Aleksandra Babii, Ms. Alina Carare, Dmitry Vasilyev, and Mr. Yorbol Yakhshilikov
Traditional models relying on standard variables like the U.S. Hispanic unemployment rate fared well in explaining remittances to CAPDR and Mexico during the pre-pandemic period. However, they fail to predict the sustained growth in remittances since June 2020, including the significant increase in the average amount remitted. Using data from over 300 remittances corridors (from 23 U.S. states to 14 Salvadoran departments), we find that this increase is primarily explained by the dynamics of U.S. states real wages, as well as more temporary factors like U.S. unemployment relief (including the extraordinary pandemic support), U.S. states mobility, and COVID-19 infections at home. The paper also analyses what role the change in the modes of transmission of remittances, additional U.S. fiscal stimulus and U.S. labor market developments, especially in the sectors were CAPDR and Mexican migrants preponderantly work, play in explaining aggregate remittances growth.
This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.
International Monetary Fund. Western Hemisphere Dept.
This paper focuses on policies to raise growth; underpin fiscal sustainability while enhancing social safety nets; and strengthen financial sector stability, deepening, and inclusiveness. GDP growth averaged 2 percent during 2000–14, well below the Central American regional average of 4½ percent. While the underlying causes of the low growth are complex, a key channel through which they are evident appears to be low investment. Given the need to increase growth, revenue-raising measures should be accompanied by cuts in distortionary taxation. Stress tests suggest that financial buffers are adequate to contain most risks. The financial deepening and advancing financial inclusion could have a meaningful impact on both growth and poverty.
International Monetary Fund. Western Hemisphere Dept.
This paper discusses Honduras’ First Reviews Under the Stand-by Arrangement (SBA) and Standby Credit Facility (SCF). Program implementation for the first reviews has been strong. All 2014 performance criteria and indicative targets were met, most with significant margins. The authorities have also created fiscal space within the program to increase social spending and support efforts to reduce poverty. On the structural side, December 2014 and March 2015 benchmarks were also generally observed. The revised program proposed for 2015 envisages further strengthening fiscal and net international reserves targets. The IMF staff supports the completion of the first reviews under the SBA and the SCF Arrangements.
Honduras’s request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries is discussed. The social consultation has allowed the government to implement a vital reform of public sector wage policy. A reduction in the pressure of the civil service wage bill is the key for restoring the sustainability of the public finances. An ambitious financial sector reform is designed to address bank fragilities; and far-reaching transparency and anti-corruption measures aim to improve governance.
This paper examines Honduras’s 2005 Article IV Consultation and Second Review Under the Poverty Reduction and Growth Facility. In the period 1960–2000, output growth in Honduras ranked among the lowest in the region. During the 1990s, when growth recovered in the rest of Central America, in Honduras it only kept pace with population growth. The authorities embarked on an economic reform program that focuses on ensuring macroeconomic stability and strengthening growth prospects through the development of human capital and basic infrastructure.
We examine one of the most important and intriguing puzzles in economics: why it is so hard to find a robust effect of aid on the long-term growth of poor countries, even those with good policies. We look for a possible offset to the beneficial effects of aid, using a methodology that exploits both cross-country and within-country variation. We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in a decline in the share of labor intensive and tradable industries in the manufacturing sector. We find evidence suggesting that these effects stem from the real exchange rate overvaluation caused by aid inflows. By contrast, private-to-private flows like remittances do not seem to create these adverse effects. We offer an explanation why and conclude with a discussion of the policy implications of these findings.
International Monetary Fund. Independent Evaluation Office
Technical assistance is one of the key services provided by the IMF to member countries—particularly lower income countries. It covers a wide set of activities, from technical assistance to support IMF policy advice to longer-term assistance to support countries’ institutional development. This evaluation report examines the relevance and effectiveness of IMF technical assistance, and derives recommendations for both IMF management and the Executive Board.
This paper explores wage-price link in a prolonged inflation. A fixed tie between wages and prices must have significant effects in any economy. A wage-price link of the type discussed in this paper assumes that wages will be adjusted for any rise in consumer prices, subject to certain safeguards. This will protect wage earners against any significant fall in real wages arising from investment inflation. For a free economy, in which economic adjustments are induced by changes in prices and wages, the imposition of the degree of rigidity implied by this association is of far-reaching importance. in several countries, the use of wage-price links is a consequence of the fear of labor that real wages will be adversely affected by inflation. Although the basic causes of inflation vary widely in different countries and at different times, the process of inflation always shows similar characteristics. In an economy which is functioning properly, the distribution and use of the gross national product should result in an aggregate demand for goods and services that tend to equal the available supply of goods and services at approximately stable prices.