I am very grateful to President Maduro and his economic team for inviting me to Honduras. Although this is my first visit, the IMF is proud of its long association with Honduras, and I am looking forward to exchanging views with many sections of society.

I have had initial meetings with the President and his economic team, continuing the dialogue held with the President recently in Monterrey. In the short period since then, the economic team has been able to finalize a medium term program—under the framework of the IMF's Poverty Reduction and Growth Facility (PRGF)—that has been under discussion for some time. This program aims to entrench macroeconomic stability in Honduras, while ensuring that Honduras' considerable potential is used to raise growth, improve living standards, and create new jobs.

President Maduro has told us that the medium term program reflects the government's careful and comprehensive discussions with civil society in recent months. As such, the program carefully balances a strengthening of macroeconomic policies and institutions with much greater attention to poverty and equity issues. As all the details in the government's letter of intent will soon become available, I can be brief in pointing to the main planks:

• First, the program aims at fiscal strengthening to reduce the public debt, release more resources for investment, and set a firm foundation for growth. This is a key challenge for Honduras—one that it shares with other countries in the region who are making similar efforts as part of their own macroeconomic programs. In this area, Honduras has developed a carefully sequenced strategy to broaden the tax base, strengthen tax administration, and reorient spending to support investment and poverty needs. I am impressed by the determination with which the government has sought the collaboration of all sectors of society in balancing the effects of these policies. The consensus reached with the National Congress is testimony to Honduras' political resolve and the support of the unions has also been crucial.



• The second main plank aims at ensuring that the financial system is able to provide the resources for private investment and growth in an equitable way. The authorities have set the ambitious objective of bringing central bank functions, and supervision and prudential safeguards fully in line with best practice international standards. Again, given growing regional and international financial integration, such reforms are necessary to harness the opportunities of globalization, keep pace with the reforms of other countries, and increase credit flows to small and medium enterprises.



• The third plank focuses on institution building. Our research has shown that the kind of reforms the Government has planned to improve governance, transparency and social equity in political, judicial, and fiscal institutions and procedures will have a high impact on growth, while also maintaining a strong social consensus for the overall reforms.

With these three pillars, supported by other structural reforms aimed at increasing trade integration and competitiveness, the program has high potential for success. Its resolute implementation should allow real growth to jump from its recent average of 2- 2 ½ percent to around 4½ percent by 2006, while keeping inflation low and steadily improving social indicators. It helps, of course, that the program comes at a time of a much-improved external environment—both regional and international—and positions Honduras to benefit fully from the ongoing global upturn.

In addition to the IMF, the program is being supported by the World Bank and the IDB, our close partners in the region. The letter of intent has been approved by IMF management, opening the door for an Executive Board meeting in the coming weeks. Board approval of the program will make available a first disbursement from the Fund (from a total access of close to about US$ 100 million), additional financial support from the international community, and access to debt relief under the enhanced HIPC Initiative.

In concluding, let me say that Honduras' program is another key step to building a strong growth momentum with improving equity within the Central American region. We remain in close touch with other countries in this region as they implement growth-enhancing agendas carefully tailored to their individual circumstances. There are many common elements in the individual policy agendas and that is why we are further enhancing our regional surveillance with increased emphasis on the sharing of cross-country experiences, supported by our financial assistance where necessary.