For 2011, improved prospects for external and domestic demand are expected to lift output growth, although high global fuel and food prices will increase inflation and the external current account deficit.
IMF Completes Second Review Under Stand-By Arrangement for El Salvador
Press Release No. 11/107
March 31, 2011
The Executive Board of the International Monetary Fund (IMF) has completed its second review of El Salvador’s economic performance under a program supported by a three-year Stand-By Arrangement. The decision was taken on a lapse of time basis (a process where the Board agrees that a proposal can be approved without convening formal discussions). The arrangement was approved on March 17, 2010 in the amount of SDR 513.9 million, equivalent to 300 percent of the country’s quota in the IMF (see Press Release No. 10/95). The Salvadoran authorities are treating the arrangement as precautionary.
With the backing of the Financial System Superintendent, the Central Reserve Bank began to release half of the additional reserve of $290 million.
Due to the celebration of the recent presidential elections, an additional reserve of 3% had been established, with the anticipation of money withdrawals and capital flight.
Laprensagrafica.com reported statements by Armando Arias, president of the Salvadoran Banking Association: "They are already in the process of receiving this money. What we're doing is increasing the availability to provide more liquidity to finance the productive sectors."
Banks in El Salvador will receive $290 million that where frozen as a liquidity reserve.
The Salvadoran Central Reserve Bank (BCR) had implemented a liquidity reserve of 3% of all deposits as protection against capital flight during the last presidential election.
According to what Daniel Choto wrote in elsalvador.com, the BCR will begin returning the money gradually, freeing $58 million every fourteen days, in 5 installments.
The Salvadoran Bank Association will request the SSF to release the $261 million imposed due to the elections.
In late 2008, the Financial System Superintendent (SSF) ordered a 3% increase in liquidity reserves which were at 25% for the protection of deposits if there was a bank run. This increase represented $261 million for the banks which will request for the money to be released as soon as possible.
In order to reduce the effects of the economic slow down, some politicians are turning to monetary policy or the Central Bank. They believe that by printing more money there will be more wealth, more investment and more employment.
When a Central Bank, such as the US Federal Reserve (FED) or the European Central Bank, increases the amount of money in circulation it is done by reducing interest rates.