Legal Market Overview
The Salvadoran market is keeping a close watch on President Nayib Bukele as he continues to consolidate the power of his government. After his Nuevas Ideas (New Ideas) party won a supermajority in the February 2021 mid-terms, in its first session in May 2021, the newly elected Legislative Assembly moved to dismiss five justices of the constitutional chamber of the Supreme Court and the attorney general, replacing them with Bukele sympathisers. This came after the court ruled Bukele had exceeded his authority in his handling of the Covid-19 pandemic by arbitrarily detaining people accused of violating the country’s lockdown.
Bukele’s move has been roundly condemned by Washington, with pressure mounting on the Biden administration to apply sanctions or to restrict support through the International Monetary Fund (IMF). Cutting off such a financial supply line could result in El Salvador defaulting on its debt, which amounts to 90% of its GDP. Bukele’s latest action follows the February 2020 incident in which the president brought in armed soldiers and police as he addressed the Salvadoran parliament, demanding the approval of a $109m military loan.
With regards to Covid-19, the Bukele government’s approach has been consistent, with closed borders and a national quarantine, although it has been criticised by human rights advocates for its use of containment centres, with quarantine violators detained without judicial review. The Salvadoran government’s vaccination programme keeps progressing, the first 33,600 doses having arrived in March 2021 through the UN-backed Covax scheme. In May 2021, the government signed a deal with Pfizer for another 4.4 million doses.
The effects of the pandemic and economic anxiety can be seen in all practice areas.
In the banking and finance arena, firms report a rise in restructuring and securitisation work and increased opportunities in the energy sector. Some firms predict that, as a result of post-pandemic economic vulnerability, the existing debt of companies will be adversely impacted, and they will be forced to seek additional financing.
In terms of corporate and M&A transactions, firms report the pandemic lockdown has resulted in a slowdown, which has left few sectors unaffected, save for tech (relating to banking activities), energy and medical. Some firms predict the tech sector will grow considerably over the next 12 months, and see continued growth in the e-commerce sector. Others suggest IMF negotiations will lead to an influx in foreign investment.
The dispute resolution practice area has seen Covid-related dismissals lead to a rise in labour compliance matters. Firms report an uptick in companies seeking assistance in administrative litigation, accompanied by a downturn in civil procedures due to delays caused by the lockdown. Others indicate a slowing of litigation across the board. Some teams envision a future rise in tax litigation, coupled with post-pandemic restructuring matters.
In relation to intellectual property, some firms indicate the pandemic has had a limited impact, as a result of matters being handled digitally, with physical presence not being a compulsory factor. Others have seen workloads limited to advice and contractual issues, and expressed frustration with the closure of the Intellectual Property Office. Some teams predict a rise in IP matters related to e-commerce and software development.
In the tax sphere, teams have seen a growth in work, attributable to stricter tax measures adopted by the Bukele government (in May 2021, it was reported tax collections through 30 April had exceeded forecasts by $37m). This, in turn, has led to a rise in audits, a trend firms only see increasing in the next 12 months.
There have been few changes in the Salvadoran market, although at the end of May 2021, a bombshell dropped with the announcement of the creation of regional firm Alta, a merger between local firm Valdés, Suárez & Velasco and Batalla in Costa Rica, QIL+4 Abogados in Guatemala and Melara & Asociados in Honduras. It remains to be seen is what impact this development will have over the course of the next 12 months. Also worthy of note is the emergence of Novis Estudio Legal which was founded in July 2020 by a group of ex-Sáenz & Asociados partners and which now has rapidly built out its presence to include offices in Costa Rica, Guatemala, Honduras and Nicaragua, as well as El Salvador.
Other regional players in the market include Aguilar Castillo Love, Arias, Consortium Legal, BLP, Central Law El Salvador, García & Bodán, LatamLex | Guandique Segovia Quintanilla (GSQ), LatinAlliance El Salvador, Lexincorp, Mayora & Mayora, S.C. and Sfera Legal. Global firms ECIJA and EY Law Central America have also established a presence in El Salvador. Notable domestic firms include Benjamín Valdez & Asociados Abogados/Notarios, Espino Nieto & Asociados, MCM Legal, Romero Pineda and Sáenz & Asociados, as well as IP boutiques De La Gasca & Cía. and Portal & Asociados.