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Pension setback will worsen El Salvador fiscal woes

Tuesday, August 8, 2017

Subject

Pensions gridlock

Significance

In late July, the Supreme Court ruled that a new legislative reform to the pensions system was unconstitutional, suspending the law. This is a setback for the government’s efforts to resolve the country’s worsening fiscal crisis, which has already led to rating agencies downgrading its sovereign debt. With elections due in March 2018, the potential for detente between the ruling party and the opposition is limited.

Impacts

  • The government could seek financing from the IDB or the World Bank to free development funds for fiscal obligations.
  • Reduced US aid may result in more crime, as prevention and rehabilitation programmes are cut.
  • The prospect of an ARENA election win may remove any incentives for fiscal negotiation.
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