To understand the situation of abuses by the banking system in El Salvador it is necessary to go back to the 1980s, when banks became owned by the State. At that time, big business leaders bought US dollars with the credits they received in local currency (colones) and took them out of the country. By the end of the 1980s, 70 per cent of the credits banks provided were unrecoverable.
In 1989, when the Nationalist Republican Alliance – ARENA, by its acronym in Spanish – came to power, with President Alfredo Cristiani, a law was approved to clean up the banks and another to privatize them. The four most important banks came to be owned by the wealthiest families in the country, including a bank that stayed in the hands of the Cristiani family. Afterwards, those banks were sold to international banks such as Citibank, Scotiabank, HSBC, and others.
The State only retained two banks: the Mortgage Bank and the Bank of Agricultural Promotion. Under the last government of President Mauricio Funes, the National Development Bank was created. But State-owned banks only handle 7 per cent of deposits of all banks. The remaining 93 per cent is handled by the private banks.
During the last few years personal and consumer credits have increased substantially, whereas credits to agriculture have diminished.
With such background, and with the intent to release information on abuses by financial companies in the country, Social Watch El Salvador has been executing a project called “Awareness and advocacy as tools for the financial education of the Salvadoran population and demanding a fair legislative framework for financial products.” The project has the objective of contributing to the generation of public opinion on abuses perpetrated by financial institutions that have an impact on the population generating negative impacts on poverty and human rights conditions.
In the first phase of this project the various laws regulating the banking system –usury law, law of credit cards – as well as those protecting consumers were studied in workshops and other public forums convening civil society, citizen empowerment organizations, community-based organizations and grassroots groups. This was done with the aim of empowering citizens on the subject and enabling the identification and reporting of violations to the population on the part of the financial sector and its impacts on the full enjoyment of their human rights. Human rights are “instrumental conditions that allow a person to realization their full potential.” Consequently they belong to every person for the simple fact of being human and encompass all those liberties, prerogatives, and institutions or entitlements related to primary or basic goods that every person requires for their realization.
The need to address this moral and legal imperative is what justifies the importance of identifying those abuses that have, and continue to be, quietly committed by the financial system. Social Watch El Salvador and allied organizations have been uncovering the quiet effects that the growth of a banking system that derives its profits from the overpricing of consumer credit and aggressive collection practices for consumer debt, especially associated to the aggressive promotion of credit cards, while the productive sector is starved of credit, has on such basic conditions. What are the impacts of such practices on the rights of citizens? But also, what are the human rights conditions, in the first place, that make the prospering of such financial system possible? Large income inequalities, lack of a decent income on which to access basic goods without getting heavily indebted, and limited participation and transparency in the process of law and policy-making that allows such situations to persist, are among the answers.
These abuses, mainly due to the lack of information by the population, have gone unnoticed but they are surely to be found in the daily lives of those suffering from these situations, especially the lowest-income segments of the population.