## Press Release: IMF Approves Stand-By Credit for El Salvador

_IMF News, March 3, 1997_

## Source details

**Canonical URL:** [Press Release: IMF Approves Stand-By Credit for El Salvador](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9711)

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## Bibliographic details
- Published: March 3, 1997

---

### Overview
- The International Monetary Fund (IMF) approved a 14-month stand-by credit for El Salvador, equivalent to SDR 37.68 million (about US$52 million), to support the government’s 1997 economic program.

### Background
- Since the end of the 12-year long civil war in 1990, and through 1995, economic growth in El Salvador averaged more than 6 percent a year, fostered by the implementation of economic reform and structural policies supported by consecutive IMF stand-by credits.
- Achievements to date:
  - Significant progress in reforming the tax system, and the labor market.
  - Recent progress in privatization.
  - Implementation of the peace accords in the context of strengthening the fiscal position.
- Remaining challenges:
  - Less success in reducing inflation to international levels.
  - Economic activity decelerated between mid-1995 and mid-1996 due to a burst in private consumption, the end of a construction boom, and adverse external shocks affecting external competitiveness.
  - Inflation remained high in part because of increases in international prices of cereals and oil.
  - The colón continued to appreciate in real effective terms, contributing to erosion of external competitiveness.
- Positive signs in the second half of 1996:
  - The pace of economic activity picked up.
  - Inflation decelerated.
  - External competitiveness improved.

### Medium-Term Strategy and the 1997 Program
- Program objectives and quantitative targets for 1997:
  - Real GDP growth of about 4 percent in 1997.
  - Reduction of the overall deficit of the nonfinancial public sector to 1.4 percent of GDP.
  - Decline in inflation to 5-6 percent.
  - Increase in net international reserves to the equivalent of 5 months of imports.
- Fiscal policy and public finance measures:
  - Strengthen public finances while accommodating larger outlays for infrastructure.
  - Maintain an appropriate monetary policy.
  - Continue advancing structural reforms.
  - Contain current expenditure and increase tax collections as part of public sector modernization and improving social expenditure.
  - New public positions will be offered only in priority sectors such as health and education.
  - Tax ratio expected to rise from 11.1 percent of GDP in 1996 to 11.8 percent of GDP in 1997, despite a reduction in import duties.

### Structural Reforms
- Privatization and sectoral reforms:
  - Following approval in September 1996 of the necessary legislation:
    - Sales of 49 percent of the telephone company ANTEL and of the first of four electricity distribution companies are expected to be completed in the first half of 1997.
    - The other three electricity distribution companies are expected to be sold by year’s end.
    - Telecommunications system expected to be fully privatized in two years.
- Public investment and pension reform:
  - Physical and financial implementation of the public investment program will be prioritized, monitored, and controlled through a unit of administration of public investment under the Ministry of Finance.
  - Legislation passed in December 1996 to reform the pension system and substitute the current pay-as-you-go system with privately administered individual accounts.

### Addressing Social Needs
- Social and military expenditure targets:
  - Social expenditure increased from 3.5 percent of GDP in 1995 to 4.8 percent in 1996 and will be maintained at that level in 1997.
  - Military expenditure was contained at 1 percent of GDP in 1996 and will be reduced to 0.9 percent in 1997.
- Policy emphasis:
  - Expanding and improving basic health and educational services.
  - Ensuring public safety to facilitate economic development.

### The Challenge Ahead
- Continued priorities:
  - Further tightening of fiscal policy.
  - Continuing implementation of structural reforms to increase productivity to lay the basis for recovery of private investment and growth.
  - Attainment of the inflation objective is fundamental to prevent loss of external competitiveness.

### IMF Membership and Quota
- El Salvador joined the IMF on March 14, 1946.
- Member quota: SDR 125.6 million (about US$174 million).
- At the time of the release, El Salvador had no outstanding use of IMF credit.

### Selected Economic Indicators (as presented)
- Real GDP (Percent change)
  - 1993: 7.4
  - 1994: 6.0
  - 1995: 6.3
  - 1996*: 2.0-2.5
  - 1997**: 3.5-4.0
- Consumer prices (end of period)
  - 1993: 12.1
  - 1994: 8.9
  - 1995: 11.4
  - 1996*: 5.0-6.0
- Overall fiscal balance, excluding grants (deficit-)
  - 1993: -3.6
  - 1994: -1.9
  - 1995: -0.9
  - 1996*: -1.8
  - 1997**: -1.4
- External current account balance, excluding official transfers (deficit-)
  - 1993: -4.4
  - 1994: -3.7
  - 1995: -5.1
  - 1996*: -2.1
  - 1997**: -2.8
- Gross international reserves (Months of imports)
  - 1993: 4.2
  - 1994: 3.9
  - 1995: 4.9
  - 1996*: 5.1

*Estimate.
**Program.

*International Monetary Fund — Press Release No. 97/11*

---


## References

- [El Salvador and the IMF](http://www.imf.org/external/country/SLV/index.htm)
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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9711_