Press Release: Statement of the IMF Mission in Honduras
June 1, 2004
"A technical mission from the IMF visited Honduras during the last twelve days, with the aim of initiating the consultation that the Fund carries out every year with its member countries. The mission met with officials from the government and national congress, representatives of the private sector, international community, the Catholic church, and civil society, in order to identify and analyze recent economic developments.
"The mission did not come to evaluate performance under the government's economic program, which is being supported by the IMF. It would have been very premature to do so, since the first quantitative targets will be assessed with data for end-June. However, we analyzed the evolution of the economy during the first quarter of the year and compared it with indicative targets under the program—and we would like to share our main findings with you.
Growth and prices
"The mission found with satisfaction that the outlook for economic growth this year is favorable. Nonetheless, the behavior of inflation in April was less reassuring, because prices rose more than had been expected, principally as a result of the impact of the rise in fuel prices and its effect on transport costs.
"Unfortunately, the rise in international fuel prices is affecting all oil-importing countries and Honduras is no exception.. Since this is a worldwide problem, it is not surprising that neither the government or the commission has been able to resolve it. Other countries have been able to do no better, In our view, the authorities have taken all possible actions to reduce costs. It should be recognized that although the government could not reduce the fuel tax without having to cut spending on social programs, it did rapidly shift to a tax fixed by the gallon, which ensured that government revenue would not rise in tandem with price increases. Despite this, we note with concern that expensive fuel is affecting the purchasing power of Hondurans and we hope that international prices of petrol will return to more reasonable levels in the near future.
"The international reserves and net domestic assets of the central bank reached much more favorable levels than expected, as a result of improvements in prices of export products and higher foreign exchange inflows. That is, in the face of high and growing petroleum prices, the monetary policy of the central bank has been prudent, in order to safeguard the end-year inflation target.
"The mission found with satisfaction that fiscal revenue has grown compared to the same period of last year and thus contributed to meeting the indicative target for the fiscal deficit. While central government salaries also performed as intended, the government had some difficulty in controlling transfers. Thus, it is imperative that fiscal policy continue to be managed with much caution from now on, to ensure that, for the rest of the period, the deficit does not exceed its programmed level.
"It is understandable that the public feels hit by repeated increases in fuel prices. Nonetheless, the protests of some groups are a cause for concern, particularly because they appear to be focused on pressuring for the reversal of the salary policy adopted by the government at the end of last year. In our view, this would be tantamount to reconcentrating scarce resources in specific groups, would weaken fiscal policy, and would hinder progress with the poverty reduction strategy. Thus, it is important to sustain the efforts of dialogue and consultation with social fora that have already been established.
"Some legal reforms of the financial system have already gone to congress and others will be sent in the next few days. We understand that there are good prospects for their approval. This is very encouraging since these legal instruments are the foundation for the government's action plan to strengthen financial institutions and improve their efficiency.
Strategy for poverty reduction
"The government has made great efforts to dedicate more resources to programs in the fight against poverty. The challenge from now on is to ensure that both budgetary funds and the growing resources that the country is receiving from the international community translate into an effective and visible reduction in poverty. Besides the successful Paris Club debt restructuring which took place in April, the country now has the opportunity to mobilize further resources to fight poverty, given the Consultative Group meeting at the beginning of June in the presence of the international community and multilateral organizations.
"The maintenance of solid economic policies, the emphasis on transparency and good governance, and the collaboration of all sectors will permit the economy to grow and reach the completion point under the HIPC initiative."