Gradual increase in exchange rate flexibility, supported by fiscal consolidation, wage moderation, and a prudent monetary policy.
Monday, July 19, 2010
On July 12, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Honduras.
Background
Even though a benign external environment, spikes in foreign direct investment and remittances inflows, and substantial debt relief contributed to episodes of high growth in Honduras over the past decade, the country remains one of the poorest countries in Central America with limited progress in establishing conditions for sustained long-term growth. In part, these outturns may be explained by the fact that many successful economic reforms undertaken in the first half of the 2000s, which justified the completion of the Highly Indebted Poor Countries and Multilateral Debt Relief Initiative programs by the international community, were abandoned or even reversed in the latter part of the decade.
During 2009, the economy of Honduras was strongly affected by the global slowdown and a period of severe political turmoil. Real GDP fell by about 2 percent, while lower world oil and food prices contributed to a sharp decline in end-year headline inflation to 3 percent (10.8 percent in 2008). The fiscal position deteriorated significantly, and the overall public sector deficit widened from 1.7 percent of GDP in 2008 to 4.6 percent in 2009, reflecting lower tax revenues (driven by the economic slowdown) and a large increase in current expenditure (mostly public sector wages). The fiscal deficit was financed largely with costly domestic bonds, central bank credit, and accumulation of domestic arrears.
Since late 2008, monetary policy has been largely accommodative. Central bank’s policy rate and reserve requirements were lowered, and credit to the public sector expanded significantly, contributing to a loss of international reserves. As in the rest of the region, weak external demand and rising unemployment in the United States resulted in a sharp fall in exports and remittances. Imports fell even more, on account of lower ...
The agreement, which expires in March 2012, will enable the country to get immediate access to funds worth $196 million.
An International Monetary Fund (IMF) staff mission was in Tegucigalpa between 7 and 10 September to continue discussions on an agreement between Honduras and the IMF to support the government's economic program. At the close, the mission's chief, Mr. Przemek Gajdeczka, issued the following statement:
The International Monetary Fund (IMF) report sheds a positive light on the country's macroeconomic situation and the stability of its financial system.
A staff team from the International Monetary Fund (IMF) visited Guatemala during August 17-26, 2010 to conduct the fourth and final review of the Stand-By Arrangement approved in April 2009.
"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:
An analysis by the IMF of a letter of intent from the government of Costa Rica, detailing plans and policies for 2009.
The government of Costa Rica is committed to implementing a prudent monetary policy and greater exchange rate flexibility to support necessary external adjustments, pointing to a gradual decline in inflation.
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