aeroman

El Salvador grapples with an uncertain future

January 31, 2014: 1:44 PM ET

The Central American nation, which will hold elections on Sunday, must contend with persistent gang violence, systemic corruption, and a new breed of enterprising revolutionaries.

By Amy Kaslow

Maura Moran lost her three sons to gang violence. More than a third of Salvadorans live in poverty; they are particularly vulnerable to attacks on the street, in markets, at schools, and on public transport.

Maura Moran lost her three sons to gang violence.

FORTUNE -- Come election time, many voters in the developed world often focus on issues like tax rates and social values. In El Salvador, which will hold national elections on Sunday, the focus is on daily fallout from gangs and systemic corruption, the government's inability to secure its own citizens, and a new breed of enterprising revolutionaries.

The leader of the ruling leftist party, Farabundo Marti National Liberation Front (FMLN,) Sanchez Ceren, is pitted against the conservative Nationalist Republican Alliance party's (also known as ARENA) Norman Quijano, with past president Antonio Saca (UNIDAD) trailing far behind.

ARENA has focused on Ceren's stint as a guerilla commander during the country's long civil war. FMLN warns that Quijano's plan to confront gangs with military power will lead to civil war.

Critics say criminality flourished during ARENA's 15-year rule after the war ended in 1992. FMLN's detractors accuse the ruling party of ceding Salvador -- which is the size of Massachusetts -- to terror and organized crime.

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El Salvador is in its third year of a five-year U.S.-supported effort to enhance democracy, safety, and economic growth. When U.S. envoy to San Salvador Mari Carmen Aponte signed the Partnership for Growth (PfG) Joint Country Action Plan in 2011, she spotlighted "insecurity as one of the binding constraints to El Salvador's productivity and competitiveness."

Three years later, El Salvador remains a place where petrified daily bus commuters avoid eye contact, lest they attract the attention of gang members who prey on people for their cell phones, watches, and wallets; where thugs divide up territory to shake down business owners and promise harm to those who refuse. And where every school, neighborhood, and commercial establishment that can afford it sits behind high walls, barbed wire, and security guards.

El Salvador is considered one of the most violent places on earth, with the second-highest murder rate in the world (next to Honduras) according to the United Nations. Criminals operate with impunity; the conviction rate is a miserable 4%.

According to Transparency International's 2013 Global Corruption Barometer, 85% of Salvadorans consider the country's political parties "corrupt or extremely corrupt." The FMLN government's current challenge: justifying the presence of a Venezuelan-backed energy venture called Alba Petroleos de El Salvador, a corporate interest born of ALBA, a regional movement launched by Venezuela's revolutionary leaders intent on beating back the region's democratic reforms and market economics. The alliance calls for expunging the area of U.S. and other foreign corporate investment, an increased reliance on intra-ALBA trade, and a common currency.

While current FMLN leader and Salvadoran President Funes has spurned ALBA, he has not prevented Alba Petroleos from forming a partnership with an association of FMLN mayors. A subsidiary of state-run oil company Petróleos de Venezuela (PDVSA) holds 60% of Alba Petróleo's shares, while a partnership of several municipalities controlled by the FMLN holds the remaining 40%.

Researchers at Spain's University of Salamanca suspect that the Alba-FMLN relationship is rife with political favoritism. In a November 2013 report, it cited FMLN's inclusion in Alba's public events -- where Alba distributes community donations or announces new social programs -- as tantamount to financial contributions to the FMLN. It also said that Venezuela's extension of easy credit through Alba constitutes predatory lending.

Ernesto Ruiz, CEO of Aeroman and one of the country's most prominent industrialists, has reason to be concerned about his country's competitiveness. "I don't want El Salvador to go down the wrong path," says Ruiz, referring to revolutionary governments that hold onto power where the rule of law is elusive. "I have to convince a new customer" that El Salvador is a safe place to service a jet. "The first thing they want to know is, 'What are the gangs doing?'"

The 30-year-old aircraft maintenance firm has 12 production lines and 2,100 Salvadoran employees. This week, Ruiz gathered workers from each shift to talk about Sunday's election. "I said, 'Hey guys, you need to go vote, because you have the right to select your own president. This time we're not talking about electing John or Paul,'" Ruiz told his workers, 65% under 30 years old.

It's not a question of individual leaders, he says, but rather about the country's direction. "Do you want to be a part of a socialist system or a free-market system?"

The harsh reality, though, is "that most of our employees live in dangerous zones" where the constant threat from gangs goes unchecked. The company leases special busses to offer transportation to its entire workforce, and "we get them as close as possible to their homes."

Investor unease and a pullback in government financing for critical infrastructure have left the firm's growth on hold. Ruiz has been pushing for government support for an apron and taxiway so aircraft can access Aeroman hangars for refurbishing and repair, to no avail so far.

El Salvador has the lowest GDP and the lowest foreign direct investment in the region. The business environment is so uncertain, it would be difficult to expand operations and hire the additional 1,000 people Ruiz needs. The average Aeroman earns $800 a month, three times the average Salvadoran take-home pay.

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Carmen Lopez lives just 20 feet from the highway. Her steel front door leads into a ramshackle assemblage of cinderblock, cement, and balled-up newspaper stuffed into the open air holes to block punishing rains and wind. Single light bulbs swing from the ceilings; there is a crude outdoor shower and a more basic toilet in the back yard. It's hard to tell where Carmen's house ends and the adjoining neighbors' homes begin, with shared walls and overlapping rooflines. She has a five-hour round-trip commute by bus to do housekeeping work in San Salvador.

Like millions of others dependent on public transportation, Lopez, 37, waits as bus after bus passes, until she can finally board one with enough room to stand for the entire ride. She brings home $75 a week, double the amount her husband makes as a textile worker in a nearby factory. Carmen's 65-year-old mother, Maura, makes $10 a week as a seamstress. She moved the family here from another nearby neighborhood, where she lost her three sons to violence, one at 16, a second at 17, and another at 26 years old. All of the boys were murdered for their possessions: a cell phone, a piece of clothing. After Maura tells the story of each, pointing to their black-and-white photographs displayed on the bedroom wall, she sits on the bed and weeps. The FMLN disgusts her. "They promised to help, and now [that] they're in power, we have nothing."

Safety is a constant concern for budding entrepreneur Mario Artola, a 28-year-old insurance broker who has started two small service companies and expects to be extorted, or worse. Local analysts say 70% of all Salvadoran commercial entities pay bribes to stay in business.

"Honest people are killed because the gangs have power and nobody stops them," Artola says. "If the FMLN wins, they will do the same as Nicaragua: block the courts and bend the laws to benefit themselves and stay in power.

"I am voting for ARENA. If ARENA wins the election, and we don't like the job they do, we can throw them out."

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