Guatemala ESF economic stabilization program

The primary implementing agencies will be the Ministry of Finance and the Bank of Guatemala (BOG). Funds will be disbursed in a single tranche to the BOG upon evidence that the GOG has made sufficient progress in implementing the fiscal, monetary, exchange, pricing, and structural reforms contemplated in its 1987 economic program. The GOG will place an equivalent amount of local currency in a special account in the BOG. The local currency will be used to: (1) support the GOG"s 1987 budget, especially for activities in agricultural development and rural infrastructure (within this category, priority will be given to providing counterpart for A.I.D. and other-donor projects); (2) support private sector activities that promote investment and exports, including local costs of the A.I.D. FY87 Private Enterprise Development Project (up to 50% of local currency will be programmed for this category); and (3) supplement a USAID/G trust fund which covers operating and miscellaneous program expenses. Specific conditions under which the money is to be disbursed include, inter alia, continued policy dialogue between the GOG and USAID/G on economic stabilization; adoption of various measures to facilitate the unification of the banking and regulated exchange markets; approval of regulations to encourage import-export trade and private sector economic activity; removal of additional commodities from the price control list; improving tax administration and increasing the electricity tariff; and the formulation of a 1987 budget which allows for a central government deficit of about 2.4% of the GDP. Other covenants include the preservation of the national investment budget in 1987 and commitments to manage interest rate ceilings flexibly. Amendment of 9/23/87 provides an additional FY87 grant of $34.75 million. Conditionality will continue to address the areas noted above, while local currency generations will now be allocated entirely to public sector budget support (including programs to stimulate private sector development), except for the equivalent of $1 million, which will be used for local USAID/G costs.