The political environment will remain polarised between the right-wing Alianza Nacionalista Republicana (Arena), which has held power since 1989, and the opposition left-wing Frente Farabundo Martipara la Liberacion Nacional (FMLN), regardless of the outcome of the presidential election on March 15th. The FMLN’s selection of a moderate candidate for the presidential election may not be enough to win, unless the party addresses the fundamental causes of its unelectability. Arena is expected to retain the presidency, ensuring policy continuity and a market-friendly government.Regardless of the final outcome in the presidential election, no party will have an outright majority in Congress, complicating policy implementation in the next four-year term. Although the FMLN is the largest single party in the new Congress, the three centre-right and right-wing parties dominate, with 48 of the 84 seats (32 for Arena; the Partido de Conciliacion Nacional (PCN) and the Partido Democrata Cristiano (PDC) control 16 seats), compared with 35 for the FMLN and one for the minority left-wing party, Cambio Democtratico (CD). An FMLN-led government would therefore struggle to pass legislation more than one led by Arena.The president, Antonio Saca, and his successor will concentrate on fostering export-led growth in the forecast period, taking advantage of the Dominican Republic-Central American Free-Trade Agreement (DR-CAFTA) between the US and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic, to attract more foreign direct investment (FDI) inflows, especially in the areas of energy, infrastructure and services. DR-CAFTA will support a process of institutional strengthening, but, within the straitjacket of dollarisation, competitiveness and a high public debt burden will remain concerns. The government will work to raise tax revenue.GDP growth will slow markedly in 2009-10 as a result of the global slowdown and, in particular, the US recession. Growth will recover to 2.5-3% in 2011-13. DR-CAFTA will help to underpin growth prospects and partly offset the threat of Asian competition in the US. After rising for most of 2008, inflation has started to ease sharply. Although it will be low in absolute terms, helped by dollarisation, it will be higher than in the US, implying a steady gradual loss of competitiveness. The need for tight fiscal control will remain a constraint on growth. Remittances from the US will continue to play a vital role in supporting private consumption in El Salvador.Key indicators200820092010201120122013Real GDP growth (%)3.21.01.92.63.12.9Consumer price inflation (av; %)7.31.53.23.33.02.2Budget balance (% of GDP)-1.0-1.1-0.8-0.5-0.6-0.5Current-account balance (% of GDP)-6.8-2.5-2.5-3.5-3.1-3.3Exchange rate US$:€(av)1.471.341.391.421.451.47