Law to Create an Economic Recovery Trust in El Salvador
In view of the difficult economic situation caused by the COVID-19 pandemic worldwide and which has affected most Salvadoran companies, at the initiative of the government, the Legislative Assembly approved on July 9, a new “Law for the Creation of a Trust for the Economic Recovery of Salvadoran Companies”, also known as FIREMPRESA, which will allow the allocation of resources for micro, small and medium enterprises, with the objective of supporting them in their return to different economic activities.
This trust, which was the subject of extensive discussion and debate by different sectors, amounts to USD 600 million and will be administered and implemented by the Banco de Desarrollo de El Salvador, BANDESAL. The destination of the funds will be, on the one hand and with an amount of around USD 140 million, the subsidy of forms registered in the Salvadoran Institute of Social Security (ISSS). Another USD 360 million will be used to provide loans for working capital to companies, regardless of their size, provided they are registered with the ISSS, the National Commission for Micro and Small Businesses (CONAMYPE), or are VAT payers. Finally, USD 100 million for loans to companies in the informal sector.
The benefit of these loans is that they will be granted at low interest rates and with considerable periods of grace for their payment, which is intended to provide a financial respite to the various businesses, to return, or else get closer, to the productive levels that were managed before the onset of the national emergency by the pandemic.
One of the points that generated more debate within the approval of this law, was the way in which the comptroller’s office would be verified in the use and execution of these funds. To this end, the approved law provides for a committee made up of various public entities, and representation from the private sector, which will be responsible for supervising the execution of these funds.
Economic experts predict that El Salvador will lose at least 10% of the country’s middle class, around 200,000 jobs, and that public debt could reach over 90% of GDP. Therefore, it is expected that the President of the Republic will sanction this law in the coming days, and that this measure can mitigate the economic impact that the crisis has generated and continues to generate.
Julio Vargas Solano
Managing Partner
García & Bodán
El Salvador