Final evaluation of the Salvadoran Foundation for Economic and Social Development (FUSADES)

USAID"s assistance to FUSADES has become controversial in some circles due to its unprecedented massive scale (totaling about $115 million) as well as the highly political, and not merely economic, nature of FUSADES"s interventions during a period of violent civil war. Overall, the evidence indicates that FUSADES played an important and possibly crucial role in sustaining and strengthening democratic institutions during the civil war. There is evidence that El Salvador"s emergence with a booming economy (5.1% GNP growth in 1994, with a forecast of 5.5% in 1995 with 10% inflation) and a laudable democratic process following the country"s transition to peace and democracy was to a large extent due to FUSADES. It is also likely that El Salvador"s economic growth will continue, though at a more modest rate. Politically, FUSADES strengthened El Salvador"s two-party system at a time when many questioned whether a peaceful transition of leadership was possible. It was FUSADES, for example, that developed Alfredo Cristiani"s economic platform when he ran for president, and FUSADES whose top economists went over en masse to the government when he was elected. These political aspects were in fact the raison d"etre for USAID assistance to El Salvador, and the fact that they were almost totally ignored by the project documents shows the difficulty of evaluating FUSADES solely on the basis of the logical framework. With USAID"s assistance, FUSADES grew rapidly from its beginning in 1983 as a small economic policy think tank, in the process incorporating USAID"s ideas. Critics have suggested that FUSADES was USAID"s Christmas tree, where disparate agendas were hung conveniently like ornaments. Yet the length of El Salvador"s national crisis (1979-93), which is difficult for many to remember since the country"s dramatic political and economic turnaround, along with U.S. determination that the country not become "another Nicaragua," indicates that USAID was justified in centralizing the absorption of U.S. foreign aid in FUSADES, particularly since El Salvador did not have a tradition of NGOs and PVOs capable of administering assistance to constituents. Perhaps peace and stability might have been attained more efficiently and at less cost, but at any rate it has been achieved. FUSADES, and to some degree all its myriad sub-units (FIDEX, FORTAS, PRIDEX, DEES), made an essential, undeniable contribution to peace and support of El Salvador"s war-time economy. Now, however, with peace, a booming economy, a return to democracy, and USAID"s subsequent withdrawal of funding, criticism of FUSADES has increased. While much of this criticism is justified, there were also dramatic accomplishments in a less than ideal environment. For example, PRIDEX created more than 29,000 jobs; generated approximately $185 million in hard currency from exports; and attracted and helped to implement $51 million in direct investment. The FIDEX project for making credit available to the industrial export sector shows higher payback than either similar USAID projects or private commercial banks in El Salvador. Further, in order to attract high quality exporters (in a situation in which El Salvador was competing against Costa Rica, Guatemala, etc.), factory start-ups required 5-10 year financing -- something available only through FIDEX, not commercial banks. FORTAS had a very positive impact on the development of NGO/PVO and governmental infrastructure necessary to sustain private sector development; it also played an important role in strengthening export and business associations and rural community development organizations. The public sector component of USAID"s assistance produced the 1986 Export Expansion Act, the 1988 Foreign Investment Act, the 1990 Reactivation Export Act, and transitioned the San Bartolo Free Zone into a thriving export oriented industrial zone. Also, FUSADES" management largely functioned as USAID originally intended, enduring USAID audits and evaluations and receiving only mild correction, though these evaluations were perhaps too soft. Overall, however, FUSADES exhibited a very powerful achievement that likely had a profound impact on El Salvador"s successful transition into peace, the strengthening of democratic institutions, and the building of a strong post-war recovery.