Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
El Salvador’s government procurement and contracting system law is based primarily on international standards which covers contracts for works, supplies, consulting and leasing of real estate conducted by any government agency. Though a World Trade Organization member, El Salvador has not signed the Government Procurement Agreement. For certain projects El Salvador contracts the United Nations Office for Project Services (UNOPS) to administer the bidding processes. UNOPS is the main procurement resource agency for the United Nations.
U.S. companies can participate through a local representative in procurement processes. The CAFTA-DR Government Procurement Chapter provides for transparency, competitiveness, and market access to U.S. suppliers. Please see CAFTA-DR Chapter 9.
The procurement process is decentralized; each government agency is responsible for promoting and awarding contracts. There is no electronic contracting platform, only an electronic notification system for companies registered online as providers at Comprasal, which is open to U.S. companies, regardless of whether the company has a local representative. Public announcements are made through print media and are posted are in the government procurement website.
Under Salvadoran law, local companies have preference for civil engineering and construction projects that are financed by the Government of El Salvador. However, this is not a major trade barrier since most large projects receive funds or loans from international financial institutions and are therefore open to international competition.
U.S. companies bidding on Government tenders may also qualify for U.S. Government advocacy. A unit of the U.S. Commerce Department’s International Trade Administration, the Advocacy Center coordinates U.S. Government interagency advocacy efforts on behalf of U.S. exporters bidding on public sector contracts with international governments and government agencies. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and inter-agency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves the U.S. Embassy or other U.S. Government agencies expressing support for the U.S. bidders directly to the foreign government. Consult Advocacy for Foreign Government Contracts for additional information.
Financing of Projects
Bank financing is readily available in El Salvador. Since the dollarization of the economy in 2001, interest rates for deposits and loans have dropped sharply, but are still several percentage points above U.S. levels. Banks offer 30-year mortgage loans. U.S. exports to El Salvador are usually financed by loans made by local banks to importers. Rates for loans to finance consumer goods imports average 6% for terms of less than a year. Intermediate goods are financed at even lower interest rates.
The Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA) administers the Commodity Credit Corporation (CCC) Export Credit Guarantee Programs (GSM-102/103) for commercial financing of U.S. agricultural exports. Under these programs, the CCC does not provide financing, but guarantees payments due from foreign banks. Typically, 98% of principal and a portion of interest at an adjustable rate are covered. Two programs underwrite credit extended by the private banking sector in the U.S. or by the U.S. exporter to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers. The first, the Export Credit Guarantee Program (GSM-102), covers credit terms of up to three years. The second, the Intermediate Export Credit Guarantee Program (GSM-103), covers credit terms of up to 10 years. However, because payment is guaranteed, financial institutions in the United States can offer competitive credit terms to foreign banks, usually with interest rates based on the London Inter-Bank Offered Rate (LIBOR).
The USDA also offers the Commodity Credit Corporation (CCC) Supplier Credit Guarantee Program (SCGP) for the Central American region. It covers short-term financing (up to 180 days) extended directly by U.S. exporters to foreign buyers and requires that the importers sign a promissory note in case of default on the CCC-backed payment guarantee. The terms are specific: credit may be covered by the CCC only when payment is financed under a dollar-denominated irrevocable letter of credit issued in favor of an exporter by a foreign bank that has CCC approval to participate under the program. The SCGP emphasizes high-value and value-added products but may include commodities or products that also have been programmed under the GSM-102 program. Another program available is the Facility Guarantee Program (FGP) that has the primary objective of improving the facilities in emerging overseas markets that process, handle, store, or transport agricultural products imported from the U.S. The FGP provides credit guarantees, financial devices that eliminate most of the risk of non-payment by foreign banks, to facilitate sales of manufactured goods and services.
Created through the Better Utilization of Investment Leading to Development (BUILD) Act Law signed by President Trump in 2018, the U.S. International Development Finance Corporation (DFC), formerly the U.S. Overseas Private Investment Corporation (OPIC), provides medium- to long-term financing in the form of investment guarantees, direct loans, and loan guarantees, and now equity financing and technical development assistance. Its total investment limit of USD $60 billion is double OPIC’s USD $29 billion investment cap. In addition, it offers political risk insurance that protects against expropriation, political violence, and inconvertibility. DFC can provide direct loans and guarantees of up to USD $1 billion for tenures as long as 25 years targeting small and medium sized U.S. businesses. It also provides coverage of up to USD$1 billion against losses due to currency Inconvertibility, government interference, and political violence including terrorism. Its new equity financing capabilities offers direct equity and support for investment funds and its Technical Development support includes feasibility studies and technical assistance to accelerate project identification and preparation to better attract and support investment in development outcomes.
The Export-Import Bank of the United States (Ex-Im Bank) offers a wide range of guarantees, insurance, and financing to U.S. exporters. Ex-Im Bank has established the Credit Guarantee Facility (CGF) Program, which sets up lines of credit between a bank in the U.S. and a foreign bank (or occasionally a large foreign buyer). Ex-Im guarantees the repayment of the foreign bank’s obligations. The foreign bank then makes credit available to the end user (of the U.S. exports) and assumes the repayment risk from that local company. Financing is restricted to repayment terms of two to five years. For exporting to El Salvador, Ex-Im offers loan insurance for transactions with much less paperwork required than for other programs. The U.S.-based bank will disburse to the U.S. exporter. Since the lines are pre-approved and individual transactions do not require Ex-Im Bank’s review, the process can move very quickly. Ex-Im Bank’s standard guarantee coverage is available: 100% of principal and interest for up to 85% of the U.S. export value, plus Ex-Im Bank’s exposure fee, if financed. The buyer must make a 15% cash payment to the exporter outside of the CGF Program.
The U.S. Trade and Development Agency (USTDA) facilitates partnerships between U.S. companies and infrastructure and industrial project sponsors in Latin America through the funding of project planning assistance. The agency funds various forms of technical assistance, early investment analysis, training, orientation visits, and business workshops that support the development of a modern infrastructure and a fair and open trading environment. These activities are designed to involve U.S. companies on the “ground floor” of projects.
The U.S. Small Business Administration (SBA) helps Americans start, build, and grow businesses through an extensive network of field offices and partnerships with public and private organizations. SBA’s Export Working Capital Program (EWCP) loans are targeted to businesses that are able to generate export sales and need additional working capital to support these sales. The SBA Export Express program provides exporters and lenders a streamlined method to obtain SBA backed financing for loans and lines of credit up to USD $250,000. Lenders use their own credit decision process and loan documentation; exporters get access to their funds faster. The SBA provides an expedited eligibility review and provides a response in less than 24 hours.
Multilateral Development Banks:
U.S. Commercial Service Liaison Offices at the Multilateral Development Banks (Inter-American Development Bank, World Bank)
The Commercial Service maintains Commercial Liaison Offices in each of the main Multilateral Development Banks, including the Inter-American Development Bank and the World Bank. These institutions lend billions of dollars in developing countries on projects aimed at accelerating economic growth and social development by reducing poverty and inequality, improving health and education, and advancing infrastructure development. The Commercial Liaison Offices help American businesses learn how to get involved in bank-funded projects, and advocate on behalf of American bidders. Learn more by contacting the Commercial Liaison Offices to the Inter-American Development Bank and the World Bank