SECTION VIII - TRADE AND PROJECT FINANCING - Brief Description of the Banking System The Salvadoran Banking system is emerging from a privatization/financial reform process which took place from 1990 to 1993. El Salvador's banking system was state-owned from 1980 to 1990. In 1990 and 1991, the Government of El Salvador (GOES) established the legal framework to implement a reorganization and reform of the system. The reforms were market oriented and geared to encouraging competitiveness and efficiency in the financial system, allowing the market to set rates for virtually every banking operation and service (including interest rates for both loans and deposits). The reforms also permitted banks to operate and offer services using both local currency and U.S. dollars. There are at present eight commercial banks, one mortgage bank, one foreign bank, and two state-owned development banks. In addition, there is a new commercial bank which was created with both local and foreign capital. Recently, the Legislative Assembly passed legislation creating a new, third, development bank. This bank was created using Central Bank funds and will assume some of the special financing/development functions that used to be performed by the Central Bank. This will leave the Central Bank to function exclusively as the government institution responsible for watching and maintaining El Salvador's monetary and economic stability. Financial institutions (both foreign and domestic) operating in El Salvador are regulated by the December 1990 Ley Organica de la Superintendencia del Sistema Financiero (Organic Law for the Financial System Regulatory Agency), the April 1991 Ley de Bancos y Financieras (Banks and Savings and Loans Institution Law), and the May 1991 Ley Organica del Banco Central de Reserva de El Salvador (Organic Law for the Central Bank of El Salvador). All financial institutions are audited, authorized and supervised by the Superintendencia del Sistema Financiero, a former division of the Central Bank and now a decentralized autonomous agency. The Salvadoran banking system offers the same services and operations as any local or international bank in the U.S.A., i.e. deposits, loans, currents accounts, letter of credits and other international operations, etc. In addition, the Salvadoran banks offer services in several currencies: local colones, U.S. dollars, Guatemalan Quetzales and Honduran Lempiras. - Foreign exchange controls affecting trading The banking reforms of 1990/91 abolished virtually all controls on foreign exchange affecting trade. However, a foreign investor's money is better guaranteed if the investment is registered either at the Central Bank, for periods less than a year, or with the Ministry of Economy for longer periods. Operations involving foreign partners are carried out in U.S. dollars. - General Financing Availability In general, the availability of financing for economic activities is good in El Salvador. Interest rates and terms vary according to the nature of the projects. Potential investors should keep in mind that, due to bad experiences during the past decade, commercial banks have become more conservative, tightening their credit regulations and collateral requirements. Currently, interest rates vary from 18 to 22 percent, and terms from a year up to 15 years. Credit policies tend to favor consumer finance, agriculture, and manufacturing over trade. As of September 30, 1993, the banking system's loans and investment portfolio stood at 20 billion colones (2.3 billion dollars), of which 1.4 billion dollars were loans made to the private sector. As of the same date, savings, time and foreign currency deposits were 1.74 billion dollars. The banking system also handles non-GOES development funds provided by international lending institutions, in accordance with Central Bank regulations. - How to Finance Exports/Methods of Payments U.S. exports to El Salvador are usually financed by loans made by local banks to importers. Rates for loans to finance the import of consumption goods are now close to 20 percent at terms of less than a year. Intermediate goods are financed at more favorable rates and terms. Note that machinery and capital goods might be financed at lower rates and longer terms since the Central Bank, as well as international lending institutions, channels special credit lines for these purposes. In 1993, El Salvador imported 1.9 billion dollars worth of goods, of which more than 70 percent were intermediate and capital goods. EXIMBANK, Interamerican Bank, and World Bank lines of credit will be handled by the new Multisectoral Investment Bank. Most of the banks presently operating have U.S. correspondents. The Inter-American Development Bank (IDB) provides funding to primarily public sector entities for the design and execution of projects. IDB projects afford US suppliers of goods and services significant export opportunities, mainly in the transportation, environment, health, education, urban development, tourism, agriculture, and energy sectors. US firms seeking information on IDB-financed commercial opportunities should contact: US Department of Commerce Liaison Officer to the Inter-American Development Bank US Executive Directors Office 1250 H Street, NW 10th Floor Washington, DC 20005 Tel: (202) 942-8265 Fax: (202) 942-8275 or Office of Multilateral Development Banks US & Foreign Commercial Service US Department of Commerce Room H-1107 Washington, DC 20230 Tel: (202) 482-3399 Fax: (202) 482-0927 or in El Salvador: Stephen E. McGaughey Condominio Torres del Bosque 10 Piso, Colonia La Mascota Apartado Postal No. (01) 199 San Salvador tel: 23-8300 The International Bank for Reconstruction and Development (IBRD), a member of the World Bank group makes long-term loans at market-related rates primarily to developing nations. The IBRD works to promote broadly based economic growth, frequently focus on structural adjustment, sectoral reform, and individual project lending. Each project may cover a wide variety of sectors and can involve anywhere from one to hundreds of separate contracts providing export business opportunities for suppliers worldwide. Please note that El Salvador does not qualify for International Development Agency (IDA) soft loans since income levels in El Salvador are above the IDA ceiling. For more information contact: US Department of Commerce Liaison to the US Executive Directors Office International Bank for Reconstruction and Development 1818 H Street, NW Room D-13004 Washington, DC 20433 Tel: (202) 458-0118 Fax: (202) 477-2967. or Office of Multilateral Development Banks US & Foreign Commercial Service US Department of Commerce Room H-1107 Washington, DC 20230 Tel: (202) 482-3399