Conclusions of the XVIII Regional Conference on Central America, Panama, and the Dominican Republic

IMF News, July 30, 2024

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Canonical URL: Conclusions of the XVIII Regional Conference on Central America, Panama, and the Dominican Republic

Meeting location and dates: San Jose, Costa Rica, on July 29-30.
Inaugurated by: The First Vice-President of the Republic of Costa Rica, Stephan Brunner, and the IMF’s Deputy Managing Director, Kenji Okamura.
Participants: Central bank governors, finance ministers, and bank superintendents of Central America, Panama, and the Dominican Republic (CAPDR), and IMF officials.
Statement issued by: Rodrigo Valdés (Director, IMF’s Western Hemisphere Department) and Róger Madrigal López (President of the Central Bank of Costa Rica and President of the Central American Monetary Council).

Global growth projections preserved from statements:
- 3.2 percent in 2024
- 3.3 percent in 2025
Observations:
- Global economy described as resilient with growth holding steady, but with important divergence across countries and regions.
- Inflation is "gradually returning to target, albeit with slowing momentum."
- Upside risks to inflation could raise prospects of "higher-for-even-longer" interest rates, increasing external, fiscal, and financial risks in the region.
- Medium-term growth prospects in Latin America judged "lackluster," reflecting continued weak productivity growth.

Comparative outcomes and projections:
- Average real GDP levels in 2024 for CAPDR are projected to be 17 percent higher than pre-pandemic, compared to 9 percent in Latin America and the Caribbean as a whole.
- Regional growth projected at 3.9 percent in 2024—about double that of the Latin American and Caribbean region.
Drivers of positive outcomes (as credited by participants):
- Sound policies stabilizing public debt and bringing inflation under control.
- Strengthened social support.
Risks and constraints noted:
- Tighter global financial conditions pose challenges for regional debt dynamics and servicing.
- Adverse implications for infrastructure and social investment.
Policy emphases:
- Need for policies to boost productivity, including accelerating public investment.
- Benefiting from new patterns in the global trade system.
- Addressing structural reform gaps.

Observations on income convergence:
- Costa Rica, the Dominican Republic, and Panama have converged at rates similar to those in East Asia and Eastern Europe.
- El Salvador, Guatemala, Honduras, and Nicaragua have experienced limited convergence despite solid growth.
Factors associated with differences in convergence:
- Nature of BOP inflows, particularly foreign direct investment versus remittances.
- Factor endowments, domestic market size, and political stability.
Policy recommendations to foster convergence and productivity:
- Attract more foreign direct investment via reforms to boost productivity and labor force participation.
- Proactively expand overseas markets and diversify exports.
- Strengthen governance and the business climate.
- Promote more productive use of remittances to support domestic investment.
Costa Rica cited as an illustrative experience for policy lessons.

Focus of discussion:
- Effectiveness of central bank monetary and foreign exchange policies in the context of large dollar inflows and heightened macroeconomic uncertainty.
- Experience across the region, including the decisive response by the Central Bank of Costa Rica to recent price shocks.
Policy conclusions and trade-offs:
- Policies to strengthen the role of monetary policy should include:
- Strengthening of the financial sector.
- Development of foreign exchange and domestic debt markets.
- Financial inclusion.
- Interaction with fiscal policy.
- Proactive communication.
- Foreign exchange interventions can support short-term exchange rate stability but are costly and may impede gradual policy adjustments and market deepening needed to absorb higher financial inflows for long-run development.

Comparative assessment with investment-grade emerging markets (EM-IG):
- Rising public debt in CAPDR and increases in sovereign financing costs since the global financial crisis have led to greater increases in interest expenses than in EM-IG.
- Public debt and deficits in CAPDR are above those of EM-IG.
- Revenue collection and governance quality in CAPDR are below those of EM-IG.
- Reserves are also below EM-IG levels, with a note that accumulating more reserves when they are assessed to be adequate could be costly.
Policy priorities to improve creditworthiness and market access:
- Sound and sustainable fiscal policy frameworks.
- Enhanced revenue mobilization.
- Progress to improve governance.
- Adequate communication of policy intentions.

Discussion format: Only open session of the conference, including civil society and journalists, discussed a new IMF book on climate change challenges and opportunities in Latin America and the Caribbean.
Shared views and policy options:
- A broad range of mitigation tools is needed.
- Comprehensive approaches to adaptation aimed at building structural and financial resilience are required.
- Upfront financing from both official and private sector sources is necessary.
- Supportive structural reforms should accompany financing to reach climate goals.

Participants expressed appreciation:
- Thanked the IMF and the Central Bank of Costa Rica for support in organizing the event.
- Stressed the importance of maintaining a frank and fluid policy dialogue between the region, the IMF, and other key stakeholders.
- Expressed deep appreciation to Costa Rican authorities for hospitality.

IMF press statement, July 30, 2024.