IMF Managing Director Rodrigo de Rato's Statement During his Visit to Honduras

Press Release No. 06/39
February 28, 2006

Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), issued the following statement yesterday in Tegucigalpa:

"It is a great pleasure for me to visit Honduras again. I was privileged today to meet President Zelaya, Cardinal Rodríguez, Minister of Finance Noé Pino, central bank president Núñez de Reyes, members of the National Congress, and other senior officials. I was particularly struck by the optimism and courage of those involved in the youth rehabilitation project in Campo Cielo, in the context of such difficult circumstances.

"Since my last visit in July 2004, the Honduran economy has made much progress, supported by a PRGF program with the IMF. The program's positive results are widely recognized in Honduras, including faster growth, lower inflation (despite higher fuel prices), and an improved external position. Against the background of continued macroeconomic stability, prospects are good for continued economic growth and a further decline in inflation in 2006.

"Fiscal discipline has been maintained, including through the control of public expenditures in general and the wage bill in particular, while increasing investment and social spending. Structural reforms also continued to advance, including the strengthening of the central bank's ability to conduct monetary policy and the introduction of prudential norms on dollarization to enhance financial sector soundness.

"The international community has recognized Honduras' achievements, including through the completion of the third review of the PRGF arrangement, debt relief from the Fund under the Multilateral Debt Relief Initiative, and support from the Millennium Challenge Account.

"Maintaining macroeconomic stability and taking advantage of current circumstances to further reduce poverty is critical to preserve and consolidate the achievements under the program. I had the opportunity of learning about the Zelaya administration's economic priorities, and took the opportunity to encourage Honduras to take a long-term view in managing its economic challenges. My discussions focused on the core challenges Honduras faces to raise medium term growth, create jobs, and alleviate poverty.

"From our experience in other countries, meeting these challenges will require policies with a strong consensus across the social and political spectrum. The agenda includes, importantly, plans to preserve fiscal discipline and improve the targeting of social spending, further strengthen the banking system, improve the investment climate, and fortify public institutions including the central bank, DEI, and the banking commission. These plans should provide a strong foundation for faster growth. In this context, I supported the government's immediate priorities to reduce tax evasion and increase transparency. Also, timely improvements in the regulatory framework are critical for the adoption of CAFTA-DR, as this agreement would broaden investment and job opportunities, through a greater integration with the region and the global economy.

"The Fund stands ready to support the authorities' efforts to boost economic growth and to intensify the fight against poverty. We intend to remain in close contact with the incoming authorities, with a view to holding discussions on the fourth review of the Honduras' program in March."



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