The new program will replace the 15-month Stand-By Arrangement approved on January 16, 2009 (see Press Release No. 09/10)
The agreement reached with the authorities is subject to approval by the IMF management and Executive Board, which could consider the request for the new Stand-By Arrangement in November. As with the current program, the authorities of El Salvador plan to treat the new arrangement as precautionary and do not intend to draw on it.
The staff-level agreement was announced in Washington by El Salvador’s President Mauricio Funes, Technical Secretary of the Presidency, Alexander Segovia, and Finance Minister Carlos Cáceres, who visited the IMF and met Deputy Managing Director Takatoshi Kato and the director of the Western Hemisphere Department, Nicolás Eyzaguirre.
El Salvador has been strongly affected by the global crisis, particularly through its linkages to the United States economy. These shocks have affected domestic demand in El Salvador by more than was anticipated and real GDP is now expected to decline by 2.5 percent in 2009 and then recover gradually over the coming years. The arrangement approved in January achieved its key objective of helping El Salvador weather the financial crisis and maintain macroeconomic and financial sector stability and investor confidence during the elections and transition to a new administration.
The main objectives of the new program are to safeguard fiscal and financial sustainability under the dollarization regime, catalyze resources from private investors and multilaterals, provide space for countercyclical measures aimed at buttressing domestic demand in 2009 and 2010, and support the administration’s development plan for 2009-2014.
The new arrangement will help El Salvador to continue protecting its most vulnerable citizens, through the redirection of nonpriority spending to social areas. The government is introducing a Universal Social Protection System, which includes expanding its conditional cash transfer program (Comunidades Solidarias), will set up a temporary employment program, and has started a special public investment program concentrated on health, education, and infrastructure, In total, with these initiatives, the authorities are expecting to redirect as much as 2 percent of GDP towards social spending.
“El Salvador was the first country in Latin America to seek financial assistance from the IMF to navigate the current global financial crisis,” said Mr. Eyzaguirre. “While this first program achieved its broad objectives, the effects of the crisis have been severe and challenges still remain. We are very happy that the administration of President Mauricio Funes has chosen to continue to rely on the Fund to support its economic program going forward.”
The IMF completed the first review of Costa Rica’s economic performance under the 15-month Stand-By Arrangement.
Completion of the review makes an additional SDR 41.025 million (about US$65 million) available for disbursement, bringing the total resources available to Costa Rica under the arrangement to SDR369.2 million (about US$585 million).
"El Salvador’s financial system has weathered well the aftershocks of the global financial crisis and the uncertainties surrounding the elections, and remains liquid and well-capitalized."
A mission from the International Monetary Fund (IMF), headed by Alfred Schipke, visited San Salvador during May 18-27 to initiate discussions for the first review under the US$800 million precautionary Stand-By Arrangement, approved on January 16, 2009 (see Press Release No. 09/10). The mission had joint discussions with senior government officials and members of the incoming administration’s economic team, and also met with private sector representatives. At the conclusion of the mission, Mr. Schipke made the following statement:
The directory of the IMF approved a 14 month "stand-by" credit line, that will allow the country to tap $800 million.
Laprensagrafica.com reports: "'These substantial IMF funds will increment the liquidity reserves of the economy and will contribute to strengthen the trust in El Salvador's financial system.', stated Murilo Portugal, sub Manager and acting president of the the Directory."
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