Conclusions of the XIV Regional Conference on Central America, Panama, and the Dominican Republic

November 18, 2016

Central bank governors, finance ministers, and banking superintendents of Central America, Panama, and the Dominican Republic, and IMF officials met in Antigua Guatemala on November 17-18 to review the economic outlook for the region and reforms to raise inclusive growth. The Constitutional President of Guatemala, Jimmy Morales and the Deputy Managing Director of the IMF Mitsuhiro Furusawa inaugurated the conference.

At the conclusion of the conference, the following statement was released by the Director of the Western Hemisphere Department of the IMF, Alejandro Werner; the President of the Central American Monetary Council, Ovidio Reyes Ramirez; the former President of the Central American Council of Finance Ministers, Wilfredo Cerrato Rodríguez; the Vice-President of the Central American Council of Financial Sector Superintendents, José Alejandro Arévalo; and the Acting Governor of Bank of Guatemala and host of the conference, Sergio Recinos.

“Global economic growth will remain subdued, amid a sharp slowdown in global trade. The rebalancing in China, potential financial volatility, and rising threats of protectionism are downside risks to this outlook. The anticipated uptick of economic activity in the U.S. in 2017, persistently low oil prices, and still favorable interest rates abroad will support the regional economy, which will continue to expand at a somewhat faster pace than the rest of Latin America in the coming years. Despite the positive outlook for the region, participants agreed that stronger growth is needed to build on the progress made in reducing poverty and inequality. To this end, the region should strengthen its resilience to adverse shocks, remove bottlenecks that hinder investment and job creation, and broaden economic opportunities to achieve more rapid social progress.

“The region has made progress in reducing macroeconomic vulnerabilities, and countries have been growing close to their potential. In this context, participants underscored that additional progress will require: (i) stronger fiscal responsibility frameworks to lower public debt burdens and build space for social and investment priorities; (ii) greater exchange rate flexibility to provide better defense against shocks, and nimble monetary policy to deal with price pressures, especially as the effect of low oil prices dissipate over time; and (iii) sounder financial systems through lower financial dollarization, less reliance on short-term foreign borrowing, and improved financial safety nets and anti-money laundering policies. To expand productive capacity, the region could do more to modernize basic infrastructure, invest in human capital, and further strengthen security and governance.

“Financial inclusion could be a powerful contributor to stronger growth and lower social disparity. The region has greatly expanded access of low-income clients to basic financial services and ongoing national strategies will do more in this regard. With improved financial access, previously unbanked families will have a chance to smooth out consumption and invest in education and health, while small firms will be able to invest in physical assets and hire more people. To reap the benefits of financial inclusion, regional efforts are needed to lower access costs, improve financial education, and foster technological innovation in the banking network, without risking financial stability. Countries could take advantage of the valuable lessons from international experience.

“Drawing on the experience of Mexico and Spain, participants recognized the huge growth benefits from increased economic integration within the region and with the global economy, and analyzed the risks related to the recent rise in protectionist sentiment. Like in fast-growing regions, further integration could deepen the region’s penetration in export markets, increase participation in global production chains, and raise the technological sophistication of exports. Building on past integration initiatives and free-trade agreements, countries can move toward creating a broader regional market through priority reforms that create an efficient customs union, harmonize trade processes, lower non-tariff and foreign investment barriers, and set up origin rules that facilitate production across countries. In sum, a greater regional market will provide an impetus for exports, investment, and job creation across the region, and economic policy should focus on distributing these benefits more fairly.

“Development of infrastructure could facilitate regional economic integration and help incorporate more low-income producers into the economy. Resolving sizable infrastructure gaps on roads, ports, airports, energy, and customs would lower logistic costs, spurring investment and exports, and helping reduce poverty in most countries. Given fiscal constraints, private investment in infrastructure is essential, and strong public-private partnerships frameworks would secure high-quality projects and avoid risks to budget. From a fiscal perspective, countries need to upgrade their public investment management frameworks to improve project selection based on economic and social criteria, enhance the governance of public works, and secure long-term maintenance of projects, without risking debt sustainability. Participants emphasized that reducing infrastructure gaps relative to fast-growing emerging economies will require more tax revenue or reallocating spending to create space for public investment.

“Participants stressed the importance of the policy dialogue between the region and the IMF, and expressed appreciation for the support provided by the IMF. Lastly, participants thanked the Guatemalan authorities for their hospitality and support for the success of the conference, and Honduras for offering to host the next regional conference.”

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