IMF advices: contain current spending, especially the wage bill, and strengthen the finances of public enterprises, public pension funds, and municipalities.
March 25, 2010
Mario Garza, resident representative of the International Monetary Fund (IMF) in Tegucigalpa, issued the following statement today:
“With the objective of assessing developments and the near-term outlook of the Honduran economy, an IMF mission met with President Porfirio Lobo, the economic cabinet, congress, and private sector representatives. The mission wishes to thank the authorities for their excellent cooperation and candid discussions. In 2009, the global economic slowdown and the political crisis contributed to an economic contraction of 2 percent. In the fiscal area, despite a decline in public investment, the fiscal deficit rose markedly due to a substantial increase in current spending, mainly the wage bill, leading to a large increase in the public domestic debt. In the context of an expansionary monetary policy, the increase of central bank credit to the public sector contributed to a loss of international reserves. The authorities and the mission shared the view that maintaining expansionary policies is not sustainable and that a solid macroeconomic framework is required to foster economic growth in Honduras.
The current crisis is still unveiling and its broader regional reach and consequences are still unknown. What is known is that the impact is undeniable.
Even though the region has not experienced an immediate effect, its important to wonder how the macroeconomic adjustment may happen in our countries.
First of all, in the last years the region has experienced an improvement in its economic fundamentals, even though the external situation has dampened it, specially when compared to the rest of Latin America. This external effects are outside the reach of internal economic policy.
Generally speaking, the country risk for central american countries stays constant during the second quarter of 2008
The evaluation, done by the the most important risk rating companies, is based on the positive results reported by the treasuries of the governments, the efficient administration of public debt, and the positive macroeconomic stability of the region. However, Dominican Republic remains in the eye of some risk rating companies in relation to the issuance of a number of government bonds in international markets without complying with legal procedures.
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