Transcript: Press Conference on Latin America -- Opening Remarks by Anoop Singh, Director, Western Hemisphere Department, IMF
September 20, 2003Press Conference on Latin America
Opening Remarks by Anoop Singh
Director, Western Hemisphere Department
Saturday, September 20, 2003
Dubai, United Arab Emirates
1. I am pleased to welcome all of you here today. These press conferences are becoming important opportunities to meet representatives of the media especially concerned with developments in the Western Hemisphere countries, and to provide an overview of the main macroeconomic challenges facing the region. I am joined by my colleagues John Dodsworth, Charles Collyns, Markus Rodlauer and Ranjit Teja.
2. I am pleased to be able to strike a cautiously optimistic note on the regional economic outlook. There are now clearer signs of an economic recovery in Latin America and the Caribbean region. This recovery should gather pace next year provided the political consensus for carrying forward key economic reforms remains strong. The more positive outlook, and the associated strengthening of market sentiment towards the region, have been driven by both an improving external environment and stronger policy implementation:
· While some uncertainties still remain, recent data provide clear signs that the U.S. recovery is strengthening, supported to a significant extent by monetary and fiscal stimulus. Together with improved economic conditions in other industrial countries, we anticipate that the global recovery will broaden over the coming year.
· Equally important, the countries in Latin America and the Caribbean are taking significant steps to strengthening their economic policies. Fiscal positions are being consolidated, although more remains to be done in this area. Together with the increased credibility of monetary policy, in the context of generally floating exchange rate regimes, room is being created for bringing down interest rates. Efforts are also continuing to reinvigorate structural reforms, so important for longer term prospects.
3. Overall, we expect growth in Latin America and the Caribbean to accelerate from around 1 percent in 2003 to 3½ percent in 2004. Of course, the outlook remains heavily differentiated across the region, and economic and political uncertainties weigh more heavily in some countries than in others. Inflation generally remains under control, and we have seen a further strengthening of external positions in many countries in recent months.
4. Highlighting some individual cases:
· In Brazil, the government's commitment to continue fiscal consolidation over the medium term and pursue key pension and tax reforms has reestablished market confidence in economic prospects. The associated strengthening of the exchange rate and reduction in inflation have set the stage for lower interest rates, which are now approaching pre-crisis levels. I welcome the further cut in interest rates this week, which will add to the more supportive environment for stronger growth next year.
· In Argentina, a recovery is well underway. Just this morning our Executive Board approved a new three-year Stand-By Arrangement in support of a medium-term program that will help ensure that this growth can be sustained. Key elements include a framework for further fiscal consolidation, a strategy to strengthen the banking system, and institutional reforms to facilitate corporate restructuring and improve the investment climate. Needless to say, much will depend on firm implementation, including a successful debt operation.
· In Uruguay too, the recovery is gathering pace following the successful debt exchange earlier this year. It is now important to maintain a sound fiscal framework and accelerate structural reforms to improve competitiveness and nurture new areas of growth. In Paraguay, we have had good discussions with the new Government and we are looking forward to their early development of a strong policy package.
· Growth is also reviving in the Andean region. Colombia and Peru are both successfully pursuing ambitious fiscal reforms to assure debt sustainability and keep growth high. In Bolivia and Ecuador, both highly dollarized economies, their governments are working hard to build the needed political consensus to move bold fiscal and structural reforms forward, although the social context remains difficult; in both these countries, efficient exploitation of the rich hydrocarbon resource base is a key challenge to ensure good medium-term prospects.
· Market sentiment toward the region has been well anchored by developments in Mexico and Chile-countries with sound macroeconomic frameworks and open trade regimes-that have been largely immune to the financial difficulties affecting other Latin American countries over the past two years. Sustained market confidence in their policy frameworks has allowed interest rates and exchange rates to adjust flexibly and support economic recovery. Chile is already growing relatively rapidly and Mexico's economy should pick up steam in the months ahead.
· In Central America, governments are seeking the necessary political consensus for sustaining a growth enhancing agenda, that gives priority to fiscal strengthening, prudent monetary management, and building sound financial sectors. There is also a need to push ahead with social reform programs to ensure that poverty and inequity are reduced over time. Nicaragua and Guatemala are carrying forward their Fund-supported reform programs, and we have been in close contact with the other countries in Central America as well.
· The Caribbean region has been adversely affected by external shocks in recent years. The Fund has been stepping up its engagement in these countries to assist them in addressing these and other difficulties. The new program for the Dominican Republic contains strong measures which have already helped to manage a banking crisis and rebuild market sentiment. Dominica and Jamaica are both taking strong fiscal steps to tackle the problems posed by their public debt.
5. Let me end by making a few remarks on the importance we attach to instilling a medium-term perspective for improved growth and equity in the region. The emerging stability in the region provides an opportunity to accelerate crisis-proofing and set the foundations for sustained growth. Reducing countries' vulnerability to renewed crises requires, first and foremost, sound fiscal policy to ensure sustainable debt dynamics. However, although macroeconomic stability is essential, it needs to be complemented by structural reforms to raise growth potential, especially to strengthen the corporate and financial sectors, deepen trade liberalization, and improve institutions and governance. I would also emphasize the importance of reforms to help ensure that the poor and less advantaged truly benefit from growth. And, finally, it will be important for industrial countries to provide improved access to their markets, particularly in the many agricultural and industrial products where Latin America and the Caribbean have strong comparative advantage.