Almost two thirds of municipal debt in El Salvador comes from credit score unions and staff’ banks, in response to the newest information out there on the finish of September 2023. The largest particular person creditor is a securitization firm, whereas the Mortgage Bank additionally seems on the record.
The transformation of 262 mayoralties into solely 44 as a part of a political reform has raised questions on how the brand new mayors would inherit the money owed of their predecessors. With no regulatory framework in place, the problem has been left to the discretion of every new native authorities.
Despite the shortage of regulation, the money owed exist and proceed to be required by their lenders. The $801.3 million municipal debt in El Salvador is principally financed by entities with a cooperative and in style vocation, with solely 2% coming from conventional non-public banks.
The Federation of Credit Unions and Workers’ Banks (FEDECREDITO), supervised by the Superintendency of the Financial System (SSF), is a significant creditor with $327.6 million. Some members of this company, just like the Santiago Nonualco Credit Fund, are necessary sole collectors of the mayor’s places of work.
However, considerations have been raised in regards to the oversight of a few of these lenders. The Santa Victoria Savings and Credit Cooperative Association (COSAVI) has confronted accusations of embezzlement, resulting in uncertainty for its members and customers.
With $94.5 million of the municipal debt being owed to credit score unions not below SSF supervision, there are fears of high-risk components. A former official concerned in investigating monetary crimes highlighted the potential risks of unregulated credit score unions within the financing of native governments.
In addition to credit score unions, securitization has grow to be one other important supply of funding for municipalities, with Hencorp Valores being the principle particular person creditor. The state-owned Banco Hipotecario de El Salvador can be a significant lender, having lent nearly $65 million to a number of municipalities.
The unbridled indebtedness of native governments raises considerations in regards to the high quality of administration and potential dangers for unethical practices and cash laundering. Legal consultants emphasize the significance of guaranteeing that the extent of debt is justified by the companies and infrastructure enhancements offered by the municipalities.
As the controversy continues on the implications of municipal debt in El Salvador, the position of various monetary establishments and the necessity for correct oversight stay essential.