IMF Recommends Panama Should Continue Attracting Foreign Investment

IMF Recommends Panama Should Continue Attracting Foreign Investment

Wednesday, May 04 2011 @ 05:24 PM EDT
Contributed by: Don Winner
Views: 45
Central America needs to improve its business climate and encourage private investment to grow production, while the Caribbean has to consolidate its fiscal position and boost growth, said today the deputy director for Latin America Regional Studies of the IMF, Luis Cubeddu. The challenge of Panama, however, is knowing how to handle the good times now being enjoyed and to continue, in general, attracting private investment, domestic and foreign, Cubeddu said during a presentation in Panama City on the IMF’s report on the economic outlook for Central America, the Caribbean and Panama. The official said Panama’s situation differs from that of the regional because its economic performance is drawn from world trade, while in the rest of Central America and the Caribbean economic growth depend on remittances and tourism, respectively, activities which are more closely connected to the economic situation in the United States and other economies that were more harshly affected by the affected by the international financial crisis that erupted in 2008. However, he explained that Central America showed signs of recovery in 2010 through increased exports and remittances, but the latter are still below levels before the crisis, due to the weak U.S. labor market , mostly in construction. That is why Central America, in general, must do much more on supply policies, improve the business climate, foster private investment and thus “making the potential output of each country and the production capacity grow” said the analyst of the International Monetary Fund (IMF).
He added that Central America is will have a potential growth in 2011 of between 3% and 4%, far below the potential of Panama and other South American economies. Panama grew by 7.5% percent of GDP in 2010, an increase that is projected to remain this and next year with growth rates close to 8 percent.

According to Cubeddu, the Caribbean situation is much worse and so the challenges are even greater. “Unlike Central America, the debt to GDP ratios for the Caribbean are very high, on average about one hundred per cent, so they have the challenge of consolidating their fiscal positions, reducing outstanding debt over time and thus drive the growth process,” he added. According to the report, weak external demand and high levels of debt in the Caribbean “have stifled economic activity in the last two years in much of the region, which also has been affected by natural disasters.” Because of this, and although tourism has been recovering gradually, it is projected that the economy of the Caribbean, excluding Haiti and the Dominican Republic will grow by an average of 2 percent this year. “The focus in the Caribbean has to be to consolidate their fiscal position, ensuring also to maintain their competitiveness, and in that sense, be wary of policies related to wages,” said Cubeddu.

For her part, the head of the IMF mission in Panama, Corinne Delechat, said the country should maintain a prudent fiscal policy in order to reduce public debt and have a “cushion” for public policy in the event of a external shock. “We also must continue to work on improving the competitiveness and quality of the regulatory framework, to continue to attract private investment, foreign and domestic, and improving the quality of public services,” she added. Panamanian authorities said they must continue working to strengthen the financial system and improving banking supervision, which do not regulate the large cooperatives that operate as banks.

Post a Response

Post a Response