IMFSurvey Magazine: Countries & Regions
STRENGTHENING FINANCIAL SYSTEMS
Central America Eyes Regional Approach
By Alfred Schipke
IMF Western Hemisphere Department
August 1, 2007
- Officials want better supervision of Central America's financial institutions
- They discuss fiscal coordination and distribution of tax burdens
- Policymakers examine development of equity and corporate debt markets
Senior policymakers focused on strengthening supervision of their financial systems, coordinating fiscal policy, the distributional effects of tax systems, and development of equity and corporate debt markets at a regional conference on Central America, Panama, and the Dominican Republic.
Participants at the sixth annual regional conference, which was hosted on June 28-29 by the Central Bank of Costa Rica in San José, reviewed the progress made by financial sector superintendents in identifying ways to better supervise financial institutions that increasingly operate throughout the region. According to a communiqué issued at the conclusion of the conference, "the financial superintendents agreed to prepare a regional memorandum of understanding to foster the supervision of regionally operating financial institutions."
Possible regional markets
Officials also discussed how to develop equity and corporate debt markets, which remain underdeveloped in terms of size and liquidity. They expressed an interest in exploring all options, including establishing a regional market, collaborating with more established markets in Latin America, and developing specific segments, such as the market for asset-backed securities.
Conference participants analyzed the distributional effects of tax systems and social spending in the region. This topic was seen as particularly important because to fight stubbornly high poverty, most countries in the region need to boost tax revenue and increase social spending. In addition, finance ministers reported on progress in improving coordination of tax policy and administration. As indicated in the communiqué, "finance ministers agreed to seek a treaty with the United States to avoid double taxation and, based on a proposal by the Dominican Republic, insurance against natural disasters from international financial institutions."
For the past six years, the IMF and the Central American Monetary Council and, more recently, the Central American Council of Finance Ministers, have hosted these regional conferences for senior policymakers. Central America, Panama, and the Dominican Republic face many similar domestic policy challenges that call for similar policy responses. In addition, the countries must deal with issues related to increasing regional and global integration. The objective of the conference is to address these challenges, identify practical policy solutions, and review the progress in implementing reforms at the regional level.
Thanks to the open and wide-ranging exchange of ideas they generate, the conferences have guided the IMF's regional work agenda and regional technical assistance projects. The conferences have also provided an opportunity for the respective regional councils (central bank presidents, finance ministers, and superintendents of banks) to meet separately in the margin of the event. This year, in addition, the superintendents of securities agreed to establish their own executive secretariat.
The Central Bank of El Salvador will host the next regional conference, scheduled to take place in San Salvador, at the end of next June.