Press Release No. 08/152

Press Release: Communiqué at the Conclusion of the Seventh Annual Regional Conference on Central America, Panama, and the Dominican Republic

June 27, 2008

The following statement was released today in San Salvador, El Salvador, by Mr. Murilo Portugal, Deputy Managing Director of the International Monetary Fund; Ms. Luz María Serpas de Portillo, President, Central Bank of El Salvador; Ms. Maria Antonieta de Bonilla, President, Central American Monetary Council; Mr. Guillermo Zúñiga, President, Central American Council of Finance Ministers; and Mr. Edgar Barquín, President, Central American Council of Financial Sector Superintendents.

"Finance ministers, central bank governors, financial sector superintendents, IMF management and staff, and representatives of other international financial institutions met in San Salvador, El Salvador, over the past two days to discuss key policy issues facing the region; search for practical solutions; and identify areas where increased regional cooperation may be warranted. This year's conference focused on the implications of the global shocks for the region, the benefits and challenges of the increasing presence of large foreign banks in the region, and the evolution of tax structures in the context of increased integration.

"Conference participants paid tribute to Mr. Harry Brautigam. Through his vision and leadership as president of the Central American Bank for Economic Integration (CABEI), he contributed enormously to advance the progress of regional integration and foster the social and economic development of the Central American people. Harry Brautigam was a true Central American, and his unfortunate and unexpected passing is a great loss for the region and for all who knew him.

"A focal point of this year's conference was the implications of two major external shocks: the surge in food and petroleum prices and the protracted U.S. slowdown. Conference participants agreed that these shocks pose complex policy challenges, yet also stressed that Central America was in a better position to weather the storm today than in the past. Participants added that they were taking swift actions to mitigate the impact of external shocks on the poor, while preserving economic stability.

"Conference participants exchanged views on how best to help the poor. They stated that where possible, expanding well-targeted social programs, such as conditional cash transfers, school lunches, and work-for-food programs, would be the first best solution. Conference participants agreed to remain in close contact about adopted measures and their effectiveness.

"While the region has so far been resilient, participants noted that the growth outlook will continue to be affected by developments in the United States, where the slowdown is likely to be protracted. This said, they emphasized that macroeconomic policies should be focused on containing inflation, as pressures from higher commodity prices presently dominated any possible impact from weaker growth. In this context they stressed that higher inflation affected the population, especially the poor. In particular, participants underscored that monetary policy should be focused on limiting second-round price effects and anchoring inflation expectations.

"Conference participants welcomed the increased presence of global banks in Central America. They emphasized that large global banks are likely to contribute to the dissemination of international standards in terms of capitalization, risk management, and corporate governance, and could generate greater competition in the provision of financial services. But they also highlighted that these developments pose new challenges for supervisors. They could also generate more volatile capital flows and help fuel credit booms. Financial sector superintendents indicated that they would continue improving consolidated supervision of regional and global banks and further strengthen cooperation among regional supervisors—among others—by establishing a permanent executive secretariat.

"Conference participants analyzed how globalization and economic integration is impacting Central America's tax structures. They noted that tax structures in the region had already evolved substantially in recent years. Conference participants took note of the international experience in protecting tax revenue in the face of globalization to maintain acceptable levels of public expenditure. Finance ministers emphasized that, at the regional level, a number of steps had been taken to strengthen regional collaboration on tax issues, including through systematic exchanges of information, an inventory of investment incentives, rules on transfer pricing and thin capitalization, and a model of double taxation treaty.

"Conference participants had a fruitful discussion of the issues related to the establishment of a regional technical assistance center for Central America, Panama, and the Dominican Republic (CAPTAC-DR), which they believed should begin operating in early 2009. This center will represent an addition to the technical assistance already provided by the IMF to the region. Governors of Central American countries with the IMF have agreed that CAPTAC-DR will be headquartered in Guatemala. Conference participants have specially expressed their gratitude towards the governments of Spain and Mexico for their early offer in financially supporting the technical assistance center. Other donor countries, as well as regional and international institutions have also expressed their interest in funding CAPTAC-DR. Participants have also thanked the governments of Japan and Spain for financing a number of regional technical assistance projects coordinated by the IMF, and asked for their continued support.

"Conference participants agreed that next year's annual conference will be held on June 25-26, 2009, and thanked Guatemala for its offer to host the event."