Central America Grapples with Policy Responses to Global Risks

Recovery in Central America gaining strength, but global uncertainties pose risk

Conference to focus on impact of rising energy prices, tepid U.S. recovery

Important challenges remain to improve fiscal positions, strengthen competitiveness

The IMF and senior policymakers of Central America, Panama, and the Dominican Republic will meet in Managua, Nicaragua, to discuss the current policy challenges for the region, in particular the implications of the global outlook, including high oil and food prices.

The conference, which will take place on July 28–29, will provide finance ministers, central bankers, superintendents of banks, and other high-level officials an opportunity to take stock of economic policies in Central America almost three years after the global financial crisis.

In an interview with IMF Survey, ahead of the two-day conference, Miguel Savastano, Deputy Director of the IMF’s Western Hemisphere Department, said that Central America needs to have a stronger fiscal position to guard against future shocks. To boost growth in the medium term, Savastano stressed that priority should be given to policies that strengthen competitiveness.

IMF Survey online: What is the main purpose of holding this conference? And what types of issues will be discussed?

This is an annual gathering of IMF staff with the policymakers of the seven countries in the Central American region. And this is the tenth year we have been holding this conference. As in previous years, the purpose of the conference is to discuss with the authorities the global outlook, the regional outlook, the implications of these trends for the economic policies that they are planning to implement, and what adjustments may be necessary given the external situation.

IMF Survey online: What has been the impact of the global financial crisis on Central America?

The global financial crisis had an important effect on economic activity in Central America, mainly from the downturn in activity in the United States, particularly in the construction sector, which is a key source of remittances to the region.

Prior to the crisis, the region as a whole was growing at slightly above 4 percent per year, but in 2009 growth dropped to zero and, in some cases, it turned negative. The counterpart to this downturn in activity was a decline in fiscal revenues, larger fiscal deficits, and higher public debt. So this region, which had been lowering its debt burden in the years before the...