Press Release No. 03/121

Horst Köhler, Managing Director of the International Monetary Fund (IMF), made the following statement in El Salvador on July 22, 2003:

"The purpose of this visit—my second to Central America as Managing Director of the IMF—is to underline IMF support for the region at a critical time. My visit takes place on the occasion of the Second Annual Roundtable on Central America—a conference hosted jointly by the Central American Monetary Council and the IMF—and attended by ministers and governors from El Salvador, Costa Rica, Guatemala, Honduras, Nicaragua, Panama, and the Dominican Republic. The visit has provided a valuable opportunity to obtain a closer understanding of Central America's economic and social situation. I had the privilege of meeting with President Flores, and I also had stimulating discussions with regional ministers and central bank presidents. I greatly value this exchange of views which allows us to add an important regional dimension to our dialogue with the countries in Central America.

"The 1990s has been a decade of significant achievements in Central America, including the strengthening of democracy after years of conflict in many countries, progress with economic reforms, and better growth than during the decade of the 1980s. Recent years, however, have seen a deterioration of economic performance in many countries, partly because of adverse external developments, and a central theme of my discussions with President Flores and the economic leaders I met was how to restore sustained growth and address the still widespread poverty in most countries of the region.

"In my discussions with the leaders, there was agreement that the continued integration of Central America into the global economy offers clear potential for raising growth, improving living standards, and creating new jobs. We also agreed that the integration process needs to be anchored in strengthened domestic policies and institutions, and that it will benefit from greater regional cooperation among Central American countries. With increasing financial integration, strengthening cross border cooperation in prudential supervision deserves particular attention.

"President Flores and Minister Daboub of El Salvador impressed on me the key steps their government has been taking to support official dollarization of El Salvador's economy introduced in 2001. The President stressed his commitment to maintaining fiscal discipline and further strengthening the financial sector. An important foundation has been laid in El Salvador for raising growth with improved equity, and it will be crucial to consolidate and deepen the reform process in the coming years.

"The ministers and governors whom I met from other countries in Central America are also committed to implementing a growth-enhancing agenda tailored to their individual circumstances. Fiscal strengthening is central to the macroeconomic programs in all countries in the region, and I was impressed by the determination with which governments are seeking the necessary domestic political consensus for this objective. Governors reaffirmed their commitment to prudent monetary management and building sound and diversified financial sectors, areas where the Fund is committed to provide extensive policy advice and technical assistance.

"I was also encouraged by the clear recognition by policy makers that political stability is a key precondition for sustained strong growth, and that it requires greater attention to poverty and equity issues. Thus, in many countries there is a need to push ahead with social reform programs that strengthen education and human capital, improve the distribution of income, and upgrade social safety nets to ensure that poverty and inequity are reduced over time.

"In discussing how the international community can help Central America achieve these goals, I shared ministers' and governors' views that their export-oriented growth strategies will bring greater gains if they are supported by adequate access to advanced economies' markets. Successful conclusion of the Doha Trade Round will be particularly important, and the envisaged regional free trade agreement with the United States (CAFTA) would also offer important potential benefits.

"The IMF stands ready to assist Central America in implementing its agenda of macroeconomic and institutional reforms aimed at enhancing its growth potential. We are continuing our close policy dialogue with the Central American countries, with increased emphasis on the sharing of cross-country experiences and regional surveillance. We are also actively engaged with financial programs in several countries, and intend to increase our technical assistance to Central American countries in the coming years."