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El Salvador's left-leaning administration is faced with an underachieving economy, high poverty levels, and tepid GDP growth. June marked the beginning of President Mauricio Funes' second year, and finding ways to jumpstart the country's dollar-based markets has become a growing concern....

El Salvador's left-leaning administration is faced with an underachieving economy, high poverty levels, and tepid GDP growth. June marked the beginning of President Mauricio Funes' second year, and finding ways to jumpstart the country's dollar-based markets has become a growing concern. As one lawyer notes, "El Salvador is still lagging."

Some of the government's technical policies have generated praise from lawyers: "We feel that Congress has been very active in issuing new laws for the financial system," says one attorney. For example, the government consolidated three financial regulators in charge of pensions, securities, and the financial system. They were brought under a single umbrella, now called the Superintendencia del Sistema Financiero. "There will be more coordination and interaction," he says. "This is a step in the right direction."

However, economic stability is threatened by violent crime – El Salvador has one of the world's highest murder rates and this continues to weigh heavily on the country's productivity. The relationship between security and economic competitiveness was addressed at the Private Sector Forum of the Organisation of American States held in San Salvador during June 2011. Among the forum's conclusions was a blunt assessment of the correlation: "Competitiveness and security, as we have seen during one and a half days of work in this forum, are two inseparable elements. Competitiveness is not possible without security."

El Salvador is working towards creating a stronger security regime. In early March, President Obama made a brief visit to the country and announced that the United States would pledge $200 million to help combat drug-trafficking in Central America by supporting institutions across the region that uphold the rule of law. The image of President Obama and President Funes standing side-by-side provided a welcome vote of confidence for the struggling country.

A few months later, Funes announced a plan to conscript Salvadoran youths into the military. The weapons-free program would enrol young people from high-risk areas with the hopes of shielding them from gang recruitment. It coincides with a separate plan to expand the country's police force.

But given El Salvador's fiscal dilemmas, funding such bold action may be challenging. Changes to the tax code last year were highlighted by many in the country's legal community as having a chilling effect on foreign investment - even though those changes generated work for the legal industry. One attorney questions the ability of the government to collect tax receipts, while another observes fleeing investment.

As the country looks for solutions, balancing the current administration's progressive strategies with the demands of a restless business community may prove difficult, according to market feedback. Noting that this is the first left-wing government in some time, one partner observes that the party is having problems with local investors. "There is a stalemate," he concludes.