Like in other Central American countries, however, economic growth has
decelerated in recent months on the back of the U.S. slowdown and still high commodity prices. The global financial turmoil and, possibly, electoral uncertainty, have led to some tightening in domestic financial conditions.
Key policy recommendations.
Policies need to focus on crisis preparedness and structural reforms.
- Financial contingency measures.
Monitor banks’ liquidity and their short- term borrowing closely, draw up concrete action plans to deal with stress in the banking system, and negotiate contingent credit lines.
- Short-term fiscal policy.
Maintain fiscal restraint and seek a political agreement to access long-term
financing from multilateral development banks (MDBs).
- Structural reforms.
Further strengthen financial sector regulation and supervision and the sector’s ability to confront shocks; reduce public debt to about 30 percent of GDP through tax revenue measures and cuts in nonpriority spending; improve the efficiency and targeting of subsidies; and implement a parametric reform of the pension system.
There was agreement between the authorities and staff on the policy challenges and on most of the required measures.
2007 Surveillance Decision.
The level of the real effective exchange rate is broadly in line with fundamentals and standard competitiveness indicators suggest that the export sector remains competitive.
Fitch upgraded Foreign currency IDR to 'BB+' from 'BB'; Country ceiling to 'BBB-' from 'BB+'; Local currency IDR affirmed at 'BB+'; and Short-term IDR affirmed at 'B'. The Rating Outlook is Stable.
From the Fitch Report:
"The upgrade reflects Costa Rica's better than expected economic resilience during the global credit crisis, steadily improving macroeconomic stability underpinned by lower inflation and higher international liquidity as well as the country's relatively modest external indebtedness.
Fitch Ratings has affirmed Guatemala's local and foreign currency Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlooks on both ratings are Stable.
Guatemala's track record of macroeconomic stability, low public and external debt burdens, as well as the government's solid commercial debt repayment history continue to support the sovereign's ratings.
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