Guatemalan Policies Averting Worst Of Crisis

by Mike Godfrey, Tax-News.com, Washington

16 November 2009

A staff team from the International Monetary Fund (IMF) visited Guatemala during November 2-12, 2009, to conduct the second review of the Stand-By Arrangement (SBA) approved last April and the 2009 Article IV consultation.

The mission met with President Alvaro Colom; the Minister of Finance, Juan Alberto Fuentes Knight; the Central Bank Governor, María Antonieta de Bonilla; the Superintendent of Banks, Edgar Barquín; members of the Cabinet and the Congress of the Republic; and representatives of the private sector.

At the end of the visit, Alejandro Lopez-Mejía, the IMF mission chief for Guatemala, made the following statement:

"Like the rest of the region, Guatemala has been affected by the global crisis, though to a lesser extent than neighboring countries. Its moderately countercyclical fiscal and monetary policies have helped mitigate the effects of the slowdown and protect the neediest segments of the population, while preserving macroeconomic stability.”

“There are signs that the Guatemalan economy is starting to recover. The mission expects real GDP growth to be moderately positive in 2009 and exceed 1% in 2010. Inflation is likely to remain subdued, and is projected to close 2009 below 1% and rise to about 4% during 2010. Exports, remittances, and net private capital flows have stabilized and imports have begun to recover.”

“Fiscal policy is striking a balance between supporting domestic demand and debt sustainability. The central government deficit in 2009 will reach about 3.3% of GDP (somewhat lower than envisaged) and is expected to decline to about 3% in 2010, preserving social spending. The approval of the 2010 budget bill during November would reduce uncertainties in the fiscal policy outlook.”

“Continued macroeconomic stability will hinge on stabilizing public debt dynamics. In this connection, the authorities’ plans to raise revenues through changes in direct taxes are welcome. Strengthening revenue administration and continuing to improve the transparency and efficiency of public spending also will be important. Over the medium term, a comprehensive revenue reform remains justified to address longstanding weaknesses in education, health, security, and infrastructure.”

“The banking sector remains sound. Supervision and regulation are strong and the banking sector has been resilient to the global financial crisis. Implementation of the amendments to the banking law (expected to be approved in early 2010) will help reduce risks from offshore operations and connected lending, enhance supervision, and improve resolution procedures. The authorities’ commitment to begin implementing the new regulations on liquidity and foreign credit management in 2010 is also encouraging.”

“Macroeconomic performance under the precautionary SBA remains very strong, and the authorities have met all quantitative performance criteria for the second review. The mission expects that the IMF Executive Board will consider completion of the second review of the SBA and 2009 Article IV consultation in December 2009.”

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