Transcript of a Press Briefing on Latin America by Anoop Singh, Director, Western Hemisphere Department, IMF

September 20, 2003

Transcript of a Press Conference on Latin America
By Anoop Singh, Director, Western Hemisphere Department
International Monetary Fund
Saturday, September 20, 2003
Dubai International Convention Center
Dubai, United Arab Emirates

MR. BAKER: Good afternoon. My name is Francisco Baker, and I am the press officer in charge of Latin America at the IMF.

This Latin America press briefing, as most of you know, takes place every time we have an Annual Meeting of the IMF and also during our Spring Meetings, and the purpose of it is to go over the current situation in Latin America from the perspective of the IMF. It is not addressed specifically to review any particular country.

Let me introduce you to Mr. Anoop Singh, who is at the center of the table. He is the Director of the Western Hemisphere Department. To his left, Mr. John Dodsworth, Senior Resident Representative in Argentina. To his right, Mr. Charles Collyns, Deputy Director of the Western Hemisphere Department. To the right of Mr. Collyns is Mr. Markus Rodlauer, Senior Advisor in the Western Hemisphere Department. And finally, here to my right, Mr. Ranjit Teja, Senior Advisor of the Western Hemisphere Department.

Mr. Singh will make some opening remarks, a copy of which will be made available to you at the end of this press conference.

Mr. Singh?

MR. SINGH: Thank you very much.

I am very pleased to welcome you all here this afternoon. These press conferences are becoming for us important opportunities to meet all of you from the media and provide an overview of how we see the macroeconomic situation in the Region.

I am pleased that I can start by striking a cautiously optimistic note on the regional economic outlook which is confirmed, I think, by the small number of you here this afternoon.

Anyway, there are now, I think, clearer signs of an economic recovery in the Region, and we do believe that this recovery should gather pace next year provided the political consensus for carrying forward key economic reforms remains strong in the Region.

This more positive outlook, and the associated strengthening as we see it of market sentiment toward the Region, has been driven not only by an improving external environment but also very much by a stronger policy implementation on the part of the countries in Latin America.

Now, on the external environment, I will be very brief. You have heard Ken Rogoff and others speak of the clearer signs that are now available that the U.S. recovery is strengthening, and together with improved conditions in other industrialized countries, we do anticipate—and this is crucial for the Region—that the global recovery will broaden over the coming year.

But I would like to focus here on what we sense equally importantly, that the countries in Latin America and the Caribbean are taking significant steps to strengthen their own economic policies. In many countries, fiscal positions are being consolidated and, together with the increased credibility of monetary policy, what we are seeing is increasing room to bring down interest rates.

We also see that efforts are being made and sustained to reinvigorate structural reforms.

Overall, our sense is that growth in Latin America and the Caribbean on average will rise from where it is this year, just around one percent, to well over 3 percent next year.

Now, I should hasten to add as always that this outlook is heavily differentiated between countries, and it is important that we focus on the differentiated picture and not just on the regional average.

Against this background, let me go on to discuss certain individual cases.

Let me start with Brazil, where the Government's commitment to continue fiscal consolidation over the medium term and to pursue key pension and tax reforms has reestablished market confidence in the country's economic prospects. What we have seen is a strengthening of the exchange rate and a reduction in inflation that has importantly set the stage for lower interest rates.

I should also point to these interest rates in Brazil now approaching where they were before the market turbulence of last year; so they are almost back to those pre-crisis levels. We certainly welcome the further cut in interest rates that took place this past week. This will add to what is now becoming in Brazil a much more supportive environment for stronger growth next year.

In Argentina as you know it, a recovery is clearly well under way. We had yesterday reports of the numbers for GDP for the second quarter, and those numbers remain strong.

Let me say that just this morning, as you probably are aware, our Executive Board has approved a new 3-year stand-by arrangement of the Fund in support of a medium-term program that will help ensure that this growth that I have just spoken of this year is sustained over the medium term and that poverty levels are rapidly reduced.

The key elements of this new program include a framework for further fiscal consolidation; they include a strategy to strengthen the banking system, and they include institutional reforms that should help begin and accelerate corporate debt restructuring and also improve the investment climate.

In this way, the key elements of the program do address what have been widely recognized to be the major issues and areas for restoring growth in Argentina.

Now, needless to say, this is a program of the authorities, and therefore, much will depend upon its firm implementation, and that includes, obviously, a successful debt operation.

Let me go on to other countries in the Region. In Uruguay, too, we see a recovery that is gathering pace following their own successful debt restructuring earlier this year. It is now important to maintain and sustain a sound fiscal framework there and to accelerate those kinds of structural reforms that will improve competitiveness and allow Uruguay to nurture and develop new sources of growth looking ahead.

Very briefly, I should say that with Paraguay, we have had good discussions already with the new Government, and we are looking forward to an early development of a strong policy package from the new Government.

In the Andean Region, too, we see that growth is reviving. Colombia and Peru are both successfully pursuing in our view ambitious fiscal reforms that are aimed inter alia at assuring debt sustainability, crucial for these countries, and also for keeping growth high.

Bolivia and Ecuador—these are highly dollarized economies, and we see that their governments are working hard to build the needed political consensus to move what they have developed, to move forward bold fiscal and structural reforms, although the social context there remains obviously quite difficult.

In both of these countries, Bolivia and Ecuador, the efficient exploitation of their rich hydrocarbon resource base is a key challenge and essential for ensuring strong medium-term prospects.

Market sentiment toward the Region has been well-anchored by development in other countries—Chile and Mexico. These are countries that have had for some time sound macro frameworks and, importantly, open trade regimes that have made them largely immune to the kinds of financial difficulties that have affected other countries in Latin America. What we have seen, therefore, in these two countries, is sustained market confidence in these policy frameworks that has allowed interest rates and exchange rates to adjust flexibly and support economic recovery.

Chile is already growing rapidly, and we expect Mexico's economy to pick up its growth rate in the coming months.

In Central America, governments are also seeking the necessary political consensus for sustaining a growth-enhancing agenda, and they are giving priority to fiscal strengthening, prudent monetary management, and building sound financial sectors.

In all the countries in Central America, there is a very strong need to push ahead with social reform programs that will ensure that poverty and inequity are reduced over time.

The Caribbean Region, I should say briefly, has been adversely affected in recent years by a succession of external shocks, and we have stepped up our engagement with these countries to assist them in addressing these and other difficulties.

You know, for example, that the Fund has approved recently a new program for Dominican Republic. This program aims squarely at helping restore confidence in the banking system following their own banking crisis and rebuilding market sentiment. Our sense is that since the approval of this program, market sentiment is slowly being rebuilt.

Let me end by making a few remarks on the importance we attach to instilling in the Region a clear medium-term perspective for improved growth and improved equity.

In the coming year, as short-term economic activity picks up, as I have said, to well over 3 percent, we think this gives an incredibly important opportunity for these countries to undertake structural reforms. It is much easier to undertake these kinds of structural reforms against a background of rising growth, which is what these countries now face, and therefore, we will be working closely with all these economies to ensure that in the coming year, the focus remains on undertaking structural reforms as well as taking the kinds of social measures that will lead to reduced poverty over the medium term.

Finally, just a word on trade. As we have said very often in these and other forums, it is very important for Latin America to achieve an appropriate balance, a much better balance, between openness in the trade account and openness in the capital account. Therefore, whatever can be done to further trade liberalization, including fundamentally improving market access for their products in the industrialized countries, needs to be done. This is crucial for sustaining growth over the medium and long term.

So those are a few of the remarks. I was informed by Francisco Baker that you would not have any questions on Argentina, and therefore we may go on to any other countries that you may wish to have questions on.


MR. BAKER: Let's have the first question.

QUESTIONER: Can you tell us a little bit more about the deal you struck with Argentina? Is it deferring payments on some $2.9 billion worth of debt, and does this give a message that when you default on a $2.9 billion payment, your reward would be to give more assistance?

MR. SINGH: Well, let me just tell you that that is definitely not how we see it. That said, we see this program as continuing where the transitional program left off.

We have had so far this year a transitional program, called "transitional" because it spanned an election period. That transitional program focused on short-term monetary and fiscal measures with the aim of keeping inflation low and beginning to restore macro stability to Argentina.

We think Argentina has done very well under this program in keeping its monetary and fiscal policies within the parameters of the program.

We have always recognized that this transitional program did not and could not include the kind of medium-term reforms that are needed to ensure that growth in Argentina can be sustained, and therefore, I would not look at this program with Argentina from a dollars-and-cents point of view. That is completely missing the focus.

The focus of this program with Argentina is the necessary reforms in key structural areas, including the fiscal, the debt situation, the banking system and so on, that will revive and restore confidence in Argentina and build back a sustained growth momentum.

That is the focus. I don't think we should just look at the financial amounts involved. Those are important, but the focus of the program is different. It is to address the structural reforms that will take Argentina back, if implemented, to solid growth.

QUESTIONER: What are the main benchmarks that you have foreseen in the program that you expect Argentina to fulfill?

MR. SINGH: Well, I think you will be seeing a lot of material on the details of the program very shortly, and you will be able to make your own judgment.

We will soon—I am sure, this afternoon—be issuing a press statement that will point to the details of the program, and I am sure the authorities, as they have done previously, will very soon be publicly issuing their full letter of intent, so you will be able to see all the benchmarks.

What I would say is that this program aims at a succession and a sequence of measures in these three different areas, but a main aim, if you call it a benchmark or an objective, is that within the first 12 to 15 months, that is, during 2004, the fiscal reforms involving the tax system and the fiscal reforms involving the intergovernmental financial situation will be developed and put into place shortly thereafter.

This is a pretty ambitious objective in my view to aim for in the next 12 to 15 months, and this is a key aim of the program.

You will see in the program that the authorities also commit to moving ahead quite rapidly with negotiations to restructure their debt, and they have the objective of trying to conclude an agreement next year. I see 2004, which is the first year of the program, as a crucial year to put in place the kinds of fiscal reforms and the kind of debt restructuring agreement that will together take Argentina back to fiscal sustainability.

Like I said, the implementation is that of the authorities, but the objective is reasonably ambitious, to aim for these steps in the first year of the program. There are other measures, too, on the banking side and on the institutional side, which you will come to see in the coming days, but I would focus at this stage on the importance we attach to the fiscal framework and to the efforts in the program across a fairly broad spectrum to restore fiscal solvency to Argentina.

John, do you want to add on the main points, on the banking side maybe?

MR. DODSWORTH: Maybe on the banking side, because as Anoop said, in the transitional program, we were only able to do technical preparation for many of these reforms which we knew were necessary.

What we hope to move to within this program in the next 18 months is actual implementation of those measures both in the banking sector and, as Anoop said, in the fiscal sector. And in the fiscal sector, I would point particularly to the need for reforms of the intergovernmental relations. This is an essential plank of the program, it is a politically sensitive plan, but it is something which I think the Government has full ownership of.

And if I may add at this point, this is something which I think is very important for the program, that the President has expressed his own personal ownership of the program, he has personally read and gone through the program, and with that kind of ownership, I think we can move forward with implementation.

QUESTIONER: Were there any abstentions among the 24 members, and if so, why?

MR. SINGH: Well, you know, it is not the Fund's policy to indicate how individual chairs voted or how they expressed their views. We just do not get into the views of individual chairs.

QUESTIONER: I am just wondering if you would expand—when you talk about reforms of intergovernmental relationships—exactly what you are seeking to do there, what objectives it has. Also, it seems to me the agreement is not as clear for the following years. Is there any concern that that may hamper efforts to come to an agreement with creditors in the sense that in terms of planning for the future, there may not be all the information that people need to see exactly how much money is there and how much Argentina needs for itself and how much it could spare for creditors.

MR. SINGH: Well, I think the kinds of intergovernmental reforms that are needed in Argentina have been discussed in great detail in different fora over the last few years, especially as people have looked at the lessons of the 1990s. So I think in 2004, an agenda for this will be drawn up, and it will have to—and it should—go into issues of transfers, go into issues related to the capacity of provinces to borrow, whether there should be borrowing limits, it will go into how to have a more efficient tax base, how it will be shared.

So I think the issues of taxation, issues of transfers, issues of spending are all on the table, and they will be sequenced. Not all of it could be done immediately, but they are all on the table, and we hope a consensus will develop next year.

For the creditors, I think what we have in the program is an important commitment. The commitment is to a primary surplus, as you know it, of 3 percent of GDP for next year, which is an appropriate target. And then the commitment is to aim at surpluses that will be sufficient to meet the debt services to the IFIs, to the official debt, to performing debt, and to the obligation that will result from any debt restructuring.

So there is that commitment, but to put a number for a target would be seen as preempting the negotiations that will need to take place, and those will need to be between Argentina and its creditors.

QUESTIONER: I would like to hear what your views are on the progress that has been made on the agreement reached between Colombia and the Fund. The country has moved forward in some significant reforms, but it has also faced some difficulties in being able to adjust its revenues.

Recently, the Constitutional Court banned the implementation of 2 percent VAT on the products of the basic basket, and this has had an impact on the forecast of revenues by the Government.

From your point of view, what would be the alternative measures which could be taken by the Colombian Government in order to further adjust its revenues and its income and expenditure and thus be along the lines of complying with the deficit?

MR. SINGH: Thank you very much. It's a pleasure to talk on another country in South America.

I think in Colombia, the macroeconomic trends this year are certainly very favorable. Growth is picking up. I think we expect it to be at least 2.5 percent in 2003 and accelerating, we hope, to well over 3 percent next year.

This is somewhat faster than most people expected a few months ago, so I think we do have an up side in terms of the growth projection for Colombia.

Inflation is coming down, and we expect that by the end of the year, it will be down to 6 percent, which has been the target of the authorities in their program with the Fund.

So that overall, I would say the performance of Colombia under their program which is supported by the Fund has been very strong. Their observance of the program targets and conditionality has been good and on schedule.

So all of that augers very well. This is particularly commendable given the environment in Colombia, where they have to balance pressures for higher spending that come from a variety of sources including, of course, the need to finance the civil conflict, the need to balance those spending pressures with a clear sense that the public sector imbalance needs to decline over time. And that public sector deficit is declining, and the primary surplus is rising.

Now, as we look at tax reform for next year, I would say that the next step in looking at the fiscal situation in Colombia is to await the results of the referendum which will take place I believe in just another 4 or 5 weeks. And if that is successful, I think it will fundamentally transform the spending side of the budget, and that will provide much more room for maneuver in reaching the fiscal targets. So I think we should wait for that first and then develop the next stage of fiscal reforms.

QUESTIONER: You say that the Brazilian economy has improved a lot, but you also say the Brazilian economy is still vulnerable. Is this vulnerability big enough to justify in your view a new agreement with the IMF, or can the country go without this agreement?

MR. SINGH: Well, you will see in my written remarks what I actually said about Brazil. What I said was that conditions are being created in Brazil for growth to become stronger. There is no doubt that there will be vulnerabilities, but I focused in my opening remarks not so much on their remaining vulnerabilities, but on the room that there is for monetary policy to become supportive, and the room that there is for growth to strengthen next year.

In terms of any new arrangement, which has been talked about a lot in the media, the point is that we are committed from the Fund side and from the staff side to doing whatever we can to assist the authorities in Brazil. We think they are doing a great job in managing the fiscal situation, in managing expectations, and in creating the conditions for higher growth. So we are prepared to help them in any way that we can and that is feasible.

In terms of whether there will or will not be a new arrangement, that is fundamentally a decision of the authorities, and that, I believe, is being discussed by them, but what I want to say is that we are prepared to continue to assist Brazil in any way that we possibly can. That is our focus.

QUESTIONER: I'm sorry, but I'd like to go back to Argentina. You talked of a number of things, the ambitious goals for next year in the agreement. Can you give us perhaps a best case scenario? Do you have a timetable of when you might expect some decisions to be made on fiscal policy, on banking, and so on?

Also, on the abstentions, I do not want to ask about individual countries, but I would like to ask about it as a collective group. Was this a larger number of abstentions than has occurred in previous decisions, and where is it in IMF history? Also, can you tell us, please, what was the length of the meeting?

MR. SINGH: All right. Well, that's a three-in-one, but I guess two of them are fairly easy. The length was, John, about—

MR. DODSWORTH: About 2 hours, a little over 2 hours.

MR. SINGH: —about 2 hours, which is a reasonable size length, so about 2 hours.

In terms of abstentions, I really cannot focus on that, if there were any or not. This is not something that we can go into, the views of individual chairs.

As far as the sequencing, I think you asked what is the timing of the fiscal reforms. I think when you see the Letter of Intent, you will see that there is a timing in it. But the key point is that a budget has to be prepared for Congress every year by about September. Therefore, one can reasonably expect that by that stage, these reforms should be developed and proposed.

So that is the timing, over the next 12 months, in time for the budget that will go to Congress for 2005, which will be about 12 months from now.

QUESTIONER: I would like to ask about the ownership that you think is in the program. Given that the Argentine Government has been slow in introducing structural reforms so far and given that the current President regularly criticizes the IMF and its past advice, why are you so convinced, or indeed are you so convinced, that the ownership of this program is going to be any stronger than that of previous ones?

MR. SINGH: Well, I think it is fair to say, as you know, that over the past year, we have discussed these structural reforms with the authorities, with Minister Lavagna, and in particular, with Mr. Nielsen, on a number of occasions. So it is not that we are dealing with a new set of issues. These issues have been discussed in some detail over the last year. And over this period, I think there has been, as I have said previously, tremendous convergence of views in many areas with the economic team.

The next stage is to move beyond a convergence of views into its implementation. To move to implementation requires a political consensus, and that is why in this program, the reforms are sequenced so that time is given to ensure that there is an adequate consensus before implementation. But as I said, there are ambitious reforms already programmed to the first year.

Now, why, you ask, are we sure that this has strong ownership and why are we so sure it will be implemented. Well, as I said previously, the implementation is up to the authorities. This is their program. But what we do know, as John just said, is that the President himself has gone over this document very carefully, and the nature of the reforms and their timing have been explained to him, and these kinds of reforms have been discussed in the media, in Congress, and politically for about a year. So I think where we are today compared to where we were 12 months ago is quite different.

I will say from my side—and this may be a personal view—that I believe there is much greater consensus and much greater recognition of the need for these kinds of reforms, and you see that borne out fundamentally in the commendable way the provinces in Argentina have adhered to their bilateral agreements.

I think it is fair to say that many observers 15 months ago would not have predicted that the provinces would have kept their agreements, and they have.

So I think we are dealing with a greater consensus in Argentina today—at least I would like to believe that—on these structural issues than we had 12 months ago.

MR. DODSWORTH: I would like to add that both Anoop and myself have seen many countries, and I think we are not so naive, but when the President and his advisors make the statement that they will not sign something that they will not do, I have to say that I believe them in this first instance, and I think that we should certainly have that attitude toward this program at this stage.

QUESTIONER: I want to ask about compensation payments to the banks, focus on that in the program. I would like to know the opinion of the IMF if the Banks can manage their balances without the compensation for the asymmetric pesification.

MR. SINGH: On that issue, I think I would say the following, that the program contains a commitment to ensure that the banking system remains sound and well-capitalized. And what the Government has said it will do is that it will monitor closely the impact on balance sheets of banks of a number of events, including the pesification losses, and toward that end, the program contains a procedure for the central bank to receive, analyze and assess the financial condition of all banks following their most recent balance sheet statements.

So the central bank will get these balance sheets of banks, and they will assess them. And, based on that assessment and based on the impact on the balance sheets of not just the pesification but other events, they will by the end of the year develop a strategy to ensure that the banking system remains sound.

QUESTIONER: Recovery [inaudible.]

MR. SINGH: I couldn't hear you. Loan recovery?


MR. SINGH: Well, as growth picks up in Argentina and growth is sustained at 3 to 4 percent of the coming years, we would expect that nonperforming loans would go down. That is the prediction.

QUESTIONER: I understand what you explained to us about our ownership of the program, but as I asked yesterday to Mr. Koehler, given the peculiar relationship between you and Argentina, I want to know for the future what—if there is—is the responsibility of the IMF in this program.

You know that in the past, there is a different interpretation of the relationship, of the collaboration, between the IMF and Argentina. You know this. What I am asking is what kind, what piece, what type of responsibility do you have in this program, assuming it is an Argentina program.

MR. SINGH. I'm not sure how I can answer this question. It is probably a good question to end on.

I think we have been working in Argentina now for the last year or so, so I am not sure I know all the intricacies of the collaboration going back the last 10 years. That is simply a statement of fact I know very well the last one year or so that I have been there, one year or 15 months.

Our responsibility—well, our responsibility we take very seriously. Our responsibility is simply to help Argentina normalize its situation. Our responsibility is to help President Kirchner carry out a commitment that I heard him say a few months ago in Argentina, and what Mr. Kirchner said was that he wants to turn Argentina away from the kind of crisis conditions and measures and emergency measures and just restore a normal, functioning economy.

Our responsibility is to do whatever we can from the international community perspective to help him achieve that, and we take that responsibility very seriously and will do what we can.

I would not go into a lot of speculation about motives of this and that. I would say we take that responsibility very seriously, not only because Argentina is an important member, but because what happens to Argentina, certainly if I judge by the number of questions at this press conference, is very important for the whole Region, and we take that responsibility very seriously.

QUESTIONER: I have two short questions. First, after this agreement, what do you expect in terms of growth and support from the market? Do you think it is going to change? And second, in which particular way will the agreement help the restructuring of the corporate debt that you mentioned before?

MR. SINGH: Well, I do not want to predict how markets will react to this agreement because I think we should not do that.

I think all we have in front of us is that it has been a couple of weeks, 10, 12 days since the program was agreed to and signed by the authorities, and in that period, the macro developments have been favorable, the exchange rate has strengthened, and certainly the positive trends have also continued in the last one week in terms of the financial indicators.

So I think the market response in the last 7 or 8 days or one week has been fairly positive. Now, I am not going to predict what it is going to be like next week, but I would imagine that if this program is implemented in this sequenced way, we have every reason to believe that Argentina will be able to maintain its growth rate. And if Argentina can maintain its growth rate at this level of 4 or 5 percent, that reaction to it will be very positive, you can be sure of that.

Now, the issue of corporate debt restructuring is a larger issue, and I think we need to discuss that in different forums. But we have seen in a number of countries, in other crisis countries in Asia and other places, that you need a supportive regulatory environment for the companies to be induced to undertake corporate debt restructuring. That involves sometimes changes in the tax environment, it involves changes in procedures. It does not involve fiscal intervention. It does not involve government resources. It does not involve the government intervening in a way between debtors and creditors. But it does involve putting in place an environment that is a supportive, enabling environment, and that objective is part of the program, but I repeat—without the provision of fiscal resources.

MR. BAKER: Thank you very much.


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