Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

IMF Survey: Central America Fares Well Despite Global Uncertainty

July 18, 2012

  • Central American event to discuss global and regional prospects
  • Region has coped well with the 2008-09 crisis, but vulnerabilities remain
  • Rebuilding defenses and more integration would help generate economic resilience and higher growth

While domestic activity in Central America has been relatively strong despite the slow U.S. economic recovery and negative external shocks, the region faces considerable challenges for the period ahead.

Central America Fares Well Despite Global Uncertainty

Metro train in Santo Domingo, Dominican Republic. Domestic activity in Central America has been strong (photo: Orlando Barria/Newscom)

Central America-IMF Conference

The IMF and the economic authorities of Central America, Panama, and the Dominican Republic will jointly host a regional conference in the Dominican Republic next week to discuss the appropriate economic policies for the region, taking into account recent developments and prospects for the global economy. The annual conference, which will take place on July 26–27, will discuss the importance of rebuilding defenses against external shocks and reinvigorate structural reforms to boost competitiveness and growth in the region.

In a video interview with IMF Survey online, IMF Western Hemisphere Department Director Nicolás Eyzaguirre talks about the policy priorities for Central America, the IMF’s role in the region, and what he hopes will come out of the conference.

IMF Survey: The eleventh annual conference for Central America, Panama, and the Dominican Republic is around the corner and this is a good opportunity to talk about developments in the region. During the past year, these countries have made efforts to preserve their macroeconomic stability. However, there is more to be done. What are the key areas in which the governments of these countries should focus in the coming months?

Eyzaguirre: As you said, this is the eleventh conference and so it is a tradition by now to get together with the economic authorities of the region to reflect on the challenges that their countries face in the near and medium-term.

At this particular juncture, we will argue that rebuilding the defenses used during the global crisis of 2008–09 by the Central American economies remains a priority. One important reason for this, as the IMF has been saying, is that downside risks to the global outlook have increased and further turmoil cannot be ruled out. The countries of this region are not likely to benefit from any global headwind. Hence, rebuilding buffers was important yesterday, it is even more important today.

At the same time, the countries of this region need to enhance their growth prospects by implementing policies that do not exacerbate their vulnerability. In other words, solid policies that would make it possible to grow without major imbalances.

And third, but not last, would be increasing regional and global integration. That is one source of growth that we think is very promising.

IMF Survey: What is new in this conference? What are the key topics that perhaps in past conferences were not discussed?

Eyzaguirre: Central America, Panama and the Dominican Republic have been doing pretty much okay. Most of them are growing, their inflation rates are under control, and their macroeconomic balances are not an issue to be so worried about.

However, the international juncture has become increasingly difficult in two areas. First, it has become clearer every day that the region’s main trading partners—that is, the United States and Europe—are going to have, in the case of the United States, a very tepid recovery, and, in the case of Europe, probably a period of stagnation. And, second, on top of this slow growth, the probability of further financial market turmoil, which could lead to problems with revolving credit, has increased. So, these countries need to rebuild their defenses and continue to pursue sound growth strategies to ensure that their vulnerabilities do not increase.

IMF Survey: What are the main outcomes that we should expect from this conference?

Eyzaguirre: Well, this is a regional conference. What the IMF does, according to its Articles of Agreement, is to have regular consultations with individual member countries. The purpose of the conference is to discuss the region’s outlook and policy options. The more in depth discussions take place in the context of bilateral discussions—known as Article IV consultations.

Another aim of this conference is to gather momentum and political will, and to put everybody on the same page in order to be able to increase their awareness of what needs to be done. And also, of course, to give the governments of these countries an opportunity to tell us what they need from the IMF. It is also a good venue to hear policymakers’ own perspectives for the region and how they expect the future to unfold.

This is an edited transcript of the video interview.