Caribbean & Central America - April 2013 (ISSN 1741-4458)

The IMF is warning El Salvador that it needs to start a national dialogue process before elections in 2014 so that macroeconomic stability is not put at risk. The IMF conducted an Article IV consultation in March when it concluded that real GDP would grow at just 1.5% in 2013-14, the fiscal deficit will remain unchanged in 2013 and beyond, and the debt-to-GDP ratio will increase further. The IMF highlighted that “the authorities noted that the strengthening of macroeconomic policies will become challenging with the approach of a prolonged period of presidential and congressional elections and in an environment of low growth.”

  “The national dialogue should also help build consensus on the fiscal, investment, and banking reforms over the medium term,” the IMF said. It called for the public debt ratio to be reduced to “pre-crisis levels by the end of the decade” with “reforms to lower current expenditure relative to GDP and make it more flexible, and raise the tax effort closer to that of countries of similar income, while allowing room for needed social investment.”

  Marking the twelfth anniversary since El Salvador opted to replace the colón with the US dollar last January, the president of the central bank, Carlos Acevedo, bemoaned the fact that after 12 years of dollarisation and “a sack of unfulfilled promises” GDP has fallen; the trade deficit has widened; inflation has risen; and El Salvador remains as susceptible to external shocks as ever [RC-13-02].