Via IMF (Den Internationale Valutafond)

Conclusions of the XVI Regional Conference on Central America, Panama, and the Dominican Republic

November 15, 2019

Central bank governors, finance ministers, and bank superintendents of
Central America, Panama, and the Dominican Republic, and IMF officials
met in Punta Cana on November 14-15 to review the regional economic
outlook and discuss policy measures needed to tackle key structural
issues facing the region. The Constitutional President of the Dominican
Republic, Danilo Medina; the Governor of the Central Bank of the
Dominican Republic and host of the conference, Héctor Valdez; and the
Deputy Managing Director of the IMF, Mitsuhiro Furusawa, inaugurated
the conference.

At the conclusion of the conference, the following statement was released
by the Director of the Western Hemisphere Department of the IMF, Alejandro
Werner; the President of the Central American Monetary Council, Carlos
Paredes; and Governor Héctor Valdez.

“Participants concurred that the global economy is now in a synchronized
slowdown and acknowledged the downward revisions to global growth for 2019
to 3 percent, its slowest pace since the global financial crisis.
Uncertainties—driven by trade, but also by Brexit and other geopolitical
tensions—are holding back growth. Participants expressed concern that trade
tensions could have a significant impact on the level of global growth. A
modest improvement is projected in global growth to 3.4 percent in 2020.
However, this recovery is not broad-based and remains precarious, as growth
is also being weighed down by country-specific factors in several emerging
market economies, and by structural forces, such as low productivity growth
and aging in advanced economies.

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“Mirroring global conditions, the outlook for Central America, Panama, and
the Dominican Republic (CAPDR) is marked by increased uncertainty. Regional
growth was revised downwards to 3.3 percent in 2019 (from 3.8 percent
earlier this year), as growth momentum decelerated in the first half of
2019, reflecting the synchronized global slowdown and several idiosyncratic
factors. Participants agreed that the key downside external risks to the
outlook for CAPDR are a tightening of global financial conditions and a
further escalation in global trade tensions. Moreover, since the region is
highly integrated with the United States given trade and financial flows,
CAPDR remains vulnerable to U.S. economic and political developments. In
terms of policy responses, participants agreed on the importance of
institutional strength and clear communication to legitimize envisaged

“Turning to the thematic sessions, participants tackled the impact of
dollarization and policy implications. Several countries in the region have
adopted or are transitioning towards inflation targeting, yet financial
dollarization remains relatively high. Participants explored lessons from
successful de-dollarization and monetary policy framework transitions,
especially against the current backdrop of a synchronized global slowdown
and policy uncertainty. Participants also debated the need for buffers to
maintain financial and fiscal stability in fully dollarized economies.
Participants concluded that a coherent policy mix could support economies
in reducing partial financial dollarization and increase the effectiveness
of monetary policy.

“In the second thematic session, participants looked at the efficiency of
tax incentives from a multi-country perspective, especially in terms of
promoting investment. Poorly targeted and inefficient tax incentives can
lead to rent-seeking behavior, corruption, tax avoidance, distorting tax
rates and a complex tax system that is difficult to administer. There was
consensus among participants, however, that tax incentives have a role to
play in attracting FDI that promotes innovation and technology transfer,
R&D, high-quality employment, and the use of clean energy. For this to
materialize, best practice in operating a system of tax incentives involves
accountability and transparency, an emphasis on rules over discretion, and
effective monitoring and evaluation. Participants agreed that despite
demands for business tax incentives, more important drivers of investment
decisions include: the availability and quality of workers; the legal and
regulatory environment; infrastructure; and security and public safety.

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“Finally, participants analyzed the role Fintech can play in facilitating
cross-border transfers, especially remittances. Remittances are an
important source of foreign currency income in the CAPDR region, exceeding
tourism receipts and foreign direct investment in several countries.
Alliances between traditional and Fintech players are helping develop
cutting-edge initiatives to reduce the cost of remittances and improve
their transparency, reliability and accessibility. In this regard, fintech
solutions can promote financial inclusion. Participants highlighted the
importance of a regulatory framework that favors the entry of new actors;
the role of Fintech and regulation in facilitating “know your customer”
requirements; enhancing interoperability; and appropriate risk management.

“Participants thanked the IMF for the support provided in the organization
of the event and stressed the importance of maintaining a frank and fluid
policy dialogue between the region and the IMF. Participants expressed
their deep appreciation to the Dominican authorities for their hospitality
and superb organization of the conference.”

IMF Communications Department

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