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International Monetary Fund. Western Hemisphere Dept.
This 2019 Article IV Consultation discusses that structural reforms, strengthened policy frameworks and the ongoing smooth political transition have laid the foundations for sustained growth in El Salvador. The discussions focused on policies that build on these achievements and address fiscal vulnerabilities, boost long-term growth, and strengthen the governance, anticorruption and Anti-Money Laundering and Combating the Financing of Terrorism frameworks. Continued US dollar appreciation led to a significant decline in inflation and widening of the current account deficit. The authorities agreed that debt would continue to drift upward in the absence of measures, and that weaker-than-expected global growth could have a negative impact on the domestic economy. The authorities emphasized their commitment to guarantee a smooth political transition by sharing information with the new administration and by inviting the Audit Office to oversee the handover process. It is recommended to improve the governance and anticorruption frameworks by increasing the fiscal transparency of the 2020 budget laws, strengthening audit and spending controls, and promptly implementing electronic invoicing.
International Monetary Fund. Western Hemisphere Dept.
This 2013 Article IV Consultation highlights that key developments in Guatemala since the 2012 Article IV Consultation have been positive. As commodity prices stabilized and domestic demand pressures weakened, inflation fell sharply in 2012—closing at 3.4 percent by December. Although subsequently inflation rose somewhat—to 4.3 percent by May 2013, owing mainly to domestic prices—it still remained within the central bank’s target range of 4.0±1 percent. The economic outlook is generally benign. Growth is expected to edge up to 3½ percent in 2013 and 2014, reaching its potential rate, supported by ongoing buoyant domestic demand and healthy private-sector credit.
Mr. Javier Kapsoli and Iulia Ruxandra Teodoru
Developing and low-income economies face the challenge of increasing public spending to address sizeable infrastructure and social gaps while simultaneously restoring the fiscal discipline weakened to countervail the effect of the global recession. Increasing the efficiency of social spending could be the key policy to address the dilemma as it allows the optimization of the existing resources by reducing spending inefficiencies. This paper quantifies the efficiency gap in the health and education sectors for a large sample of developing and emerging countries and proposes measures to reduce these gaps for the specific cases of El Salvador, Guatemala, and Honduras.
Mr. Paolo Mauro and Yishay Yafeh
This paper analyzes the Corporation of Foreign Bondholders (CFB), an association of British investors holding bonds issued by foreign governments. The CFB played a key role during the heyday of international bond finance, 1870-1913, and in the aftermath of the defaults of the 1930s. It fostered coordination among creditors, especially in cases of default, arranging successfully for many important debt restructurings, though failing persistently in a few cases. While a revamped creditor association might once again help facilitate creditor coordination, the relative appeal of defection over coordination is greater today than it was in the past. The CFB may have had an easier time than any comparable body would have today.
Dmitry Plotnikov
This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.
Mr. Ralph Chami, Mr. Adolfo Barajas, Mr. Peter J Montiel, and Ms. Dalia S Hakura
This paper investigates the impact of workers’ remittances on equilibrium real exchange rates (ERER) in recipient economies. Using a small open economy model, it shows that standard "Dutch Disease" results of appreciation are substantially weakened or even overturned depending on: degree of openness; factor mobility between domestic sectors; counter cyclicality of remittances; the share of consumption in tradables; and the sensitivity of a country’s risk premium to remittance flows. Panel cointegration techniques on a large set of countries provide support for these analytical results, and show that ERER appreciation in response to sustained remittance flows tends to be quantitatively small.
Leonardo Cardemil, Juan Carlos Di Tata, and Ms. Florencia Frantischek

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F. A. G. Keesing and P. J. Brand

This report was prepared at the request of the Center for Latin American Monetary Studies (CEMLA) of Mexico City, as a result of discussions held at its Seventh Operational Meeting in September 1962. That meeting considered, among other things, the establishment of special mechanisms to facilitate and expedite payments in the Latin American area. The principal documents used as a basis for those discussions were “Structure and Operation of the Central American Clearing House,” by Mr. Jorge González del Valle, “A Clearing House and Payments Union for Latin America,” by Professor Robert Triffin, and “The Financing of Intra-LAFTA Trade: Some Problems and Possible Approaches to Their Solution,” by Professors Raymond Mikesell and Barry N. Siegel. At the end of its discussion, the CEMLA meeting adopted a recommendation inviting further studies on mechanisms that would facilitate intra-area payments.

Ms. Stefania Fabrizio, Davide Furceri, Mr. Rodrigo Garcia-Verdu, Bin Grace Li, Mrs. Sandra V Lizarazo Ruiz, Ms. Marina Mendes Tavares, Mr. Futoshi Narita, and Adrian Peralta-Alva
Despite sustained economic growth and rapid poverty reductions, income inequality remains stubbornly high in many low-income developing countries. This pattern is a concern as high levels of inequality can impair the sustainability of growth and macroeconomic stability, thereby also limiting countries’ ability to reach the Sustainable Development Goals. This underscores the importance of understanding how policies aimed at boosting economic growth affect income inequality. Using empirical and modeling techniques, the note confirms that macro-structural policies aimed at raising growth payoffs in low-income developing countries can have important distributional consequences, with the impact dependent on both the design of reforms and on country-specific economic characteristics. While there is no one-size-fits-all recipe, the note explores how governments can address adverse distributional consequences of reforms by designing reform packages to make pro-growth policies also more inclusive.