1941: El Salvador

The Inter-American Coffee Agreement signed in 1940 went into effect in April, following the adoption of a special protocol by the ratifying countries (see BRAZIL for El Salvador's quota). The effectiveness of the quota system provided, which prevents overshipments that force the price down, is seen in the substantial rise in coffee prices in 1941. The importance of this to El Salvador, which is fourth among the world's coffee producers, is clear from the fact that normally coffee constitutes about 90 per cent of its total annual export values. The failure of the 1940-41 coffee crop, which is barely more than the nation's quota of 600,000 bags, is offset by the recovery in price; as a consequence, the short crop will produce more income than the much larger 1939 yield. The initial reaction of coffee prices generally to the entry of the United States into the War was a sharp advance, but the OPA promptly put a price ceiling at prevailing levels.

Surplus sugar presents no market problem since it is shipped across to Honduras, with which country El Salvador has a treaty of free commercial interchange. However, two unusually large cotton crops make the lack of outlet for the Republic's cotton surplus serious.

El Salvador is in the market for a $1,250,000 Export-Import Bank loan, to complete the Salvadorean section of the Pan American highway. At present the Republic has had no Export-Import Bank credits.

Military training for all men from 15 to 50 was ordered in December. The Salvadorean Military Academy is to be directed for the next two years by a North American, Col. Robert L. Christian. During the year the Minister of Education instructed all schools and colleges to exclude any discussion of anti-democratic doctrines. In June, the government confiscated a secret Nazi radio station, which was linked directly to Germany and to other Nazi stations in Latin America. Like all the Central American republics, El Salvador has declared war on the Axis powers. See also PAN-AMERICAN AFFAIRS.

1940: El Salvador

Under the chairmanship of an El Salvadorean, Hectór David Castro, a sub-committee of the Inter-American Financial and Economic Advisory Committee (see CUBA) has been studying the problem of coffee surpluses. As a consequence an agreement was signed Nov. 28, by representatives of the fourteen coffee-exporting countries of Latin America and the United States, which is to remain in force until October 1943. It was hailed by its framers as the first major cooperative step towards the economic defense of the Americas. Its purpose is to promote orderly marketing of coffee and to create purchasing power in the coffee-producing countries. Its two principal provisions are: (1) the allocation of basic annual quotas for the exportation of coffee from the signatory countries to the United States; and (2) the creation of an Inter-American Coffee Board, representing all fifteen nations, whose functions shall be to administer the agreement and to study further the problem of surpluses of this commodity. The total United States market is fixed at 15,545,000 bags (of 60 kilograms net), of which El Salvador is allotted 600,000 bags. Brazil and Colombia share in about 78 per cent of the quota. For the non-United States trade the total is 11,612,000 bags. The agreement will come into effect as soon as all the signatory countries have ratified, or failing such ratification within 90 days of its signing, it may be put into operation by the ratifying governments through a special protocol. So far about one-half of the governments have approved.

The European War has cut off the export of about 37 per cent of South Central American coffee. Unprecedented surpluses have forced coffee-growers to take the lowest prices in the history of the industry and cutthroat competition has resulted. Moreover, many of the Latin American republics, being virtually monocultural countries with restriction to this single commodity, are facing serious crises in their basic economy because of the difficulty of marketing coffee. For example, in the case of El Salvador coffee represented 84 per cent of the total value of Salvadorean exports in 1939; in 1937, as high as 91 per cent.

Similar studies of cotton and cacao are being made by the Inter-American Financial and Economic Advisory Committee. Cotton presents a very different problem because the United States is a cotton producer and exporter. The solution here is not one of apportioning the United States market but of finding new outlets and new uses for cotton.

With 25 per cent of El Salvador's exports in 1939 shipped to countries all but one directly involved in the war in Europe (Germany, Norway, Sweden, Holland, Finland and Italy), normal trade relations, as well as coffee prices, have been seriously affected. The ordinary budget for 1940 estimated revenues at 20,782,000 colones; expenditures at 21,317,000 colones.

Since uniformity of training tactics is believed essential to hemisphere defense plans, it was reported at the close of the year that El Salvador would probably follow other Latin American countries (see ECUADOR) in employing a United States military mission as technical adviser to its military forces, which are the best trained and equipped in Central America. The last technical adviser was General Eric Bonstedt of the German Army.

1939: El Salvador

On Jan. 4, the Constitutional Congress extended the term of President Maximiliano Hernandez Martinez for six years. This is the third instance of its kind recently in Central America. By similar technique Guatemala, Honduras and Nicaragua likewise have 'constitutional dictators' at their head. Internal disorders in December 1938 had led to the cancellation of presidential elections scheduled for January 1939. The army, National Guard and police were mobilized early in January to suppress a threatened revolt promoted by former army officers and civilians opposed to the continuance of the Martinez government. On Jan. 20, the Constitutional Congress abrogated the Constitution of 1886 and approved a new one, which among other provisions, empowers the President to appoint mayors, who were formerly elective officers, for the entire country.

There are strong German and Italian colonies in El Salvador, where the Germans are rich coffee and sugar planters and business men. Nazi influence, therefore, has been strong. The German Consul General is also manager of the Mortgage Bank; a German heads the Salvadorean military academy and is an official instructor of the army. But, in spite of strong totalitarian influence, the Reich stands second to the United States in trade with the Republic. The United States is the principal purchaser of Salvadorean coffee, which represents about 90 per cent of the country's exports. In 1938 Germany took only 11 per cent of the coffee exported, the United States about 65 per cent.

The ordinary budget for 1938-39 estimated revenues at 17,354,000 colones and expenditures at 17,325,000. The chief economy in expenditures is in the Public Credit item, which reflects El Salvador's temporary suspension of service on the foreign debt. The 1939 budget foresees a revenue reduction of about 2,000,000 colones, due to the sharp decline in coffee prices. With the prospect of a large coffee harvest in the 1938-39 season and slightly higher coffee prices, the economic outlook this past year improved somewhat.

1938: El Salvador

A Constitutional Congress, elected in October, began its sessions on Nov. 20. Rumors that it might extend the term of President Maximiliano Martínez, which expires in February, for another six years, were substantiated when the Congress took just such action on Jan. 4, 1939. A controlled press and the government-owned radio have been conducting a campaign to this end for several months. This is the third such instance of a 'constitutional' dictatorship in Central America, where President Ubico in Guatemala and President Tiburcio Carias in Honduras have continued in power by the same method. A state of siege has been in effect in El Salvador ever since General Martínez first rose to power. Requests that it be lifted during the session of the Constitutional Congress went unheeded. In an attempt to counteract fascist propaganda in this small Central American country, the lay teachers have formed a Salvadorean Teachers' Union, designed to limit the activities of foreign religious teachers. But the strength of German influence is indicated by the prominence of the German Consul, who is manager of the government-owned Farm Loan Bank, and of the director of the military schools and instructor of the army. In these key positions they are able to exercise considerable control.

German commercial expansion in El Salvador has been effective, too, German goods displacing United States merchandise in several lines, and German trade being second only to that of the United States. It is expected that this trend will be increased by the withdrawal of the Grace Line's service and a new contract with the North German Lloyd and the Hamburg American Lines. The mortgage bank, mentioned above, controls the sale of Aski marks and in May was making advance payments in coffee, henequen and sugar for export to Germany in German ships. Manchukuo, in November, approached El Salvador, the only Latin American country to recognize it, for a treaty of commerce and friendship, to replace a treaty with Japan which was never signed because of the unfavorable trade balance with that country. The 1937 trade with Japan was small. A reciprocal pact with France, extending to Dec. 31, 1938, granted reduction in the local tax on champagne in return for a guarantee to purchase 2,000,000 pounds of coffee.

El Salvador is a one-crop country, coffee in 1937 representing 91 per cent of its export values. The crop of that year was the largest in Salvadorean history. Agreement is now sought with the other coffee-producing countries over the crisis caused by Brazil's change in its coffee policy. The 30 per cent drop in coffee prices, followed by a reduction in the export tax on coffee, has meant a decline of approximately 2,000,000 colones in government revenues, and has led to a suspension of service on the foreign debt. The President has promised that payments will be resumed as soon as the coffee situation is cleared up. The 1937-38 budget estimated receipts at 24,083,533 colones, expenditures at 23,171,126 colones.