The Inter-American Development Bank today announced the approval of $210 million in loans for Guatemala to support a financial sector reform program and a job-training project for unemployed young people.
The loans reflect the IDB’s strategy of assisting Guatemala’s efforts to build a safe and sound banking system and to achieve greater social equity and poverty reduction.
A $200 million sector loan will support the modernization of Guatemala’s legal framework for the banking system and the strengthening of its regulatory agencies. These reforms enable the central bank, the Banco de Guatemala,* and its banking supervisory agency, the Superintendencia de Bancos,** to fully exercise their functions in implementing monetary, exchange and credit policies and supervising and regulating financial institutions.
The financial reforms will complement Guatemala’s macroeconomic stabilization program with the International Monetary Fund and its poverty reduction strategy to improve social equity and raise living standards for its poorest people.
The new legal framework strengthens the Banco de Guatemala’s autonomy, restores its capital, clarifies the application of reserve requirements and circumscribes its lender-of-last-resort powers. The Superintendencia de Bancos’ functional independence is increased by changing the period of office of the Superintendent and by specifying the conditions under which superintendents can be removed from office.
The new legislation reinforces prudential norms regarding base capital, loan classification and provisioning and establishes the responsibilities of bank managers and directors. It also recognizes closely linked financial companies, including their off-shore affiliates, as “financial groups” that will be regulated and supervised on a consolidated basis by the Superintendencia de Bancos. Under the new law, financial groups may not include industrial and commercial companies and must observe limits on their lending to related firms.
The sector loan was granted for a 20-year term, with a five-year grace period, at a variable interest rate, currently at 6.19 percent. Resources will be disbursed in two tranches over a 30-month period. A $62 million portion of the $120 million first tranche will have its interest rates reduced by using resources from the IDB’s Intermediate Financing Facility Account.
This project was developed in close coordination with the IMF and the World Bank.
Job Training and Employment
A $10 million IDB loan will help Guatemala provide more job training opportunities for rural and urban unemployed workers and promote a new structure of institutional incentives that will better match job skills with market opportunities.
This program will provide short-term training courses for 25,000 jobless rural residents and 4,000 unemployed urban residents between the ages of 18 and 29. The training will be delivered through authorized private agencies awarded contracts through a competitive process.
The National Public Employment Service will be consolidated through the establishment of an Electronic Job Bank and an Employment Services Network, and improvements will be made in the quality, coverage and timing of job kiosks and fairs.
The national statistics system will be strengthened, and a monitoring system will evaluate the results of the program as the training structure is tested.
The program, to be carried out by the Ministry of Labor and Social Security,*** reflects the strategy shared by Guatemala and the IDB to promote better income and employment opportunities through technical training and skills development; to integrate training, education, and the employment market; and to create modernized job intermediation systems.
The Bank has supported successful labor market modernization programs in Mexico, the Dominican Republic and El Salvador, as well as technical assistance projects to promote labor market modernization and equity in Guatemala.
The total cost of the program is $11,224,000. The IDB loan is for a 25-year term, with a 4 and _ year grace period, at the variable interest rate, now 6.19 percent. Local counterpart funds total $1,224,000.