Saturday, February 21, 2009

El Salvador letter of intent

To mitigate these risks, we have designed a program aimed at preserving macroeconomic stability during 2009 and boosting the economy’s resilience to external shocks. The program aims to: (i) bolster confidence by maintaining sound macroeconomic policies; (ii) upgrade the regulatory and supervisory framework of the banking system; and (iii) increase the liquidity buffers of the financial system.

Within this context, the program will focus on preventive and contingency measures, in particular, in the financial system. The measures will be anchored on strict adherence to El Salvador’s monetary regime of official dollarization and a prudent fiscal policy, while expanding social programs to mitigate the impact of the global growth slowdown. Financial system policies will concentrate on enhancing readiness to detect and respond resolutely to signs of stress in the banking system...

The nonfinancial public sector (NFPS) comprises the central government, the rest of the general government (Instituto Salvadoreño del Seguro Social (ISSS), the municipal governments, public hospitals, the national university, and other decentralized agencies), and the nonfinancial public sector enterprises (Comisión Ejecutiva Hidroeléctrica del Río Lempa (CEL), Comisión Ejecutiva Portuaria Autónoma (CEPA), Administración Nacional de Acueductos y Alcantarillados (ANDA), and Lotería Nacional de Beneficiencia (LNB)).

3. The overall balance of the NFPS is measured on a cash basis from below the line, defined as (a) net domestic financing of the NFPS; plus (b) net external financing of the NFPS; plus (c) proceeds from exceptional revenues such as, but not limited to, proceeds from privatization or licenses and concessions, as defined in the attached Table A1. The components of the NFPS financing will be defined and measured as follows:

(a) The net domestic financing of the NFPS is defined as the sum of: (i) the increase in net claims of the domestic financial system on the NFPS, excluding government bonds initially sold abroad; (ii) the net increase in the amount of public sector bills (Letes) and bonds held outside the domestic financial system and the NFPS, excluding bonds initially sold to nonresidents; and (iii) floating debt of the NFPS due to expenditure operations and tax refund payments.

(b) The net external financing of the NFPS comprises (i) disbursements of external loans; plus (ii) receipts from the issuance of government bonds abroad and Letes held by nonresidents; minus (iii) cash payments of principal (current maturities of both loans, bonds and Letes); minus (iv) cash payments of arrears (principal and interest); minus (vi) debt buybacks or other prepayments of debt (at market value); minus (vii) debt-equity swaps accounted at the market value of these papers; and minus/plus (viii) the net increase/decrease in other foreign assets of the nonfinancial public sector.

(c) proceeds from exceptional revenue such as, but not limited to, proceeds from privatization, the sale of licenses, and the granting of concessions. These would be defined as (i) the cash payments received by the Treasury from the sale of state-owned assets; plus (ii) debt equity swaps, accounted at market values. Also included are up-front payments

-El Salvador: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

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