Press Release No. 04/236

Press Release: IMF Mission Statement at the Conclusion of the 2004 Article IV Consultation Discussions with El Salvador

November 10, 2004

The following statement was issued today in San Salvador by an International Monetary Fund (IMF) staff mission:

"A mission from the IMF visited El Salvador during October 25-November 10, 2004 to conduct the annual Article IV consultation discussions. The mission met with a broad range of senior government officials, members of congress, and representatives of the private sector, labor unions, and analysts. The mission thanks the authorities for the warm welcome and close cooperation it has received during its stay in El Salvador.

"El Salvador's economy continued to face a challenging environment in 2004. In particular, the sharp increase in world oil prices and strong competition from Asia have dampened the momentum of growth. On the positive side, while headline inflation has picked up owing to higher oil prices, a prudent wage policy has kept underlying inflation stable, and rising family remittances have helped sustain income levels and contain the external current account deficit.

"The mission discussed with the authorities the main challenges that El Salvador faces in order to improve growth prospects and social conditions, consolidate macroeconomic stability, and increase the economy's resilience against shocks. We are encouraged, in particular, by the broad recognition in El Salvador of the urgent need to reduce the fiscal deficit and place the public debt-to-GDP ratio on a firm downward path, while strengthening the government's programs in critical social and infrastructure areas. In this connection, the recent approval by congress of new tax measures is most welcome, and the mission encourages the authorities to take additional steps in this direction. Their plans to reduce tax evasion and bring informal activities into the tax base are very important to this end.

"The mission also had wide-ranging discussions on the gamut of structural reforms needed to strengthen productivity and competitiveness. In particular, the mission supports ongoing and planned steps to further strengthen the banking system, broaden the role of private investment in infrastructure, and continue advancing on trade opening. In particular, early approval of the free-trade agreement with the United States (CAFTA) should provide a new impetus to exports and investment. It will be important to capitalize fully on these opportunities by continuing the implementation of reforms to make the business climate more favorable, improve human capital, and strengthen the institutions supporting private economic activity.

"In light of the impressive record of structural reforms implemented since the early 1990s, El Salvador has a clear potential to achieve sustained rapid growth and social progress in the years ahead. The mission encouraged the authorities to continue to work toward broad national consensus on the necessary reforms, and looks forward to our continuing close cooperation and policy dialogue in support of this agenda. Upon its return to Washington, the mission will prepare a report to the IMF's Executive Board, as a basis for a Board discussion tentatively scheduled for January 2005."