Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

EL SALVADOR

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: November 6, 1946.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyBoth the dollar and the colón are legal tender; payments may be made in either dollars or colones.
Other legal tenderSilver and gold commemorative coins in denominations of C 150 and C 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 on request from banks at a fixed and unalterable exchange rate of C 8.75 per $1. However, the colón remains legal tender, although it accounts for a small share of total circulation.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksMonetary Integration Law.
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 phytosanitary and zoosanitary certificates of origin for plant and animal products under free trade agreements, preferential arrangements, and partial compliance agreements. The Salvadoran Coffee Council issues permits freely to private sector traders to conduct external or domestic trade in coffee. There are no exchange controls, and economic agents may freely carry out legal transactions in foreign currencies, as long as they are carried out through legally authorized institutions, i.e., commercial banks, Banco Hipotecario y de Fomento, and exchange houses.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
On domestic ownership and/or tradeThe Mining Law provides for the issuance of licenses and concessions for the exploitation, processing, and marketing of mining resources.
On external tradeThe law authorizes the CRB to exercise control and safeguard functions over monetary gold and commemorative coins. The Mining Law and regulations establish mechanisms for the domestic and external marketing of other gold used for industrial purposes.
Controls on exports and imports of banknotesThere are no controls, except those under anti-money laundering regulations. In practice, the CRB is the only agent that exports and imports dollars.
References to legal instruments and hyperlinksMining Law; Law Against the Laundering of Money and Assets; Monetary Integration Law.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyBanks are required to maintain foreign exchange accounts.
Held abroadYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksMonetary Integration Law.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsBanking institutions’ books of accounts are kept in dollars, with the result that domestic currency deposits are not identified. Colones account for a minimal share of total circulation.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksMonetary Integration Law.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsImporters are free to determine the payment arrangements for their imports, including advance payments.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresCertain products require import licenses 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 listLicenses issued by the Ministry of Economy (MOE) are required for ethyl alcohol, whether denatured or not; refined or raw cane sugar; corn; wheat flour; and rice. Prior authorization by the Ministry of Defense is required for imports of weapons and explosives. For imports of chemicals, an environmental permit is also required either from the Ministry of the Environment and Natural Resources or from the Ministry of Agriculture and Livestock.
Negative listEl Salvador prohibits imports of the following products for reasons of health, security, public morality, or environmental protection: subversive material or teachings contrary to the political, social, and economic order; obscene materials; unethical or indecent films; abortion-related products; and slot machines. Also prohibited are imports of coffee in a form that can be used as seeds for planting and coffee bushes; 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 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.
Licenses with quotasThe MOE grants import permits or licenses for products that are subject to some form of quota under the free trade agreement with the United States, such as beef, pork, milk in liquid or powdered form, other dairy products, yellow or white corn, sorghum, chicken parts, and rice.
Other nontariff measuresSugar intended for the domestic market must be fortified with vitamin A. El Salvador has authorization from the WTO to use the minimum price valuation method for imports of the following used articles: clothing; televisions; shoes; retreaded tires; sacks or bags for packing; and used vehicles, spare parts, and accessories. Prior to entry into the country, all these products must undergo fumigation.
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% to 30%; and (4) meat, rice, sugar, alcohol, and spirits, 40% plus an additional 5% on alcoholic beverages and tobacco. 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, Panama, and the United States under which some products are duty-free.
State import monopolyNo.
References to legal instruments and hyperlinksD.L. 647 of December 6, 1990, Article 5, Rule X, and Article 5, Notes on Import Tariff; Law on Land Transportation, Transit, and Road Security (D.L. 477 of October 19, 1955), Article 34; WTO document WT/L/476, dated July 12, 2002; www.marn.gob.sv.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirements
Preshipment inspectionCustoms conducts preshipment inspections of exports of basic foods such as beans, rice, sorghum, fresh loroco, and fresh papayas prior to export; agricultural precertification is also required. Dairy products require authorization from a quality control laboratory. All products of animal origin are subject to prior inspection.
Export licensesAll exporters must be registered with CENTREX (Export Processing Center) before making any exports, and all exports must be recorded in a computer system (SICEX) designed exclusively for that purpose. The UN convention on wild fauna prohibits exports of endangered plants and animals, cultural heritage goods, and gas for domestic consumption. Other export products require authorization by other institutions prior to processing at CENTREX, for example, cane sugar, agrochemicals, biological products, drugs and food for veterinary use (requires registration and written authorization), wild flowers and plants, basic foods (require preshipment inspections), dairy products (require laboratory testing), meat, fishing products (a carnet must be obtained), 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 quotasExports of sugar are administered under two arrangements. The portion traded with the United States, which is called the American quota or preferential market, is subject to preferential treatment that consists of a negotiated quantity of metric tons to be exported. Exporters are free to export the remaining sugar production to any country. In addition, under CAFTA, quotas have been allocated for other products, such as beef, dairy products, ethanol, and maní. A reciprocal quota with Panama has been included with respect to the monetary value of certain types of cheese.
Export taxesExports are not subject to taxes, and exporters of nontraditional goods to markets outside Central America are reimbursed for tariffs paid on imported raw materials equal to 6% of the f.o.b. value of the exports.
References to legal instruments and hyperlinksLaw on the Revitalization of Exports; CENTREX regulations; Law on the Conservation of Wildlife.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsAll publicly offered securities and their issuers must be registered with the stock exchange.
Repatriation requirementsNo.
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. 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 with the same rights and obligations as national investors and corporations. The constitution restricts foreign investments in the following activities: trade; industry; small-scale services; and specifically coastal fishing under the terms set out in the law, which is exclusively reserved for native Salvadorans. The subsoil belongs to the state, which may grant concessions for its exploitation. Investments in shares of banks, finance companies, and exchange houses are subject to conditions under the applicable laws.
Controls on liquidation of direct investmentForeign investors are guaranteed the right to transfer abroad funds related to their investments, which must be made without delay. They are assured of convertibility subject to the prior conversion of such funds into foreign currency through the banking system. Such transfers include net profits and dividends generated by their investments, proceeds from partial or total disposal of investments, and 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 with their home country (an exception is allowed for industrial establishments). The maximum area of rural land belonging to a single individual or legal entity may not exceed 245 hectares. This limit does not apply to rural cooperative or community associations, which are subject to a special regime.
Controls on personal capital transactionsFor the CRB’s statistical purposes, authorized banks and exchange houses are required to ask their customers to submit foreign exchange export and import forms for all transactions involving sums equivalent to $5,000 or more. In addition, the anti-money laundering law requires authorized banks to report 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.
References to legal instruments and hyperlinksInvestment Law; Law against the Laundering of Money and Assets; Organic Law of the Central Reserve Bank (Chapter IX, Article 59, and Chapter X, Article 64, as a basis for Rules Governing the Recording of Foreign Transactions).
Provisions Specific to the Financial Sector
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 by banks of loans 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% as a minimum, based on the country risk ratings.
Investment regulations
Abroad by banksEffective January 1, 2006, in addition to required reserves with the CRB, covered entities must at all times hold 3% of their monthly average of daily balances of deposits for the previous month, subject to reserve requirements, in readily negotiable foreign securities.
Open foreign exchange position limitsThe limit on the open foreign exchange position of commercial banks is 10% of capital and reserves.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on investment portfolio held abroadInsurance companies are permitted to invest abroad up to the limit (20% of assets) specified by law.
Pension funds
Limits (max.) on securities issued by nonresidentsEffective April 21, 2006, pension funds are permitted to invest up to 20% in publicly offered instruments listed on the El Salvador Stock Exchange, in accordance with the limits authorized by the Risk Commission. The range established by the Law on the Pension Savings System under Article 91 is between zero and 30% for this type of instrument.
Limits (max.) on investment portfolio held abroadPension funds may invest only in the domestic market.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksLaw on Pension Savings System, Article 91 (amended by Decree Law No. 100 of September 13, 2006); Law on Banks (Prudential Standards for Banks); Law on Insurance (Article 34); www.ssf.gob.sv/marcolegal/leyes.
Changes during 2006
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 1. In addition to required reserves with the CRB, covered entities must at all times hold 3% of their monthly average of daily balances of deposits for the previous month, subject to reserve requirements, in readily negotiable foreign securities.
Provisions specific to institutional investorsApril 21. Pension funds were permitted to invest up to 20% in publicly offered instruments listed on the El Salvador Stock Exchange, in accordance with the limits authorized by the Risk Commission.

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