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Fitch: Opposition win in El Salvador election could improve policymaking climate

The success of El Salvador's main opposition party, the ARENA, in recent legislative elections could improve the country's policymaking climate and the passage of debt financing over the medium term, Fitch Ratings said.

According to preliminary results of El Salvador's March 4 legislative and municipal elections, the right-wing ARENA has won 38 of 84 legislative seats, up from the previous 35. This will enable the party to hold a majority vote in the legislature as the governing FMLN party's number fell to below 25 seats, which means the FMLN loses its power to veto financing authorization.

The gains of ARENA over the weekend could tighten the gridlock between the presidency and the opposition-dominated legislature in the short term. However, Fitch said a win by the ARENA candidate in the 2019 presidential election could improve governability as it signifies "the first time in decades the government would not face an opposition party veto in the legislature to authorize debt financing." According to the rating agency, improved governability would be a credit positive for El Salvador.

A win for the ARENA presidential bet in 2019 would be important given an $800 million bond amortization due in December, which would increase the financing needs of the government come next year, Fitch said.

Political polarization and legislative gridlock prevent passage of reforms and severely constrain government financing options, which makes them a key rating sensitivity and credit risk for El Salvador, Fitch noted.

El Salvador's President Salvador Sánchez Cerén, a member of FMLN, will remain president until June 2019.