Discovery of a Middle Class

When the World Bank promised last December to lend $12,500,000 for a big hydroelectric project on the Rio Lempa, Salvadoreans agreed to raise another $5,006,000 themselves. To the government of tiny El Salvador (pop. 2,500,000), which had never tried it before, floating an internal loan looked like a precarious business. At its request, the World Bank sent in a bond-marketing expert, balding, energetic Norman M. Tucker.

Many Salvadoreans were convinced that the only way to put over a bond issue was to sell it to the "Twenty Families," the big coffee planters who control the republic's economy. Tucker agreed that the project needed the Twenty Families' strong moral support; but their money, he said, would be better employed in private investment. Instead, he offered a revolutionary plan.

Of the coffee-booming republic's approximately $23 million worth of gold coins and large bills, a study showed, more than half was being hoarded. Since the Twenty Families hoard U.S. dollars if they hoard any currency, all those colones must be in the mattresses and buried tin cans of other Salvadoreans. "There is a middle class in El Salvador," said Tucker, "and I am prepared to prove it."

To lure the middle-class money into "buying bonds (and thus prove his case), Tucker designed an issue with advantages unheard of in the U.S. The bonds were made wholly taxexempt, given an absolute government guarantee. They could be used at face value in paying taxes, and were acceptable (at 90% of face value) as collateral for Central Reserve Bank loans.

Placed on sale early last week in Salvadorean banks, the bonds sold briskly to shop girls, taxi drivers and other small citizens. Less than $400,000 worth were bought by members of the Twenty Families. At week's end the $5,000,000 issue was entirely subscribed.

This file is automatically generated by a robot program, so reader's discretion is required.