Guatemala Aproved by IMF

Guatemala’s economic recovery has continued despite the natural disasters that hit the country in May.

Wednesday, September 29, 2010

The Executive Board of the International Monetary Fund (IMF) today concluded the fourth review of Guatemala’s economic performance under a program supported by an 18-month Stand-By Arrangement (SBA). The arrangement, in the amount equivalent to SDR 630.6 million (about US$974.7 million) was approved on April 22, 2009 (see Press Release No. 09/142). The Guatemalan authorities intend to continue treating the arrangement as precautionary.

Following the Executive Board’s discussion on Guatemala, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“Guatemala’s economic recovery has continued despite the natural disasters that hit the country in May. The authorities’ proactive policy response to the global crisis, supported by a Stand-By Arrangement with the Fund, has provided a solid foundation for this outcome. Real GDP growth is expected to firm up, the balance of payments position is strengthening, the financial system remains resilient, and risks to the outlook have declined further.

“Performance under the program has remained strong. All end-June 2010 quantitative performance criteria were met and inflation remained within the inner consultation band agreed in the program. The 18-month Stand-By Arrangement, ending October 21, is expected to continue to be treated as precautionary.

“The small withdrawal of fiscal stimulus previously envisaged for 2010 will be postponed to accommodate the relief and reconstruction expenditures related to the natural disasters. Implementing a comprehensive revenue-enhancing reform remains a priority. Higher revenues will help stabilize the public debt-to-GDP ratio and avoid the burden of fiscal consolidation from falling disproportionately on social and capital expenditures. It is also crucial to find a lasting solution to the problem of domestic arrears which weakens the budgetary and fiscal framework.

“The monetary policy stance remains broadly appropriate. It is important that the authorities remain vigilant and ready to tighten the stance if inflationary pressures emerge. Exchange rate flexibility continues to be essential to absorb shocks and enhance the inflation-targeting framework.

“Progress continues with the financial sector reform agenda, including on regulations on liquidity and foreign-currency credit risk management, provisioning of nonperforming loans, and the approval of the law governing the insurance sector. Congressional passage of the amendments to the banking law and the development of a banking resolution plan would further efforts to increase the resilience of the financial system,” Mr. Portugal said.



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