IMF sees Central America avoiding slump

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MEXICO CITY, Jan 16 (Reuters) - The International Monetary Fund on Friday said it expects Central America to avoid a recession in 2009 despite strong U.S. ties.

Alfred Schipke, IMF representative for Central America and mission chief for El Salvador, told Reuters he saw public spending and inter-regional trade helping Central America compensate for failing remittances from the United States.

About half of the region's trade is with the United States, which is facing a prolonged recession, but the IMF applauded careful financial management in the region.

"Growth will slow but we don't see a recession," Schipke said.

Central America comprises Guatemala, Belize, El Salvador, Honduras, Nicaragua, Costa Rica and Panama.

Schipke declined to give new growth forecasts but said the Washington-based international lender was likely to revise downward its forecast for El Salvador this year, currently at 2.5 percent.

The IMF had announced in December that it had reached an agreement in principle on a $800 million loan program with El Salvador which was finalized on Friday.

The program, which the government does not expect to draw on, requires the country to maintain a fiscal deficit of 2.8 percent of gross domestic product in 2009.

Last year's deficit was 2.9 percent, Schipke said. (Reporting by Robin Emmott; Editing by Diane Craft)