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El Salvador Finds Itself in Critical Fiscal Situation

Article Summary:

El Salvador faces a difficult fiscal situation with low macroeconomic growth, high state debt, deficit increased by excessive public spending and the absence of any agreement with the IMF since late 2011.

Original Article Text From El Salvador via Google Translate :

Critical Fiscal Situation

The economy has stagnated to the point that the Government failed most commitments Stand By agreement with the International Monetary Fund (IMF), while the fiscal situation is unsustainable in the coming year, while failure to reach a political agreement to break the vicious circle, as indicated by economists and think tanks.

The Salvadoran Foundation for Economic and Social Development (Fusades) and the National Foundation for Development (Melt) have been insisting that requires a comprehensive tax reform, leading to increase the uptake of tax revenue, but also to a reduction current spending by the government.

Yesterday the CEO of Melt, Roberto Rubio made it clear: “as well as maras have agreed to stop the killings among its members, is necessary for society, including the government, to agree to make the economic takeoff. ”

It must raise revenues, including new taxes, and by the side of the belt tightening government to reduce current spending, because almost no longer has room for maneuver to the growing fiscal deficit that is building up since 2008, said.

Stagnant economy

Rubio said that after a slight recovery in 2010 when the Gross Domestic Product (GDP) grew 1.5%, the economy began to decline since the second quarter of 2011, achieving a growth of just 1.4%. Now it appears that will not grow more than 1% in the best case scenario.

The most delicate of the slow growth of the economy is the fiscal situation has been complicated because the balance of public finances, because the public debt rose from 52% in 2010 to 53.2% in 2011, while the fiscal deficit could not lowered from 4%, he said.

These macroeconomic imbalances confirmed, according to the economist, the failure of the main commitments under the Stand By Arrangement with the International Monetary Fund (IMF) (see table).

But the macroeconomic situation, already difficult in itself, is complicated by the management of the box with recurrence state that is increasingly the use of Treasury securities (Treasury bills), delays in payments to suppliers and credit notes . “They are worrying signs appearing in the management of the box,” said Rubio.

Meets a dangerous situation in which there is little or no growth and public finances in bad shape, do not stimulate the growth of the economy, he added.

“Bringing together these two things is extremely dangerous because for growth requires strong public finances and to have strong public finances need to have good growth,” he said.

“We are caught between two factors that feed and can not easily get out of them. This low growth is not easily allow us to increase tax revenues and having no sound public finances, difficult for the Government to act as an engine to stimulate growth, “he summarized.

No more taxes

Economists such as Rigoberto Monge, argue that one should not raise or implement new taxes, but think of other measures to increase tax revenue and relieve the tax burden.

One factor that stagnated gray economic growth is the tax issue, so this and next year the chances of improving public finances with a third tax reform “would seem to me that the economy and the bear,” he said.

That suggests to Monge that the measures taken by the Government will be different from those that have to do with the tax field, such as using resources from pension funds.

But he warned that such measures will arouse negative expectations for both retirees and workers who contribute to your retirement fund and the companies that manage it, especially the latter because they are still room for greater profitability.

This situation will affect the economy continues to show these two years the lower growth rates in Central America and the Caribbean, he said.

Economist Luis Membreño, meanwhile believes that he has left the state to improve public finances is to reduce at least $ 300 million in current expenditure.

Link to Original Article:

From El Salvador

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