Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

EL SALVADOR

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: November 6, 1946.
Exchange Arrangement
CurrencyBoth the dollar and the cólon are legal tender; payments may be made in either dollars or colones.
Other legal tenderSilver and gold commemorative coins in denominations of ¢150 and ¢2,500, respectively, are legal tender.
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 Export Processing Center (Centro de Trámites de Exportación) 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 tradeControls apply in accordance with the Mining Law.
Controls on external tradeYes.
Controls on exports and imports of banknotesThere are no controls, except those under anti–money laundering regulations.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyUnder the Monetary Integration Law, banks are required to maintain accounts in dollars. Local currency deposits, which account for a small proportion, are not separately identified.
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 measuresCertain products require import authorization issued by specific government agencies, including: National Defense, Agriculture and Livestock, Public Health, Environment and Natural Resources, and the Surveillance Board of the Pharmaceutical Chemicals Profession.
Positive listImport permits issued by the Ministry of Economy (MOE) are required for ethyl alcohol, refined or raw cane, sugar, and wheat flour. Authorization by the Ministry of Defense is required for imports of pistols, revolvers, rifles, and ammunition.
Negative listEl Salvador prohibits imports of certain products for reasons of health, security, public morality, or environmental protection, including subversive material or teachings contrary to the political, social, and economic order; obscene material; unethical or immoral films; abortion-related products; and slot machines. Also prohibited are imports of coffee seeds and trees, lightweight passenger and freight motor vehicles more than 8 years old, and heavy passenger and freight vehicles more than 15 years old (except collectors’ items 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, earth-moving or industrial work; and those connected with power generation plants, well drilling, and water purification units).
Other nontariff measuresSugar for domestic consumption must be fortified with vitamin A. A WTO-authorized minimum price valuation scheme applies to imports of used clothes, televisions, shoes, retreated or used tires, sacks or bags for packing, used cards, and used spare parts and accessories.
Import taxes and/or tariffsThe following tariff rates apply: (1) capital goods, zero; (2) finished goods, 15%; (3) automobiles, firearms, cigarettes, liquor, luxury goods, textiles, garments, and shoes, 25–30%; and (4) meat, rice, sugar, alcohol, and spirits, 40%. Within Central America, 97% of goods from the region are subject to a rate of zero. El Salvador also has commercial treaties with Chile, the Dominican Republic, Mexico, and Panama, under which most products are tariff exempt.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesAll exporters must be registered with CENTREX (Export Processing Center) and report their exports for statistical purposes. Exports of endangered plants and animals, cultural heritage goods, and gas for domestic consumption are prohibited. Other export products require authorization by other institutions prior to processing at CENTREX, such as cane sugar, agrochemicals, biological products, drugs and food for veterinary use, wild flowers and plants, basic grains, dairy products, meat, fishing products, foodstuffs for human consumption, coffee (including roasted and ground), machinery, maquila textiles and garments subject to quotas, diesel fuel, propane, and butane gas.
Without quotasYes.
With quotasQuotas apply to sugar and maquila exports.
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 investmentInvestments 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. Any foreign individual or legal entity may make investments in El Salvador and avail of the same rights and obligations as national investors and corporations. The Constitution restricts foreign investments in certain activities, such as trade, industry, and small-scale services. Concessions for the exploitation of the subsoil may be granted. Investments in shares of banks, finance companies, and exchange houses are subject to conditions under the applicable laws. Inshore fishing is reserved by law for El Salvador nationals.
Controls on liquidation of direct investmentForeign investors are guaranteed the right to remit funds related to their investments, and to the prior conversion of such funds into foreign currency through the banking system. Such funds may represent net profits and dividends, proceeds from partial or total disposal of investments, or proceeds from the transfer of investments to third parties.
Controls on real estate transactionsForeign natural and juridical persons may purchase real estate. Rural real estate may be acquired by foreigners only if there is a reciprocal arrangement in their home country (an exception is allowed for industrial establishments). The maximum area of land belonging to a single individual or legal entity may not exceed 245 hectares. This limit does not apply to cooperative associations or rural community associations, which are subject to a special regime.
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 more. 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 more if there is evidence that the transactions are not bona fide.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadExternal borrowing by financial institutions is subject to a reserve requirement of 5%.
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 greater than 75% of the equity capital requires authorization subsequent to documentary requirements. Provisions are required for each loan on the basis of the risk of the country where assets are held, ranging from zero to 100%.
Investment regulations
Abroad by banksIn addition to required cash reserves with the central bank, covered entities must at all times hold 3% of their average monthly balance of deposits and liabilities subject to reserve requirements in readily negotiable foreign securities.
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% of assets) specified by law.
Other controls imposed by securities lawsNo.
Changes During 2004
No significant changes occurred in the exchange and trade system.

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