IMFSurvey Magazine: In the News
IMF Opens Central American Technical Assistance Center
IMF Survey online
June 24, 2009
- Building skills and transferring policy knowledge in support of regional integration
- New center will allow more effective response to new challenges in global economy
- Demand for technical assistance expected to increase as countries seek closer economic links
The IMF, building on a successful model for transferring economic skills and best practices, opened a new technical assistance center in Central America on June 24, the seventh set up by the Fund around the world to train central bankers, economic officials, and others.
The IMF now serves a total of 94 countries through all the technical assistance centers and plans to open three additional centers in Central Asia, and Southern and Western Africa. “The Fund’s regional capacity building initiative was launched in 1992, and today we are inaugurating the seventh Regional Technical assistance Center here in Guatemala,” said IMF Deputy Managing Director Takatoshi Kato, who presided over the inauguration ceremony in Guatemala City.
The Central America, Panama, Dominican Republic Technical Assistance Center (CAPTAC-DR) is the Fund’s second in the Western Hemisphere after the Caribbean Regional Technical Assistance Center, which has been operating since 2001 on the island of Barbados.
Initially, the Center’s activities will focus on the key areas representing common policy challenges to member countries, including financial sector supervision and regulation; tax and customs policy and administration; medium-term expenditure frameworks and public financial management; money and public debt markets; and macroeconomic statistics. The Center will also offer training courses as well as seminars and workshops.
A successful model for building capacity
The IMF’s regional technical assistance centers are widely considered a successful model for capacity building by the international community. A key component to this success is that the technical assistance delivered through these centers is demand-driven, responding to the needs of countries, and is closely connected to their poverty-reducing strategies. The technical assistance services offered by the centers both complements and supplements the technical assistance provided by other donors.
The centers provide a natural platform for harmonization of regulatory frameworks, and adoption of best practices, as well as overall economic integration.
Why the Central American region?
The regional technical assistance center will serve Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. The small and similar structure of CAPTAC-DR recipient countries makes globalization an ideal route to sustain a high-level of output growth, which is needed to reduce the extreme and widespread poverty in the region. In recent times, these countries have pursued stronger trade and financial links with North American countries and the European Union (EU). The Central America free trade agreement with the United States has entered into force for all of the CAPTAC-DR countries. Four of these countries are negotiating a free trade agreement with Canada and negotiations on an Association Agreement with the EU are underway.
Regional integration provides an effective platform to pursue their other objectives. Foreign investors are more likely to invest in any individual country if doing so gives them a foothold in Central America, Panama and the Dominican Republic with its population of over 40 million. In the last two years, the pace of regional economic integration has accelerated, as demonstrated by increased cooperation among key regional bodies. The regional authorities are pressing ahead with the creation of a Central American customs union. The private sector and financial institutions, keeping pace with the public initiatives, are increasingly operating regionally, making the case for tax coordination, harmonization of laws and regulatory frameworks, and cross-border consolidated supervision of banks more urgent.
As Central American countries pursue closer economic links with each other, there will be an increased need for technical assistance and training to tackle common issues and challenges, and build productivity-enhancing institutions. This, together with the similarities between the countries’ economic structures and stages of development, argue for a coordinated regional approach to technical assistance delivery.
CAPTAC-DR donor meeting, December 11, 2008. (left to right): Shawn Ladd, Office of the IMF Executive Director for Canada, Mr. Miguel Martinez, Ministry of Finance, Spain, Mr. Luis Arturo Jimnez, Office of the IMF Executive Director for Spain, Mr. Fernando De Oloqui, Inter-American Development Bank (photo: IMF).
Centers key to IMF’s role in the region
Hosted by the Central Bank of Guatemala, CAPTAC-DR is led by a Center Coordinator, who is responsible for the day-to-day management of the center, and resident advisors and short-term experts recruited and supervised by the IMF. The center’s technical assistance, which will emphasize institution building, will complement policy-oriented technical assistance provided directly from IMF headquarters.
For Deputy Managing Director Kato, the new center will be a key part of the IMF’s efforts to better assist these countries with their integration efforts. “A unified region with almost 40 million people will be able to represent its economic interests more effectively at the global level than any individual member. The Fund is proud to be a partner in that vision and hopes that CAPTAC-DR will serve as an engine to push forward with your objectives towards a more cohesive Central America.”
Prior to the onset of the global financial crisis, the Central American countries have had a strong macroeconomic performance with annual output growth averaging around 6 percent during 2006–7 and slowing down to 4½ percent in 2008. Inflation remained in the single digits, except for the uptick in 2008 due to increases in food and fuel prices. Fiscal performance has been strong and public debt has been reduced. Despite this broad macroeconomic stability, the region faces significant development and capacity building needs to strengthen institutions, in light of shallow banking systems, low tax-revenue ratios, still high debt levels, and widespread poverty.
Donors step in
Donors and recipient countries supported the IMF’s efforts in expanding the successful model to establish CAPTAC-DR. About two thirds of the required funding was provided by the governments of Spain, Mexico, Canada, the host country Guatemala, and the other recipient countries, the Central American Bank for Economic Integration (CABEI), and the IMF. The European Commission, Germany, and the Inter-American Development Bank are also expected to contribute.
“The current financial crisis has strained donor resources as advanced and developing countries across the globe are trying to shore up liquidity in their financial systems and provide stimulus to growth. But we must not forget capacity building as being the foundation for sustained growth and lifting people out of poverty. We will need the continued active support of donor partners and other technical assistance providers,” said Kato.
Demand for the IMF’s technical assistance is rising in light of the current global economic and financial crisis, but also because countries are seeking to strengthen their institutions.