Speech

Removing Obstacles and Creating Opportunities for Sustainable Growth

July 26, 2018

Good afternoon everyone.

I would to thank President Hernández and Central Bank Governor Wilfredo Cerrato for hosting the 15^th Regional Conference.

It was a pleasure to have President Hernández in Washington in early June where he discussed with the Managing Director, Christine Lagarde, the latest global and regional economic developments.

It is an honor for me here in Tegucigalpa, Honduras, and for the third time, take part in this important regional policy dialogue. I would also like to thank all of you for participating in this event.

Over the last 16 years, this conference has served as an exceptional forum for the discussion of key economic and financial issues. It has also served as an important platform for IMF’s engagement and policy exchange with economic authorities in the region.

Challenges for the region

At our last conference held in Antigua Guatemala, we underscored the importance for faster and more inclusive growth in the region. This is essential to reduce poverty and satisfy long-standing social demands.

On that occasion, we focused on the challenges to achieve deeper regional integration, encourage higher public and private investment in infrastructure, and foster financial inclusion. Improving human capital, security, and governance would also have a lasting positive impact on growth and social progress.

Since our last conference, we have been further developing our research agenda on how CAPDR can overcome the various challenges to achieve higher and more inclusive growth. This is also the central theme of the book we plan to launch following this year’s conference. You have received an advance copy of the introductory chapter to give a flavor of what we have in store.

Over the last few decades, the CAPDR region has experienced sustained economic transformation. This was supported by deeper regional integration and participation in the global economy.

Growth performance, however, has been uneven, and below that recorded in other regions. For example, in the Northern Triangle countries – El Salvador, Guatemala, and Honduras – as well as in Nicaragua, income per capita has been stagnant for the past 35 years. This makes it very difficult for these countries to catch up with income levels in advanced economies.

In contrast, Costa Rica, the Dominican Republic and Panama have grown much faster, thus narrowing the income gap with the United States.

What explains this divergence? In part, it depends on a country’s ability to innovate and adapt. Countries in the Northern Triangle are still in the process of diversifying into higher-value added and more complex products and sectors.

Costa Rica, Dominican Republic, and Panama have instead more decisively shifted resources into higher-productivity sectors. These three countries rank the highest in Latin America and the Caribbean in terms of economic complexity – that is, the amount of value added embodied in their exports.

Economic complexity is also rising in these countries. For instance, Costa Rica shifted resources into electronics, mechanical parts, financial services, and medical equipment. Panama has shifted into logistics and transportation services. And the Dominican Republic has moved into electrical equipment and medical instruments.

At the same time, there are several structural and macroeconomic impediments facing CAPDR. Infrastructure and education gaps, large informal sectors, high crime and poor rule of law are a drag on growth and foreign investments. Limited fiscal space and low financial intermediation can also undermine efforts to make growth more inclusive.

Structure of the conference

So the main themes of the conference this year tackle these unique challenges and how countries in the region can achieve higher and more inclusive growth.

Clearly, the global economic backdrop is important for this region. The first session will discuss the outlook and challenges facing the global economy and the region.

In Central America and the Dominican Republic, growth remains strong this year, driven by robust U.S. growth – but also higher remittances because of uncertainty about future migration policies in the U.S.

At the same time, political uncertainty in Nicaragua and temporary disruptions in the construction sector in Panama are weighing on domestic demand – leading to a small downward revision to regional growth to 4 percent in 2018.

In the second session, we will tackle the anchor theme for this year’s conference – Removing Obstacles and Creating Opportunities for Sustainable Growth.

Regionwide, policies are needed to remove constraints to investment and employment growth. Improvements in the business environment and strong institutions can help raise productivity and limit incentives for outward migration.

For the Northern Triangle countries, effective policies to improve the security situation will be critical.

At the same time, realizing the economic and social potential of women in CAPDR means improved access to education, higher investment in infrastructure and information technology, as well as targeted measures to support working women with children.

The third session will focus on technology, or Fintech. As you all know, Fintech is already touching consumers and businesses everywhere. From a local merchant seeking a loan, to the family planning for retirement, to the foreign worker sending remittances home.

Emerging technologies – from artificial intelligence to distributed ledgers – are transforming the financial services landscape. These technologies are creating opportunities as well as challenges – for consumers, service providers, and regulators alike.

For the financial sector, these technologies could generate large efficiency gains, including in the areas of payments, financing, investments and insurance. Yet they could also pose risks to the stability and integrity of the financial system, especially where they operate outside of the purview of the financial regulation and supervision.

The experience of Argentina, Brazil, Chile, Colombia, and Mexico – the top five Fintech markets in Latin America – will inform the policy priorities for the region as a whole.

To close the cycle of presentations, the fourth session looks at recent experiences in addressing climate change. Managing the impact of climate change is a defining global challenge of this century, inseparable from another one – reducing poverty.

The IMF has placed these issues at the forefront of its work. Climate change is set to have a significant impact on many countries, including the CAPDR region, where preparedness to deal with the consequences are being developed.

Macroeconomic policies will need to be calibrated to accommodate more frequent weather-related shocks. This means building policy space to be able to respond to shocks, and to upgrade infrastructure to enhance economic resilience.

Conclusion

Before we start with the presentations, allow me to reiterate our gratitude for your commitment to this regional conference. I am confident that the interventions by our distinguished speakers and panelists will make for a rich discussion, and provide practical insights on how the region can achieve higher and more inclusive growth.

Thank you.