Communications and Transportation

The increase in exports that characterized the last quarter of the century demanded better communications and, at the same time, provided the funds for it. The economic geography of the country had changed, and roads, railroads, and ports reflected the new reality. During the indigo years the eastern part of the country had been the economic center. The fairs of San Miguel and San Vicente were a must for buyers and sellers, and the port of La Unión was the most active in the country. With the ascendance of coffee the western provinces gained in importance; La Unión was replaced by Acajutla and La Libertad. At the end of the century new roads were built to Santa Ana province and its environs, the heart of the coffee region.

Links with the outside world were most important. It was not only a matter of roads and ports; information had to travel fast to take advantage of changing markets. A young American by the name of Billings was hired to install the first telegraph linking San Salvador and the port of La Libertad. The line was inaugurated in 1870. Soon the service was extended to the port of Acajutla via Santa Ana, Ahuachapán, and Sonsonate. In a few months every port could use the telegraph to communicate with the capital. Four years after the inauguration of the first line, the service became international when a new line establishing communications between El Salvador and Guatemala was installed. By 1882 there were fifty-four stations in the Republic and "no town of the least pretension" lacked telegraphic service. That year cable communication with the rest of the world was established. No one missed the commercial significance of the improvement in communications. When the cable service began, the official newspaper commented that "nowadays our exporters of indigo and coffee can learn the prices of those products day

by day and as a consequence they can place the proper orders," thus avoiding commercial losses. A new dimension of the usefulness of these services was discovered when in 1885 El Salvador went to war with Guatemala and a few weeks later when General Menéndez overthrew President Zaldívar. Thanks to the new technology it was possible to mobilize troops more efficiently and to add a new twist to those ancient games. But there was more to come. General Menéndez, presumably pleased with modern advances, introduced telephone services in 1888.^[66]

Despite changes in government, roads improved rapidly. In 1880 there were 128 cart-roads with a length of 575 leagues. That same year a new road was being constructed between San Salvador and Santa Ana, the most prosperous city in the coffee region (by 1887 about one-third of the production of coffee was marketed in Santa Ana).^[67] Every stage in the network had to be improved and there was plenty of room for progress. As the country lacked local talent to carry out complex public works projects it was often necessary to hire foreign companies. American companies such as the "Pacific Bridge Company" obtained contracts to build iron bridges and piers.^[68] By the end of the century the country had over 2,000 miles of good roadway, and its roads were considered to be "far superior to those of most Latin American countries."^[69] It is not necessary to exaggerate the accomplishments of this period. The roads were not macadamized and had to be repaired after every rainy season. With the improvements, however, the cost of internal transportation and the time involved decreased.^[70]

The basic structure of the railroad network was developed during the last two decades of the century. It was relatively short and, following the pattern set by roads and telegraphs, developed first in the central and western parts of the country. The beginnings were shaky and reflected lack of experience in these matters. Early in 1872 the administration of Marshal González signed a contract with J. L. Bueron, an energetic "practical engineer" who had arrived in the country the previous year. Although Bueron's qualifications were less than ideal he was given exclusive concessions to build railways connecting the three ports of the Republic to the closest cities: Acajutla to Sonsonate and Santa Ana, La Libertad to San Salvador and Santa Tecla, La Unión to San Miguel.^[71] The next year Bueron went to France to raise capital for his company. He formed a society in Paris and found a French banker willing to serve as director. It should not have been too difficult to raise the money since the government guaranteed an interest of 8 percent over capital of 11,500,000 francs, but an earthquake destroyed San Salvador in March of 1873 and, at the same time, shook the confidence of potential investors.^[72] Bueron's only accomplishment was a line of about eight miles of railway between San Salvador and Santa Tecla that he finished

in 1876. A local merchant had to provide the money to finish the last few miles. The line was rather modest from the engineering point of view; it had no bridges or tunnels and the cars were driven by horses, but it was just the beginning. Never mind the technical aspects; the owners were pleased with it. It turned out to be the most profitable Salvadoran railway.^[73]

After ten years and only eight miles of railway the government revoked Bueron's contract in 1882. That year the government engaged in feverish activity to address the railroad problem, at least at the level of contract signing and paper shuffling. The Zaldívar administration signed contracts with Francisco Camacho to build the line between the port of Acajutla and Sonsonate and Santa Ana, with Maurice Duke to build the line between San Salvador and the port of La Libertad, and with General Butterfield (an associate of Cornelius Vanderbilt and of General Grant) to build an ambitious line from the port of La Unión to the border with Guatemala. The contracts amounted to a complete program of railroad construction connecting all the vital economic areas to the ports and among themselves; they went a step beyond the Bueron contract in terms of ambition if not in terms of realism. Neither Camacho nor Duke had any known experience in railroad building. Little is known about Camacho and nothing that would lead us to believe that he was a railroad expert. Duke, in turn, was a prosperous and versatile British merchant who had arrived in El Salvador as a young man in his twenties. He had experience as a merchant, as American consul, and years later as a banker.^[74] General Butterfield, by contrast, had better qualifications since at least he had the backing of powerful railroad interests in the United States. Not surprisingly the 1882 contracts accomplished little. Only the line between Acajutla and Sonsonate was finished, rather quickly in June of 1882 when the first steam engine arrived at Sonsonate.^[75] The rest of the project faced countless obstacles.

Efforts were made to raise capital locally at the same time that companies were formed in London to exploit the Camacho and Duke concessions, but the piles of paperwork on railroad construction advanced faster than the trains themselves.^[76] The section from Sonsonate to Armenia was inaugurated in 1884. Work on the Sonsonate—Santa Ana road was interrupted by the 1885 war with Guatemala. Two years later a new government renegotiated the contracts. As a result the country ended up owning three-fourths of the shares of the Acajutla—Sonsonate road and the whole of the part constructed on the Santa Ana road. Despite the nationalistic intentions of the new government, the Salvador Railway Construction Company, a British concern, retained the administration of the Acajutla road.^[77] After more contracts and more delays the Acajutla line was extended to La Ceiba (about 20 miles from

San Salvador) in 1891.^[78] Almost ten years had passed since the line had reached Sonsonate and only 22 miles had been added to the system. The railway connecting Santa Ana to the Acajutla line was progressing at a slower pace; by 1892 only one-third of the projected 39 miles had been completed.^[79] The modest 100-mile network through the heart of the coffee region was completed, at last, in April of 1900.

While the Acajutla line was moving slowly, the Duke and the Butterfield contracts led nowhere. No railway between La Libertad and San Salvador was ever built, while the construction of the La Unión—San Miguel line had to wait until the next century to be completed. Given the problems in the construction of the Acajutla network it would have been optimistic to expect a better performance in the La Unión—San Miguel line. In fact, there were better uses for optimism. Eastern El Salvador had been losing economic ground to the coffee-producing provinces of the west, and the slow pace of the La Unión railway only confirmed this fact. After the contract signed with J. Bueron in 1872 the government signed contracts with nine different companies (including Butterfield's) before the thirty-mile line was finished in 1911.^[80]

During the first stage of railroad development the government tried a number of financial schemes, always insisting on a certain measure of local control and never relying entirely on foreign capital. A turning point took place in 1894 when the government gave a concession to an English firm, the Central American Public Works Company, for the completion of the railroad between Santa Ana and Santa Tecla, the last stage of the Acajutla network. The government guaranteed the CAPW an annual profit of 6 percent, and agreed to the following:

During the life of the contract (50 or 99 years) no negotiations for the construction or operation of any railroad, by anyone in Europe, must be entertained, nor can any railroad be established between Acajutla and the terminus of the Acajutla road, or from Santa Ana, except it be the inter-continental line proposed by the United States.^[81]

The British company, in turn, contracted to pay all the foreign debt of El Salvador. The years of failures and the mounting debt had taken their toll. The CAPW agreement was a substantially different arrangement from any made before. In the past, railroads had been financed stage by stage, internally or through bonds sold in international markets, but the country had not given away the network to foreigners. The railroad from Ateos to La Ceiba, for example, was built with funds obtained from a loan issued in London in 1889, but its operation was in Salvadoran hands.^[82] The portion of the Santa Ana railroad located between Ateos and Sitio del Niño, inaugurated in 1893, was built by an

American contractor and financed by a foreign loan in 1892 but, again, it was not given away. Even in 1894 there was a last effort to raise capital internally. In January of that year the government raised the import tax to finance the La Unión—San Miguel line, and although the scheme failed it still represented an effort to finance public works internally.^[83]

It was the last such effort. The contract with the Central American Public Works Company represented a permanent change in the form of financing and operating the system. Being in the midst of the financial crisis created by the adoption of the gold-standard the government was facing a serious difficulty in paying its obligations abroad. The change, however, had long-lasting effects. Crisis or no crisis, the difficulty of the Salvadoran economy to generate the relatively large amounts of capital and expertise needed for railroad construction and operation was becoming apparent. Although General Gutiérrez renegotiated the contract with more favorable terms, it was within the same general principles.^[84] After a revision of the contract in 1899 the Salvador Railways Company, successor of the CAPW, was left operating the Acajutla network.^[85] In 1908 the government signed a contract with René Keilhauer to finish the project from La Unión to the border with Guatemala. After a series of transactions the concession ended up in the hands of the International Railways of Central America, a subsidiary of the United Fruit Company, which together with the Salvador Railways Company controlled railroad traffic until the second half of the twentieth century.^[86] It is fair to say that not much was given away; Salvadoran railroads were only marginally profitable.^[87] Unfortunately, there are not enough data to calculate the social savings generated by the railroads, but, given the short distances involved, it is doubtful that they were dramatic.

After the railroads took the coffee to the ports, the next step in the transportation network was its shipment to Europe and the United States. In terms of costs this was by far the most important side in the transportation equation, but in this regard the country was unable to affect its destiny in any meaningful way and had to accept whatever services foreign companies were willing to offer. Being very small and having little to export El Salvador was not attractive to shipping companies. As mentioned in chapter 3, the Panama Railroad Company and its subsidiary, the Pacific Mail Steamship Company, had a virtual monopoly of the shortest shipping route to Europe across the Isthmus of Panama and took full advantage of the situation, keeping the fares high and the service poor. Moreover, the Pacific Mail demanded an annual subsidy to carry mail and to provide a regular service.

Efforts to change this situation were fruitless. One way to break the monopoly was to create competition. In 1870 a private company formed

by the main merchants of Central America bought the Prince Albert , a steamer operated by the Australian Royal Mail Service, with the idea of establishing a line between the ports of Central America, Mexico, and San Francisco, a route that was not well served by Pacific Mail steamers. The Central American governments were delighted with the idea and gave all kinds of concessions to the new company. It was a good concept, but Central American capitalists were not ready for such a venture and the company folded after the first trip, reportedly due to lack of capital.^[88] A similar scheme was tried seventeen years later when a new line between San Francisco and Panama was established. The contract with Pacific Mail was about to expire and the Marqués de Campos, a Spanish businessman, approached the government with the idea of a new shipping line that was to be called Hispano—Centroamericana. He was to receive the Pacific Mail subsidy and to replace the American line. Five second-hand steamers were to operate along the route. Optimism was high, and the arrival of the Pioneer was hailed as "the commencement of a brilliant era for the owners and merchants." Feeling the pinch the Pacific Mail lowered its rates until the new company went out of business later in the year.^[89] A last effort in this direction was made in 1894 when a company formed by American and Salvadoran investors was authorized to run a line of steamers from the new port of El Triunfo. The new company planned to operate along the Pacific coast, and its steamers were to visit ports of Colombia, Central America, Mexico, and California. There is no indication that this company ever got its operation off the ground.^[90]

Creating new companies was impossible, and attracting established ones was not easy. The latter approach was tried a number of times with marginal success. In 1884 a contract was signed with a German steamship company according to which the company, Kosmos, was to put in service eight steamers. One was to transport goods to and from Hamburg. Of the remaining seven, four were to travel to South American ports and three to Valparaíso to establish connection with steamers traveling to Europe. The contract had a provision to the effect that Kosmos could not charge higher rates than Pacific Mail, and the Salvadoran government, in turn, offered a subsidy of five hundred pesos per trip. The contract was renewed with some modifications in 1886 and 1891.^[91] Kosmos, however, could not offer the same kind of service as Pacific Mail since its route went around Cape Horn. Nonetheless, it was the kind of thing that made the Pacific Mail react, and it did so by placing more tonnage on its line. The threat of competition was averted. Although a few German and Spanish ships visited Salvadoran ports regularly, the Pacific Mail remained pretty much in control of the market.^[92] Replays of the same story took place in 1891 and in 1892. In 1891 the

government signed a contract with another German company, the Hamburg-Pacific, which included a subsidy of four hundred pesos for every steamship that visited a Salvadoran port, and in 1892 the government tried to entice the "South American Steamship Company."^[93] Neither company was able to make a substantial dent in the business of the Pacific Mail because they had to operate along the Cape Horn route.

There was a third approach to disciplining the Pacific Mail: to withdraw the subsidy and the preferential duty of 2 percent in favor of goods passing by the Isthmus of Panama. This approach was tried in 1874 when one of the contracts of the Pacific Mail expired. The reasoning was that since the steamship company was doing more than reasonable business in El Salvador it had an incentive to continue its service even without any kind of protection. Things were more complicated, as the government found out in due time. By 1874 the Pacific Mail was a huge company operating in the main ports of the Pacific Ocean (the company's steamers went as far away as China), and without a contract it felt free to move its steamers around to operate in whatever route was most profitable at the moment. As a result its service to El Salvador became highly irregular to the point that the government had to reconsider its decision. A new contract was signed in November of 1875 offering a subsidy of 12,600 dollars. In February of 1877 the subsidy was raised to 25,000 dollars, and the next year it was raised to 35,000 dollars.^[94] The sad truth was that the service of the Pacific Mail was far more important to El Salvador than El Salvador's business was to the Pacific Mail.

Despite the many efforts to reform it, the shipping network established in the 1850s around the Panama Railroad remained unchanged. Pacific Mail steamers kept the greatest share of the market despite constant complaints from the exporters of coffee. Whatever permanent improvements in service or lowering of fares took place during this period were due to market considerations as seen by the Pacific Mail and not to responses to actions of the Salvadoran government. Nonetheless, there were quantitative changes in the number of ships that visited Salvadoran ports. In 1856 only 63 ships visited Salvadoran ports; by 1882 the number had increased to 110, and by 1892 to 206. These figures tell only part of the story since the size of steamers and the average tonnage increased over time.^[95]

The development of a transportation and communications network faced the same difficulties as any other complex economic activity: the leaders of the country understood the need for such a network, but they were barely prepared to deal with it. Moreover, the economy was so small and the profits to be made so limited that even foreign entrepreneurs showed little interest, and when they did the country had little

power to negotiate advantageous contracts. Every contract, every step, was a mix of improvisation, determination, and powerlessness. However, by the end of the century the primitive roads that had made life difficult for travelers who came to the country in the 1850s were a thing of the past. The railroad line was only 99 kilometers long, but it was strategically located. The telegraph network had over 2,000 miles of wire and 180 offices. There were 500 miles of telephone lines and a cable service that provided communications with most foreign countries. Ports had been improved and freight rates decreased. The country had acquired the first taste of modernity. Export-related activities enjoyed privileged access to modest versions of new technologies. But modernity was reserved for the capital city and the coffee-growing regions. The increased differentiation between town and country and between the modern and traditional sectors which has prevailed during the twentieth century was created during this period.