Press Release: IMF Approves Emergency Assistance for Honduras

IMF News, December 7, 1998

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The International Monetary Fund (IMF) approved Honduras’ request for emergency financial assistance related to natural disasters.
The assistance is equivalent to SDR 47.5 million (about US$66 million).
Purpose: to support the government’s economic recovery program and associated relief and rehabilitation efforts in the aftermath of Hurricane Mitch.

Progress over the past two years included:
- Faster real GDP growth.
- Lowering inflation.
- Reducing fiscal imbalances.
Private sector confidence was on the upswing due to:
- Achievements noted above.
- Advances in privatization.
- Reforms in the tax system and the financial sector.
A new program of stabilization and broad-based reforms supported under the Enhanced Structural Adjustment Facility (ESAF) was close to agreement, which would:
- Facilitate additional concessional loans from the World Bank and the Inter American Development Bank (IADB).
- Normalize relations with creditors.

Human and social impact estimates:
- Deaths close to 5,500.
- About 8,000 people missing.
- Nearly 2 million people displaced.
- Several towns and villages destroyed.
Infrastructure and public services:
- Several roads and bridges made impassable.
- Most schools and several hospitals and administrative centers closed.
- Basic public services devastated.
Economic losses and growth outlook:
- Authorities’ first approximations indicate losses of inventories and fixed assets--including infrastructure--amounting to about 40 percent of GDP.
- Real GDP is estimated to fall to 3 percent in 1998 and turn negative in 1999, compared with pre-hurricane projections of real GDP growth of about 5-6 percent a year.

Immediate priorities addressed with substantial international help:
- Providing food, shelter, and health care to the homeless and displaced persons.
- Taking measures to preserve public health.
- Repairing essential infrastructure and beginning clean-up and reconstruction work.
Measures to limit macroeconomic disruption:
- Adopting measures aimed at limiting the effects of the disaster on inflation and interest rates.
- Formulating a revised central government budget for 1999 to account for changed revenue outlook and new spending requirements.
- Efforts to limit domestic financing in part by reallocating spending to emergency needs.

Once immediate priorities are addressed, authorities intend to resume discussions to finalize an economic program to be supported under the ESAF focused on:
- Consolidation of macroeconomic stability.
- Increasing prospects for private investment.
- Deepening structural reforms to address constraints to growth.
ESAF details provided:
- The ESAF is a concessional IMF facility for assisting eligible members undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects.
- ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5½-year grace period.

Honduras joined the IMF on December 27, 1945.
Honduras’ quota is SDR 95.0 million (about US$133 million).
Honduras’ outstanding use of IMF financing currently totals SDR 33 million (about US$45 million).

Source: Press Release No. 98/60, "Press Release: IMF Approves Emergency Assistance for Honduras" (December 7, 1998).