Central America may be directly impacted by the slowdown in the recovery of the world economy.
For the time being, the region's measures of external and internal demand do not seem affected by the threat of lower growth rates for the economies of partner developed countries. Some central banks had raised their expectations but, in view of the risks, they are likely to revise their growth predictions back to original levels between 2.0% and 2.7%.
Central American countries still need to improve their economic performance to reach investment grade ratings.
On its Quarterly Country Risk report for June 2010, the Central American Monetary Council (SECMCA), notes that Moody’s Investor Service improved the foreign currency risk ratings for Guatemala and Nicaragua. For Guatemala, the criteria for this improvement included a stable macroeconomic environment, backed by prudent fiscal and monetary policies, and for Nicaragua improvement in debt indicators and low fiscal deficits.
In El Salvador, the debate over the advantages and disadvantages of dollarization has been reignited, as the government is in need of resources for funding its programs.
President Funes has regretted that Dollarization has limited El Salvador from taking actions to combat the economic crisis. However, Augusto De la Torre, chief economist for Latin America and the Caribbean at the World Bank, repeated that dollarization is not an obstacle, and that in the case of Panama and El Salvador it has been key to relieve them from external pressures and exchange rate volatility.