IMF Healing: Q&A With Central Bank Of Honduras President Wilfredo Rafael Cerrato

Wilfredo Rafael Cerrato, president of the Central Bank of Honduras, talks about his country’s progress toward achieving economic stability—and its plans for maintaining it.

Global Finance: Honduras made major progress reforming its economy, in line with an IMF-backed plan that ended in December 2017, yet it is asking for $311 million more. Why?

Wilfredo Rafael Cerrato: Indeed, the country has achieved positive results in economic matters, to the extent of achieving macroeconomic stability as recognized by international organizations such as the IMF. In 2017, growth was 4.8%, superior to that of the Central American region with the exception of Panama. Furthermore, inflation remained within the tolerance range—4%, plus or minus one percentage point—set by the Central Bank of Honduras [BCH]. Also, fiscal discipline was achieved and our current account deficit improved, despite a deterioration of the terms of trade given the weakening of the international price of coffee—the main export product of Honduras—and the rise in fuel prices. The financial system remains stable and well capitalized.

Under these conditions, Honduran authorities signed a new agreement with the IMF for 24 months, which will promote confidence among domestic and foreign economic agents. Moody’s confirmed this past June its B1 rating for Honduras with a stable outlook, and Standard & Poor’s granted the rating of BB- with a stable outlook. This implies that the country can obtain external financing at more favorable interest rates, reducing sovereign risk and resulting in lower financial costs for Honduran society.

GF: How will that play into Honduras’ economic growth?

Cerrato: The country’s growth expectations for 2019 and 2020 were revised to a range of 3.0% to 3.4%, given an adverse international context of slower global growth and uncertainty generated by the trade war between the US and China. The monetary policy implemented by the BCH aims to control inflation and maintain adequate levels of international reserves to meet foreign trade needs and compliance with financial obligations.

GF: What is Honduras doing to attract foreign investment?

Cerrato: The achievement of macroeconomic stability fosters an environment of greater certainty for investors. The ECLAC [Economic Commission for Latin America and the Caribbean] notes that Honduras has five positive points: sustained growth, fiscal adjustments without affecting public investment, sustainability of the debt of the public sector, improvement of the risk index of Honduran sovereign bonds, and investor confidence in coming to Honduras. Furthermore, some state institutions have implemented policies aimed at facilitating access to credit at significantly preferential conditions—such as lower interest rates and maturities—for micro, small and medium-size enterprises.

Public works, meanwhile, have improved road infrastructure, reducing commuting times between cities and promoting a greater flow of people to tourist destinations. There’s also infrastructure improvement to Palmerola International Airport, which will increase the competitiveness of Honduras by having first-class airport infrastructure, and to port facilities, which reduces the lag time for the clearance of goods in customs. In addition, efforts have been made to strengthen the rule of law and corporate and citizen safety. Moreover, initiatives such as the Honduras 20/20 Plan will help attract capital and create favorable conditions for national and international investment, which would contribute to sustained economic growth and employment.

GF: What is your view of Central American economic outlook?

Cerrato: The region shares similar growth prospects, with Guatemala and Honduras showing more-favorable projections. The central banks of El Salvador and Costa Rica project moderate growth of 2.3% and 2.2%, respectively, marking a deceleration from previous years due to slower growth among our main trading partners, the US and euro zone. Hopefully, newly elected governments in some countries will bring greater social and political stability. We are also waiting to see how regional projects, such as the Customs Union in the Northern Triangle countries [Honduras, El Salvador and Guatemala] will unfold.

GF: What keeps you up at night? What are the main risks?

Cerrato: A number of factors could undermine growth expectations for the region. These include an unexpected drop in prices for main export products; unforeseen increases in fuel prices; effects of climate change; slowing economic activity among our main trading partners; tightening of migration policies in the US and Europe; and the effect of greater uncertainty on social and political dynamics.