Statement by IMF Managing Director Rodrigo de Rato at the Conclusion of His Visit to Guatemala

Press Release No. 06/40
February 28, 2006

Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), made the following statement today in Guatemala City:

"It is a great pleasure for me to be in Guatemala today, the second stop in my current visit to Central America. During this visit, I had the privilege of meeting with President Oscar Berger, Vice-President Eduardo Stein, Finance Minister María Antonieta de Bonilla, Central Bank President Lizardo Sosa, and other cabinet members. I also had very productive meetings with members of congress, the private sector, and civil society. An important highlight of this trip was my visit to PENNAT, a project that has become a model for the provision of education to working children, and symbolic of the efforts being made to reduce poverty at its core.

"Since the Peace Accords of 1996, Guatemala has made substantial progress toward entrenching macroeconomic stability, through the adoption of disciplined fiscal and monetary policies, and key banking reforms. As a result, Guatemala's economy has weathered well the recent oil price shock and the impact of tropical storm Stan in October. Thus, the near-term outlook is positive, with output growth is gathering momentum, exports are expanding, inflation is slowing from a peak in November, and official reserves have risen to record levels.

"My discussions focused on the core challenge Guatemala faces to alleviate poverty by raising medium-term growth to create jobs. Meeting this challenge will require policies with a strong consensus across the social and political spectrum. The agenda includes, most importantly, implementing tax reform that will allow increased targeted spending in key social and poverty reduction areas. In addition, there is a need to institutionalize fiscal discipline, further strengthen the banking system, continue the efforts already underway to strengthen government institutions, improve the investment climate, and reduce crime, all of which should provide a strong foundation for faster growth. In this context, I supported the government's immediate priorities to reduce tax evasion, increase fiscal transparency, raise the tax ratio, and increase social spending. 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.

"Such an agenda would also improve social conditions and alleviate poverty as envisaged in the Millennium Development Goals. Building on the progress already made, I would encourage all sections of Guatemalan society to work together to develop the needed support for it. Especially important are the government's efforts to raise fiscal revenue and achieve the goal set in the 1996 Peace Accords. This is a crucial step to enable priority social projects, alleviate poverty in Guatemala, and develop a more strategic role for the state.

"We had also a constructive dialogue on prospects for Central America and I supported the government's role in fostering policy coordination across the region. We agreed that the immediate focus should be on tax policy coordination, cross-border financial supervision, and the harmonization of statistics. The Fund will continue to be actively involved in supporting these priorities.

"Over the years, the Fund has maintained a close policy dialogue and technical assistance effort with Guatemala, and I would like to reiterate our commitment to continue assisting the authorities in their efforts to raise the growth potential of the economy and improve the living standards, particularly for the poor."



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