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Mr. Marco Pinon, Mr. Alejandro Lopez Mejia, M. (Mario) Garza, and Mr. Fernando L Delgado

Abstract

América Central, Panamá y la República Dominicana sobrellevaron bien la crisis financiera mundial de 2008-09. El impacto fue en general menos severo y de menor duración que en episodios anteriores, el ajuste de la balanza de pagos fue ordenado, y la estabilidad del sistema financiero no se vio comprometida. Esta capacidad de resistencia puede atribuirse en gran medida al fortalecimiento de los marcos fiscales, a la gestión monetaria y a las reformas financieras introducidas en los años anteriores a la crisis internacional. Sin embargo, la región se enfrenta a considerables desafíos en el período venidero, entre ellos el de elevar el crecimiento a mediano plazo por encima de los niveles históricos y el de proteger la estabilidad macroeconómica y financiera. Este libro sostiene que la respuesta a estos desafíos deberá provenir de la demanda interna, considerando que se prevé un magro crecimiento de la demanda en los países que son socios comerciales. Por lo tanto, para estimular el crecimiento en la región será esencial adoptar reformas estructurales que generen mejoras sustanciales de la productividad. La reconstrucción del espacio fiscal y el logro de la sostenibilidad de la deuda dependerán de las medidas que se tomen para aumentar los ingresos fiscales y reorientar los gastos en función de las prioridades sociales y de inversión. En las economías no oficialmente dolarizadas también será fundamental fortalecer los marcos de política monetaria a fin de mantener la inflación en un bajo nivel y flexibilizar el tipo de cambio, y mejorar la regulación y supervisión financiera.

Mr. Markus Rodlauer and Mr. Alfred Schipke

Abstract

América Central ha concitado creciente atención como una región que se está integrando exitosamente a la economía mundial. Este estudio examina -entre otras cosas- las implicaciones macroeconómicas y fiscales del Acuerdo de Libre Comercio con Estados Unidos (CAFTA-RD), y se destaca que este acuerdo impulsará el proceso de integración. Sin embargo, a fin de potenciar al máximo los beneficios en términos de un crecimiento sostenible más acelerado, reducción de la pobreza y progreso social, la región también debe llevar adelante ambiciosas reformas estructurales que consoliden la estabilidad macroeconómica y aseguren condiciones atractivas para la inversión, a la vez que se intensifica la cooperación regional en materia de recaudación y administración de impuestos, sistemas financieros y estadísticas.

Mr. Markus Rodlauer and Mr. Alfred Schipke

Abstract

Central America has received growing attention as a region that is integrating successfully into the global economy. This paper examines—among other things—the macroeconomic and fiscal implications of the Free Trade Agreement with the United States (CAFTA-DR), noting that the agreement will provide a boost to the integration process. To maximize the benefits in terms of faster sustainable growth, poverty reduction, and social progress, however, the region also needs to press ahead with ambitious structural reforms to entrench macroeconomic stability and ensure an attractive environment for investment, while stepping up regional cooperation in the areas of taxes and tax administration, financial systems, and statistics.

Mr. Marco Pinon, Mr. Alejandro Lopez Mejia, M. (Mario) Garza, and Mr. Fernando L Delgado

Abstract

Central America, Panama, and the Dominican Republic coped well with the global financial crisis of 2008-09. The impact was generally less severe and shorter lived than in previous episodes, the balance of payments adjustment was orderly, and the stability of the financial system was not compromised. This resilience can be attributed to a large extent to the strengthening of the fiscal frameworks, monetary management, and financial reforms conducted in the years preceding the global crisis. Nevertheless, the region faces considerable challenges for the period ahead, including the need to raise medium term growth above historical levels and protect macroeconomic and financial stability. This book argues that meeting these challenges will have to come from within, in light of the anticipated modest demand growth from trade partners. Raising growth in the region will depend on the adoption of structural reforms that generate substantial productivity gains. Rebuilding fiscal space and securing debt sustainability will hinge on efforts to increase tax revenue and reorienting spending to social and investment priorities. In the non-officially dollarized economies, it will also be essential to strengthen the monetary policy frameworks to keep inflation low and increase exchange rate flexibility, and improve financial regulation and supervision.

International Monetary Fund

This paper discusses El Salvador’s Request for a Stand-By Arrangement and cancellation of the current arrangement. The program seeks to preserve financial stability, safeguard the economic recovery, and strengthen the medium-term fiscal position. Fiscal policy will aim at offsetting the impact of the adverse external environment on domestic activity and the most vulnerable while ensuring debt sustainability over the medium term. IMF financial support would have a catalytic role for official creditors and private investors. It would also provide a liquidity buffer to help absorb any potential shocks to the financial system.

International Monetary Fund

The development of macroeconomic performance in El Salvador in the second half of 2010 was broadly positive, but economic activity remains subdued. The medium-term economic outlook has been revised to incorporate changes to the external environment since the first program review. The economic program for 2011 will adhere to the fiscal consolidation path envisaged in the Stand-By Arrangement (SBA). Higher tax revenue will be critical for attaining the fiscal target. Placing the public debt-to-GDP ratio on a downward path and increasing social spending on a sustained basis remain the key priorities.

International Monetary Fund. Western Hemisphere Dept.

KEY ISSUESFocus: The main themes centered on tackling macroeconomic vulnerabilities andimproving the medium-term outlook by achieving an ambitious fiscal adjustment while protecting social spending, creating an environment for higher private sector-led growth, and building a robust financial sector.Main policy issues• A reduction in the fiscal deficit of 3½ percent of GDP is needed over the next three years to place public debt on a sustainable path to maintain access to market financing on favorable terms. This adjustment should be accompanied by well- targeted social spending to protect the most vulnerable and continued progress in lessening inequality.• A broad strategy is also needed to reduce the growing imbalances in the pension system and restore its sustainability for future generations. In this regard, a broad- based dialog across all segments of Salvadoran society is needed to build support for a reform that should include an increase in the retirement age and introduce a progressive taxation of benefits. Steps are also needed to further strengthen public financial management to mitigate key fiscal risks, including by enhancing expenditure monitoring and control (to avoid future spending arrears) and recording contingent fiscal liabilities transparently in the fiscal accounts.• The authorities’ goal of raising potential growth to 3 percent while reducing inequality will require substantial supply-side measures to enhance productivity and competitiveness. These should aim to reduce red-tape, increase access to credit, upgrade infrastructure, provide access to and lower the cost of energy, and diversifying the economy. The FOMILENIO II grant from the U.S. provides a valuable opportunity to catalyze such growth-enhancing reforms.• Banking indicators appear sound, a product of prudent supervision and regulation. Nonetheless, there is scope to further strengthen the institutional underpinningsfor financial stability by upgrading the legal framework for bank resolution and bycreating an appropriate liquidity safety net for banks.