Press Release No. 06/279

Press Release No. 06/279

An International Monetary Fund (IMF) staff mission led by Mr. Gabriel Lopetegui, Deputy Division Chief in the Western Hemisphere Department, today issued the following statement in Guatemala City:

"An IMF mission visited Guatemala during October 16-27 and December 12-15 to hold the 2006 Article IV discussions with Guatemala, to review economic developments, and the authorities' policy plans. The mission met with Central Bank Governor Maria Antonieta de Bonilla, Finance Minister Hugo Beteta, Superintendent of Banks Willy Zapata, other senior public sector officials, political leaders, and representatives of congress, the private sector, banks, and social organizations.

"Economic performance and prospects in Guatemala have improved markedly since last year's consultation. Growth is increasing, to 4½ percent in 2006; inflation is expected, for the first time in several years, to decline below 6 percent; fiscal performance has been better than originally envisaged; and net international reserves have increased to over 4 months of imports of goods and services.

"These gains partly reflect the prudent macroeconomic policy framework, anchored in low debt and deficits, but also the important progress that has been made in many areas of structural reform, including access to CAFTA-DR, in last July. The resolution of Bancafe, a large bank that was hurt by financial problems in its offshore affiliate following the failure of Refco in 2005, has proceeded relatively smoothly.

"Looking ahead, the macroeconomic outlook is positive, and the mission's work focused on steps to strengthen the financial system. The mission supported the authorities' plans to continue strengthening regulation and supervision of banks and made a number of technical recommendations. In the fiscal area, the main challenge is to secure the passage of a tax reform that brings in resources to address important social objectives. Regarding monetary and exchange-rate policies, the mission made recommendations to continue improving the inflation-targeting regime, including allowing more exchange-rate flexibility to facilitate liquidity control and economic adjustment to shocks.

"The mission's recommendations are summarized in a brief concluding statement that was left with the authorities. The mission will be preparing a report that will be considered by the IMF's Executive Board in early 2007."