El Salvador on the verge of default?

ARENA and the FMLN have been fighting for several months now over the country's financial situation. They are at the point where the failure to reach an agreement might severely effect the country's economic prospects in both the near- and long-term.

El Salvador President Salvador Sanchez said the government was in a state of emergency as he pushed lawmakers to agree to a global bond sale to ease a liquidity crunch.

A "lack of liquidity" must be solved this year to "avoid negative consequences of greater dimension," Sanchez said in a televised address, as yields on the Central American nation’s debt soared.

The government is willing to reach an agreement on a fiscal responsibility law in congress that would include tighter spending rules, Sanchez said, while calling on lawmakers to approve a $1.2 billion bond sale. Standard & Poor’s placed El Salvador on credit watch last week and said the country’s B+ rating may be downgraded if parties fail to agree on fiscal issues. The country’s "financial management is deteriorating" due to "heightened political polarization," S&P said in a report.

Mike McDonald cites Risa Grais-Targow, a Latin America analyst for Eurasia Group, in Bloomberg. Grais-Targow does not believe that El Salvador is on the verge of defaulting "immediately" and that Sanchez Ceren's declaration of a state of emergency is more political than anything else at this time. It is designed to rally the FMLN base and strengthen his hand in negotiations with opposition lawmakers. Eugenio Chicas announced that the government will initiate some spending cuts but that they will not come from social programs.

The Obama administration bet on normalizing relations with Cuba, supporting Santos' peace plan with the FARC in Colombia, and providing significant assistance to Mauricio Funes, Sanchez Ceren, and the FMLN in El Salvador.

In regard to El Salvador, Secretary of State Hillary Clinton attended Funes' inauguration. The country was awarded a second Millennium Challenge Corporation Compact and admission into the US' Partnership for Growth. They also received a visit from President Obama himself.

Failure in El Salvador won't get as much attention as it would in Cuba or Colombia, but it would be a pretty big blow to Obama's legacy towards the region. Worse, economic failure in El Salvador will have negative consequences for the people of that country, the region, and, most likely, the United States.