Central America Should Deepen Reform to Lift Growth

Changes in global outlook present new challenges for Central America

Strengthening expenditure efficiency, raising tax revenues are key priorities

Boosting competitiveness critical to place region on higher growth path

Against a backdrop of weak external demand, stronger policy frameworks and continued structural reforms will be key to unleashing the productivity gains needed to meet that challenge.

This was the overarching theme of the 10th Regional Conference on Central America, Panama and the Dominican Republic held in Managua July 28–29. The conference was attended by the main economic authorities from seven countries of the region and co-sponsored by the Central Bank of Nicaragua, the region’s Monetary Council, Council of Finance Ministers, Council of Financial Superintendents, and the International Monetary Fund (IMF).

Nemat Shafik, Deputy Managing Director of the IMF, noted that the region had responded well to the global economic crisis. But she added it must now do more to ensure that economic policy translates into jobs and higher living standards. “Macroeconomic stability is not enough if it does not deliver social outcomes—jobs, poverty reduction, a sense of fairness—that creates political stability,” she said in a keynote speech.

The annual conference for Central America is a long-standing regional discussion forum, and one of the few where the principal country authorities gather with IMF staff to analyze recent developments and exchange views on key challenges and policies. To facilitate the discussion, IMF staff prepared short background documents on the challenges for growth, fiscal policy, monetary policy, and financial sector issues in the region.

Global outlook and regional priorities

Olivier Blanchard, the IMF’s Economic Counsellor, opened the conference sessions with a presentation on the global outlook. He explained that the advanced economies, particularly the United States, were not likely to grow fast in the years to come and that global growth was likely to continue be driven by the large emerging countries. Partly for this reason, he noted that commodity prices were likely to remain high. He also noted that the daunting fiscal challenges in Europe and United States presented risks for global financial stability.

Against this backdrop, Nicolás Eyzaguirre, Director of the IMF’s Western Hemisphere Department, discussed the appropriate policy responses and reform priorities for the Central American...