Overview: El Salvador

Contributed by Mónica Machuca, EY

This article aims to show the legal environment that El Salvador is experiencing, both before the pandemic, at the present time, and how it might look in the future once COVID-19 is learned to live with.

Amidst the COVID-19 pandemic, the smallest country in Central America is being threatened with an economic recession like never before, but the legal market may be on its way to thriving this year. Before COVID-19, legal markets were stable, the majority of legal teams were working in-office, had a normal 8-hour working day, had a regular amount of contentious issues and disputes, any changes in regulations were made occasionally, tax benefits were predetermined, and an increase in technological advances and resources were not a priority or being used as well as they should.

Nonetheless, for many, the pandemic has transformed the legal markets into a helping hand that has allowed many industries and companies to keep up with the new normal and hold their pillars stable. El Salvador’s GDP growth reached 2.3% last year, but the country is still suffering from previous persistent low levels of growth, and this year that number might not change in a positive way. COVID-19 struck hard enough that it is expected that the country’s level of growth will change to a negative number.

Low levels of growth of the economy were ‘the normal’ panoramic for El Salvador, but a pandemic of this size has caused an enormous amount of uncertainty, reaching the point where the ‘new normal’ has brought with it a new modern way of working for many – if not all – private companies and public entities. Many legal teams all over the country have been dealing with numerous questions from clients on a daily basis regarding employment matters, new and provisional regulations on any legal subject, tax advice, new working protocols, contract compliance and migration; and it is these matters that have kept the legal market flourishing in these hard times.

In a matter of days, the world stopped, and change came with it; a change not many people were open to but have been obliged to digest. There is no question fear has taken over many minds, and Salvadorans are no exception. Fear for the country’s levels of public debt has increased (as the country has never been prepared to deal with a pandemic, much less one this size and length) leading to even more placement of bonds and loans through multilateral organizations, and leaving us with foreign interest in investment at its lowest point.

Although a reduction in moderate poverty has been reported, with COVID-19 still living among us and the death toll rising on a daily basis, the poverty rate is expected to rise again; both moderate and extreme poverty. This has led various start-ups and low-level income companies to stop their businesses or even shut down. Unemployment has increased, working contracts have been suspended in numerous companies, and although there have been new laws placed in action during the last four and a half months to help these small businesses (and the informal working class) there is still a lot of uncertain ground to discover. The question is whether there is a chance of the economy opening back up, and therefore, if employment will rise to where it was before COVID-19. If not, the new normal brings more difficulties than those projected.

Moreover, new regulations have been placed since March in order to alleviate the tax burden in a series of industries, especially those concerning tourism. The current environment of uncertainty on the duration and control of the coronavirus, implies that more and more doubts and queries will rise on ‘how to proceed’ from now on. This is hope that ‘uncertainty’ will lead legal markets to thrive this year.

The expectations of having an increase in contentious issues and disputes are rising, as well as litigations. There is a basic need for this area of expertise right now, specifically in areas like labor, insurance, tax, regulations in general, and contract compliance, but projections can change from one day to another as a result of any change in the spread of the virus; changes that are being monitored continuously, for example, another outbreak further in the year, which could again paralyze the execution of economic activities and, therefore, cause even more uncertainty.

Regarding technology, both the government and private organizations have implemented digital solutions in order to deliver services; they have joined the use of new technologies, implementing the use of online banking, electronic signatures, digital deliverables, home office, client meetings, rapid response via emails; and have taken into account that the new normal has brought with it new technologies that are here to stay.

There is no question that social distancing is an obligation in order to slow down the curve, but time has told us that mental health issues are also rising, and resources around these issues are still not being taken as seriously as they should. There are many appropriate resources, but still not enough, and the legal market has not taken this issue into account.

Although the legal market in El Salvador expects to continue thriving during COVID-19 and after, there is still a lot to tackle in the months to come.

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