News Brief: IMF Completes Second Honduras Review and Approves US$21 Million Loan

June 7, 2000

The Executive Board of the International Monetary Fund (IMF) today completed the second review under the Poverty Reduction and Growth Facility (PRGF)1. As a result, Honduras will be able to draw up to the equivalent of SDR 16.15 million (about US$ 21.45 million) from the IMF.

In commenting on the IMF Executive Board's discussion, Eduardo Aninat, Deputy Managing Director, made the following statement:

"The Honduran authorities are to be commended for having implemented sound policies that allowed the country to recover from the devastation caused by Hurricane Mitch while preserving macroeconomic stability.

"The main challenge for the authorities is to ensure a transition to a higher, poverty-reducing growth path. This will require resolute efforts in speeding up structural reforms, improving governance, and strengthening social programs. Sound fiscal policy, in order to ensure the projected increase in public saving and social expenditure, requires control over the central government wage bill. The authorities are therefore encouraged to implement the planned reforms in public sector wage policy rapidly. The authorities' assurances that sound policies will be maintained in the period leading up to the election is welcomed.

"It is important to proceed quickly with structural reforms, especially the privatization of telecommunications and electricity distribution, and the reform of the social security and pension system. Continued progress in improving governance and transparency of policies is critical, and the authorities should proceed to draw up their planned governance strategy, which should include ways to improve the rule of law and the enforcement of contracts. The strengthening of banking supervision and financial sector regulation should continue to bring them in line with international best practices.

"The authorities are also commended on the substantive work on the interim Poverty Reduction Strategy Paper (PRSP). The involvement so far of civil society is welcome. Continued efforts to strengthen the participatory process will be important as will steps to further integrate the economy's macroeconomic framework in the PRSP", Aninat said.

1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. Once broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for lending operations under the PRGF arrangement. PRGF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years with a 5 ½ year grace period on principal payments.


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