“An IMF mission held policy discussions with the Honduran authorities during August 2-10, 2010, and made significant progress in reaching understandings on a macroeconomic framework and associated policies that could be supported by a financial arrangement with the IMF. The main goals of the Government’s program are to restore macroeconomic stability, reestablish investor confidence, and improve the external position. The program is anchored on the authorities’ effort to maintain control over the public finances and the fiscal deficit, and also contains a set of monetary, external, and financial sector policies.

“On the public finances, the program aims at gradually reducing the large fiscal deficit recorded in 2009 and improving the composition of public spending towards high priority investment and poverty-reducing projects. With this objective in mind, the authorities are taking important actions to improve tax administration and collection; control current spending, in particular the wage bill; improve the targeting of subsidies to the poor; and achieve the financial viability of key public enterprises and pension funds. As for monetary and exchange rate policy, the program focuses on keeping inflation low, increasing international reserves, and safeguarding competitiveness; these elements will facilitate the restoration of macroeconomic stability consistent with the anticipated economic growth. The program also seeks to enhance banking supervision and strengthen financial buffers to deal with credit risks.

“As it was previously agreed with the authorities, the mission will return to Tegucigalpa in early September to conclude discussions related to the program. After this visit, the Executive Board could be in position to consider, in early October, the authorities’ request for an IMF arrangement in support of the Government’s economic program.”