Press Release No. 08/336

Press Release: IMF Announces Staff-Level Agreement with El Salvador on Financial Support of About US$800 Million

December 22, 2008

Mr. Alfred Schipke, International Monetary Fund (IMF) mission chief for El Salvador, made the following statement today:

"Over the past two weeks, an IMF staff mission visited El Salvador for discussions on possible Fund financial support for the government's economic program for 2009. Agreement has been reached, in principle, on a program that could be supported by an amount in the equivalent of SDR 513.9 million (about US$800 million), 15-month Stand-By Arrangement (SBA). The Salvadorian authorities intend to treat the arrangement as precautionary and do not intend to draw on it.

"The agreement reached with the authorities is subject to approval by the IMF management and Executive Board, which could consider the request for a Stand-By Arrangement in mid-January.

"El Salvador's economy has performed well in recent years: sound macroeconomic and structural reforms have delivered high economic growth, a declining public debt-to-GDP ratio, and low and stable inflation. While El Salvador's economic fundamentals are solid, the global financial turmoil has tightened financing conditions. This difficult external environment may constrain the authorities' capacity to respond to transitory confidence shocks, including election-related uncertainty.

"The authorities have designed a strong program to preserve macroeconomic and financial stability. The program is anchored on maintaining a prudent fiscal stance during 2009, and adopting financial sector measures to enhance the system's preparedness and resilience to shocks.

"The mission has met with the main presidential candidates and is comforted by their endorsement of the main elements of the program, and their commitment to maintaining macroeconomic stability."

"The mission noted that the financial system remains well capitalized and liquid. The authorities have been proactive in buttressing the system's strength, including through augmenting liquidity requirements and stepping up supervision. These measures increase the authorities' capability to respond to financial stress, should it materialize. In addition, the authorities have secured a US$400 million loan from the Inter-American Development Bank to sustain private sector credit.