October 1, 2001
Less than a year after El Salvador adopted the dollar alongside its colón, companies and financial institutions have gained access to some of the cheapest capital in Latin America. By August, interest rates on loans of a year or more were 9.43%, down from 12.21% at the beginning of the year. With year-on-year inflation at 3.3% in August, real interest rates stood at 6.13%, lower even than in Panama, a country born dollarized.
Many have taken advantage. A domestic credit slowdown has been reversed, but credit growth is sluggish, reflecting the depressed economy. Banks outside El Salvador however, have seen a market opportunity and moved in. Dollarization has reduced lending risk an
Adopting the dollar has helped push down interest rates in El Salvador, to the benefit of borrowers. But there is little evidence that dollarization is helping revive the country's sluggish economy.