Economy - overview:
Despite being the smallest country geographically in Central America, El Salvador has the third largest economy with a per capita income that is roughly half that of Costa Rica and Panama, but double that of Nicaragua. Economic growth has been modest in recent years and contracted by 2.6% in 2009. El Salvador leads the region in remittances per capita with inflows equivalent to nearly all export income and about a third of all households receive these financial inflows. In 2006 El Salvador was the first country to ratify the Central America-Dominican Republic Free Trade Agreement. CAFTA has bolstered exports of processed foods, sugar, and ethanol, and supported investment in the apparel sector, which faced Asian competition with the expiration of the Multi-Fiber Agreement in 2005. In anticipation of the declines in the apparel sector's competitiveness, the previous administration sought to diversify the economy by promoting the country as a regional distribution and logistics hub, and by promoting tourism investment through tax incentives. El Salvador has promoted an open trade and investment environment, and has embarked on a wave of privatizations extending to telecom, electricity distribution, banking, and pension funds. In late 2006, the government and the Millennium Challenge Corporation signed a five-year, $461 million compact to stimulate economic growth and reduce poverty in the country's northern region, the primary conflict zone during the civil war, through investments in education, public services, enterprise development, and transportation infrastructure. With the adoption of the US dollar as its currency in 2001, El Salvador lost control over monetary policy. Any counter-cyclical policy response to the downturn must be through fiscal policy, which is constrained by legislative requirements for a two-thirds majority to approve any international financing.

GDP (purchasing power parity):
$43.23 billion (2009 est.)