Opening Remarks by IMF Deputy Managing Director Nemat Shafik
July 28, 201110th Annual Regional Conference on Central America, Panama, and the Dominican Republic, Managua, Nicaragua
July 28, 2011
As prepared for delivery
Good afternoon. Let me first begin by expressing my thanks to Governor Antenor Rosales and to the Central Bank of Nicaragua for hosting the 10th Annual Regional Conference.
Let me also thank all of you, central bank governors and presidents, ministers of finance, bank superintendents, and other distinguished invitees for attending this conference.
It is an honor for me to be here in Managua, in what is my first official trip as Deputy Managing Director of the IMF to Latin America. It is particularly gratifying to be here with you on the occasion of the 10th anniversary of the annual conference on Central America, Panama and the Dominican Republic. When you reach a 10th anniversary it starts to feel like an established relationship. We have reached an important milestone in the Fund’s dialogue and engagement with the region, as these meetings have become an integral part of our policy exchange and have evolved as a forum to discuss key economic and financial issues together.
The Response of Central America to the Global Crisis
This is the second time that the regional conference is held in Managua—the Central Bank of Nicaragua hosted the 4th annual conference back in 2005. Since then, much progress has been made in consolidating macroeconomic stability and setting the basis for stable economic growth in Nicaragua. In particular, Nicaragua managed to keep inflation under control in spite of the commodity price shock of 2007–08 and, in the regional downturn unleashed by the global crisis. Nicaragua also made courageous efforts to preserve macroeconomic stability and facilitate a rapid recovery.
At the time of our previous conference in Managua, former DMD Agustin Carstens spoke about the IMF’s growing partnership and engagement with Central America, and emphasized the need to make the most of the benign environment of those times to undertake reforms that could secure the region's medium- and long-term prosperity. Since then, the economic resilience of the region has been tested by the global crisis.
As is well known by all of you, Central America’s response to the risks posed by the global crisis was largely successful. Most countries in the region could afford to let the fiscal deficit widen, ease monetary policy conditions and provide liquidity to the financial sector (largely on a precautionary basis). The fact that Central America was able to respond to a negative external shock with countercyclical policies for the first time in decades is a testament to the significant gains in the macroeconomic front made by these countries in the preceding 10–15 years. These gains consisted of:
• First, and foremost, a noteworthy fiscal consolidation until 2007 provided the space to allow the fiscal deficit to increase and borrow at reasonable terms during the crisis.
• Second, the economies became more resilient by increasing their financial buffers (such as international reserves and banks’ liquidity) and, in some cases, by allowing more exchange rate flexibility.
• The international community also played its part in assisting the region to contain the impact of the crisis. As you know, the Fund approved high-access precautionary arrangements (a novelty at the time) for Costa Rica, El Salvador and Guatemala in the first quarter of 2009; and approved a Stand-By Arrangement that provided Fund resources to finance the budget for the Dominican Republic. Nicaragua, and later Honduras, also activated Fund arrangements on concessional terms.
The region’s preparation before the crisis paid off. And the timely external assistance from the IMF and other IFIs were instrumental in avoiding financial contagion, macroeconomic instability and a major contraction. Together, we also managed to reduce the impact on the poorest, including through policies with a social expenditure component. To paraphrase the saying, we had a relatively good crisis—because we worked together.
Now it is time to look forward at the challenges for the world economy and the region that lie ahead. These topics will be covered in depth in the two sessions scheduled for this afternoon, which will start in a few minutes.
But I would like to take this opportunity to leave you with three messages:
• The first is to thank you, again, for your presence and strong commitment to this regional conference. One of the great lessons of the global financial crisis has been to confirm the importance of international cooperation. A forum like this, where the economic authorities of a group of countries with a longstanding tradition of cooperation meet to discuss the global outlook, and exchange ideas and experiences that facilitate finding solutions to the economic challenges lying ahead, is an excellent example of international cooperation. I would like to congratulate you for having created and supported this forum.
• The second message is to say that the Fund in general, the Western Hemisphere Department in particular, and I personally, understand the multiple challenges that you face as policy makers. It is precisely because we understand those challenges that we truly appreciate the close and candid relationship that we have with all the countries in this region. This relationship motivates us to continue improving our contribution to help maintain macroeconomic stability and boost economic growth in your countries.
• And my final message is the hope that you find useful the sessions we have prepared for this conference. One of the most important services the Fund can provide to its members is our analytical work on global developments and we have assembled our best minds to do that. And, of course, the hope that you have a wonderful time here in Managua.
Thank you very much.