars upon request from banks at a fixed and unalterable exchange rate of ¢8.75 per $1.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
Arrangements for Payments and Receipts
Prescription of currency requirementsMonetary obligations may be contracted in dollars or any other currency and must be settled in the currency specified in the contract.
Payments arrangements
Regional arrangementsEl Salvador is a member of the CACM.
Administration of controlAll private sector foreign exchange transactions are delegated to the commercial banks and exchange houses. The Centro de Trámites de Exportatión issues certificates of origin and health when foreign importers require them. The Salvadoran Coffee Council issues permits freely to private sector traders to conduct external or domestic trade in coffee.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeYes.
Controls on external tradeYes.
Controls on exports and imports of banknotesThere are no restrictions, except as regards anti-money laundering regulations.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyAccounts may be denominated in dollars.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Positive listImport permits issued by the Ministry of Economy (MOE) are required for ethyl alcohol, sugar, and wheat flour.
Negative listImports of lightweight passenger and freight motor vehicles more than 8 years old and heavy passenger and freight vehicles more than 15 years old are not allowed (except collectors’ vehicles and vehicles donated to the state or to public service or charitable organizations; those used exclusively by handicapped or disabled persons; those providing a specific service, such as agricultural or industrial work; and those connected with electricity-generating plants, well drills, and water purifiers).
Import taxes and/or tariffsMost imports are subject to tariffs, averaging 10%, although higher tariffs are applied to some products, such as automobiles (25-30%); alcoholic beverages (30%); and textiles and luxury goods (20%). There are no tariffs on capital goods and selected inputs. Tariffs on imports of intermediate goods from outside the Central American region are 5-10%, and those on consumer goods are 15%.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesAll exports must be registered for statistical purposes. Export permits, issued by the MOE, are required for diesel fuel, liquefied petroleum gas, and gray cement.
Without quotasYes.
Export taxesExports are not subject to taxes. However, exporters of nontraditional goods to markets outside of Central America are reimbursed for tariffs paid on imported raw materials equal to 6% of the f.o.b. value of the exports.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsAll publicly offered securities and their issuers must be registered with the stock exchange.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentThe foreign investment law limits inward direct investments in economic sectors, such as commerce, industry, certain services, and fisheries (pesca de bajura). Investments in certain public works—e.g., railroads, piers, and canals—require government approval.



Foreign direct investments and inflows of capital with a maturity of more than one year must be registered with the MOE for statistical purposes. Certain minimum capital requirements exist for businesses owned by foreign residents and those having foreign resident shareholders.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsForeign natural and juridical persons may purchase real estate only if there is a reciprocal arrangement in their home country (an exception is allowed for industrial establishments), up to a maximum of 245 hectares a person. This limit does not apply to cooperative associations or rural community associations, which are subject to specific controls.
Controls on personal capital transactionsFor statistical purposes, authorized banks are required to report to the CRB all transactions involving sums equivalent to $5,000 or higher. In addition, the anti-money laundering law requires authorized banks to report to the CRB multiple transactions by a single individual involving sums equivalent to $500,000 or higher if there is evidence that the transactions are not bona fide.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadEffective December 30, 2003, external borrowing by financial institutions is subject to a reserve requirement of 8% (previously, effective July 1, 2003, this rate was increased incrementally from 5%). The CRB remunerates commercial banks’ liquidity reserves on the basis of the federal funds rate quoted by Bloomberg minus 0.15%.
Lending to nonresidents (financial or commercial credits)Loans granted by banks to nonresidents or for investment abroad may not exceed 10% of the creditor bank’s equity capital. Total loans under this category may not exceed 150% of a bank’s equity capital, and the holding of loans by banks above 75% of the equity capital requires authorization subsequent to documentary requirements.
Open foreign exchange position limitsThe limit on the net foreign asset position of commercial banks is 10% of capital and reserves.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsPension funds may only invest locally.
Limits (max.) on investment portfolio held abroadInsurance companies are permitted to invest abroad up to the limit (20%) specified by law.
Other controls imposed by securities lawsNo.
Changes During 2003
Capital transactions
Provisions specific to commercial banks and other credit institutionsJuly 1. The reserve requirement on external borrowing by financial institutions began to be increased gradually from 5%, reaching 8% by December 30, 2003.

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