Transcript

With Nicolás Eyzaguirre, director; Gilbert Terrier, deputy director; Miguel Savastano, senior advisor; David Vegara, assistant director; Steve Phillips, chief of the regional studies unit; and Andreas Adriano, senior external relations officer

April 15, 2011
Washington, D.C.

MR. ADRIANO: Good morning, everybody. Buenos dias, bom dia. Thank you all for coming to this press briefing by the Western Hemisphere Department. With us today, Nicolas Eyzaguirre, Director, Gilbert Terrier, Deputy Director, Miguel Savastano, Senior Advisor, David Vegara, Assistant Director, and, at the end of the table, Steve Phillips, head of the Regional Economic Studies Unit. Nicolas will have a few opening remarks, and then we'll take your questions.

MR. EYZAGUIRRE: Thank you very much, Andreas. Well, good morning and welcome to our press conference. I will open, as usual, with some remarks on global developments and regional trends and then turn to your questions. Starting with the global context, as you have heard, the global economy continues to expand unevenly, with emerging economies running fast and faster than advanced economies, and consequently, facing different challenges and risks.

Outputs remain well below potential in the U.S. and other advanced countries, but in many emerging market economies, in contrast, including Latin America, the recovery has been much faster and the task now is to avoid overheating. The gaps have been predominantly closed. The baseline for the World Economic Outlook (WEO) for 2011-2012 sees a continued recovery of the global economy led again by emerging markets amid high commodity prices and easy global financial conditions. Strong demand for commodities, especially the large share now coming from emerging Asian economies will keep commodity prices unusually high.

At the same time, given the economic slack in advanced economies, we believe that monetary conditions are going to remain easy in advanced economies. In particular for the United States, the near-term outlook for growth is now somewhat more favorable than back in October, although the overall picture of sluggish recovery remains with Gross Domestic Product (GDP) forecast to grow in the coming years about 2.75 percent per year. With unemployment remaining high and with the output gap still wide, we expect, as I was saying, monetary policy to remain accommodative, as fiscal consolidation needs to proceed in the coming two years.

So, in the baseline, we expect both commodity prices to remain high and global financial conditions to remain easy. Those are the two main parameters we have to take into account when assessing the prospects for the region, because as we have repeatedly said, those represent two very strong tailwinds for the Latin American economies.

Turning to potential risks to this baseline scenario, the former risk of a double dip recession in the U.S. has receded, but Europe remains vulnerable, as you know, and new tail risks have emerged in that part of the world. Besides Europe, new uncertainties about oil supply have raised the risk of a jump in oil prices which would slow global growth and potentially turn a push-down factor for the price of other commodities different from oil. So, if that tail risk scenario were to materialize, that is, of a protracted, decisive, oil shock, we can have ugly news for the region in terms of the other commodity prices going down.

And so, on top of the European risk and the oil shock risk, the third predominant risk we see for the Region is that a well-defined medium-term fiscal adjustment plan for the United States which is needed to first stabilize and then lower the debt-to-GDP ratio does not garner enough political support and, as a consequences, market interest rates increase in the U.S. and so tighten global financial conditions. Let me emphasize that the three events that I have just mentioned are low probability events, but since the potentially real and financial implications are so important, it is important to keep those eventualities in mind.

Turning to the baseline scenario, again, the global conditions, as I was saying, the double tailwinds, high commodity prices, low international interest rates mean very different things for economies within, now, Latin America and the Caribbean. Those conditions, the double tailwinds, are especially stimulative for those commodity exporter countries that are more integrated to the global financial markets so they are blessed quote/unquote by heavy capital inflows.

However, economies that are most closely linked to the U.S. and other advanced economies in the real side, meaning more trade linkages, will see conditions that are improving but only gradually. The revenues from things like foreign tourism and remittances especially remain closely tied to the still-weakened labor and housing markets in advanced economies. So, the--in those cases, they don't have double tailwinds--at least one of those tailwinds is not material for them. For much of Latin America, though, and especially in South America, overheating risks turned up. Growth is moderating from 6.5 percent in 2010 to probably close to 5 percent this year and those figures remain above its sustainable trend in many countries.

Furthermore, domestic demand has been growing even faster pushed not only by favorable recent conditions but also by fiscal and monetary policies that have been quite stimulative and are only gradually normalizing. Therefore, given the tailwinds and stimulative domestic policy conditions, early signs of overheating pressures and possible excesses are appearing in several areas.

Which are those areas? Inflation. Inflation is rising in much of the region. Good news is some countries have begun to raise interest rates from low levels, but it is clear that in most countries more rate hikes may be needed down the road to prevent overheating and inflation accelerating. Also, vigilance will be needed to make sure that recent rise in global prices of food and energy does not spill over into core inflation, the so-called "second-round effects."

Fiscal policy is also a substantial part of the inflation picture, because after fast growth of public expenditure in many countries last year and in 2009, it will be important to downshift fiscal policy this year as a number of countries plan to do, and some are already doing. But pulled by strong domestic demand, current account deficits are widening in many countries, even in those benefitting from higher commodity export prices. What I mean is that, notwithstanding that exports are growing handsomely, benefitting from high commodity prices, import growth has been so dynamic that has been outpacing exports and therefore deteriorating the current account positions.

Even if current account deficits have not become excessive, their movement in that direction will need to slow, especially if some downward correction of commodity prices and some upward correction of interest rates--international rates--were to materialize. Second thing to highlight is credit and asset prices. Credit growth is accelerating in many countries, while banking systems seem to remain sound, vigilance is needed. Leverage and external exposure--and this is a worrisome sign--is increasing in some countries. External borrowing by corporates, for instance, is up, and some asset prices are looking increasingly bubbly.

Countries have continued to adopt and strengthen macro prudential policies. This is appropriate, but of course cannot substitute for having suitable monetary and fiscal policies in place. These prudential policies must be designed so that they are consistent with the goal of protecting the resilience of the financial system. That should be their aim rather than being a demand management kind of policy.

So, our bottom line message for many countries is to watch out for and prevent overheating, even though--and this is sort of a contradiction--at the world level, as our Managing Director was highlighting yesterday, downside risks dominate. In much of Latin America, risks are tilted to the upside toward the expansionary side. A recent risk is that domestic demand and GDP growth could be higher than the baseline scenario, especially if policy tightening does not play a strong enough role. And under this scenario, if policy tightening falls behind, inflation and current account deficits also would turn out higher than we project, risking a kind of boom/bust dynamic down the road. In that sense, the upside risk for 2011 could turn out to be downside risks for subsequent years.

Some other countries in our region, although they have been experiencing less rapid growth, will need to proceed carefully in several aspects, as their demand recovers--or hidden risks will become ever more relevant. Those with less established monetary policy frameworks will need to carefully watch that commodity price increases do not trigger large, second-round effects on inflation more broadly.

Many countries, including Central America, need to turn fiscal policy now to the job of rebuilding buffers that were used during the recent global recession. And in the Caribbean especially where public debt is particularly high, fiscal policy will need to continue consolidating to ensure macro stability and set the stage for better growth in the future. For all countries of Latin America and the Caribbean, and this is a very important point, rising world prices of commodities, especially food and energy, are both an important social challenge.

Even countries that are net exporters of food or energy face the challenge of protecting the poor. In some countries, social programs are already in place, including targeted transfers can help meet this urgent need, but in other cases, second-best approaches will have to be considered. For all countries, it is important to target the policy effort to protecting the most vulnerable members of society. This means avoiding universal subsidy approaches that are often very costly and regressive and can turn out to be permanent and require large adjustments to other parts of the budget.

Before closing and taking your questions, let me mention this bit of a spot--or propaganda--two reports that we have just prepared for audiences in our region and you may like to take a look at that. A new paper just issued that is called "Managing Abundance to Avoid a Bust in Latin America," looks at how policies can confront the challenges of managing abundant capital inflows, but particularly in the context of Latin America today, as I was saying, at the same time, are receiving large inflows from booming commodity exports.

I think we have some hard copies of that, but if not, in this press note, you have the link to this publication. Last but not least, our regional economic outlook publication that is the flag publication of our department will be released on May 3. This report has the full analysis of the current situation and outlook for our hemisphere, including Canada and the U.S., as well as Latin America and the Caribbean. It includes also the results of our study of for example market intervention practices and effects. This report will be launched, as I said in May 3, in Mexico City and will be available in an address that is contained in this piece of paper. Thank you very much. So, the floor is open.

MR. ADRIANO: Thank you, Nicolas. The opening remarks will be distributed at the end of the press conference. Please use the interpretation equipment available in your desk. You know that these briefings tend to be very bilingual.

QUESTION: Thank you. Two questions: On the U.S., did the recent approved budget change anything about your prospects for the country and its impact on the rest of Latin America? And in reference to Brazil, do you agree with the projections from our Finance Ministry on inflation that will probably be above 6.5 percent during the 12 months but will close down at 5.7 percent at the end of the year?

MR. EYZAGUIRRE: Okay. Sorry, in the case of the U.S., as you know, the Administration is committed to rein in the public debt. This is a very hot topic in this country, and some cuts were already agreed upon for FY11, and there is a commitment for quite substantial--further fiscal consolidation in Fiscal Year 2012 and 2013; that's the one that begins--the 2012 begins in September this year. Our view is that the economy has got enough dynamism to be able to absorb that kind of fiscal consolidation without jeopardizing growth that we still focus to be around, as I was saying, two and three-quarters of a percent.

There are two risks: One is that the fiscal consolidation phase materializes, and that was included in my opening remarks, amid a private economy that begins to gain strength. If that were to happen, failure to deliver fiscal consolidation in a private economy that is more dynamic entails severe risk of hikes in its interest rates. We don't believe that to be the central scenario. The central scenario is one where the fiscal consolidation is going to take place and therefore no upward pressures on interest rates will be felt. Quite the contrary, monetary policy will have to remain accommodative in order to absorb the fiscal consolidation without jeopardizing growth, but of course we have these upside risks.

Of course, we can have downside risk as well, that is, that if that fiscal consolidation materializes but the private economy is not strong enough that growth could be more subdued than in our baseline calculation. Back to the baseline, what we believe is that the economy is strong enough to absorb it and should not delay the plans of fiscal consolidation for Fiscal Year 2012 that are very, very significant in terms of the size that is involved in the administration plans.

With regard to Brazil, so far we are looking at both headline and core inflation above the ceiling of the band, and the Administration is trying to rein in the dynamics of the economy both on the basis of further fiscal consolidation measures, and the central bank is also raising rates. Whether that suffices or not to curb down inflation at the end of the 12-month period, as you were saying, remains to be seen. It is very difficult to forecast because many, many variables are at work here, among others, the strength of the tailwinds I was referring to, but what we can say is that, clearly, authorities in the region, including in Brazil, have shown more concern lately about the potential risks of overheating and are proceeding in many, many countries to tighten both fiscal and monetary policy, and that is a welcome development.

QUESTION: I have two questions regarding Argentina. First we have the issue of technical cooperation regarding INDEC. I would like to know whether there are any initial conclusions after the field work carried out. What is the report going to be like if Argentina decides not to accept the suggestions? Many economists in the country deemed that this cooperation with the government methodologically speaking may have a legitimate modality that will validate what they believe is a load of false information, false status since 2007. I would like to know what you think in this regard.

And secondly, with regard to the social issues, there was some kind of controversy because the IMF stated that Argentina this year will be growing more but unemployment will continue to grow. And for many, this process, situation of a certain paradox.

MR. EYZAGUIRRE: Sorry, the last part was not apparent for me. What was the contradiction?

QUESTION: The apparent contradiction would be that you have mentioned certain economic growth but at the same time, an increase in unemployment was quoted and for many economists, including the government this represented an inconsistency.

MR. EYZAGUIRRE: You mean in the particular case of Argentina?

QUESTION: That's right, in both cases--in both questions as regarding Argentina.

MR. EYZAGUIRRE: With regard to the technical assistance mission, as you said, it happened. Our team went down to Argentina--not just to Buenos Aires but also to some provinces because, as you know, the Technical Assistance mission is about extending the CPI to have a nationwide coverage.

And at the end, as is customary with the technical assistance missions, we delivered a draft report that is in the hands of the authorities, particularly in the hands of the INDEC authorities. A technical assistance mission has that protocol that's not public unless authorities would like to make it public. It's in their hands and we have not received yet--it's too soon--any communication in terms of whether they intend to follow part of all the recommendations. I understand that some declarations have been in the press, but we have not received any official communication, yet. So, that's where we are there.

In terms of growth and unemployment, the point is that we believe that growth will continue to remain very strong but as in many countries, not being Argentina the only one, we have highlighted that for Brazil, for India, for Indonesia, those countries are already at full capacity. So, if inflation were to accelerate, that could potentially affect employment down the road, but as you say--and that's correct--while the economy remains rolling very fast, that is not going to have an adverse affect on employment. It is just that the consequences of running too fast may be, down the road, trigger some adjustment or eventually promote unemployment, but that's just a hypothetical situation.

QUESTION: In Mexico, the increases of the oil prices are just something good for the public finance, but the government has general subsidies that take part of this just to push downward the consumer price increases. Is it correct policy to go on? And the second is what would happen if, pragmatically, countries like Brazil or even Chile began to establish controls on the income of capital flows and against doing fiscal, monetary in the way we have been doing the last years?

MR. EYZAGUIRRE: Well, as I was saying in my opening remarks, the shock in commodity and oil prices do affect all countries, regardless of whether they are net exporters or importers, because world prices are higher, and therefore, if consumers do face higher prices of energy and food, they will be hurt. Now, as you are suggesting, of course, the big difference is that, when you produce, say, oil or food in excess of your demand, and that's when you are a net exporter, you are richer when those prices go up. So, you have some extra revenue that you may decide to allocate to mitigate the domestic impact of the raising costs of food and oil.

What we are saying, and I emphasize that clearly in my opening remarks, is that you should be very careful about the way you try to mitigate the impact on the population of such price increases, understanding that it is paramount to confront decisively the social consequences of those price hikes.

What we are saying is that we prefer an avenue where the compensation that is not done through generalized subsidies, that are untargeted and benefit also the most affluent segments of the population, that could be regressive from the point of view of income distribution, but also would send inappropriate signals to the economy because the real scarcity of energy and food prices are not going to be felt, so you don't have the proper incentives for consumers to try to substitute these items for some others or for producers to produce more if prices are higher than the level they are maintained at. So, in a nutshell, mitigation of social consequences are not just appropriate but needed. Generalized subsidies are not our policy advice. Your second question was related to—

QUESTION: Capital flows—

MR. EYZAGUIRRE: Capital controls. What we have said in this regard is that capital controls that were not a part of the IMF's policy toolkit in the past, are now accepted. And in this condition, some countries may need to use them. Why is that? Because the magnitude of what I mentioned as the double tailwinds in this juncture is so enormous that sometimes you cannot prevent the economy from derailing from a sustainable path just with traditional policies. That's a very different thing than saying they should not start by confronting those inflows through traditional policies. They must confront the situation with the conventional policies. It is completely impossible to avoid the overheating pressures of capital inflows if you have a stimulative fiscal policy or if you have a stimulative monetary policy, or if you don't set up the correct set of macro prudential regulations that avoid credit boom in your banking sector.

Now, also, it is not possible to avoid overheating pressures of capital inflows if you try to over-manage your exchange rate, because if the market feels that the exchange rate is too weak, that would be what we call a one-side bet that would encourage speculators to get into the country with even more capital. So, you will lose the battle. Then, provided that you have done what you can do in the fiscal domain, in the monetary domain, in the exchange rate domain, in the macro prudential domain, the size of the tailwinds for some countries may be big enough that you will need to compliment all those measures by some transitory capital controls, because these double tailwinds and the size of them will not last forever. This is a transitory phenomenon. We are not recommending capital controls. We understand that in some cases those capital controls could be helpful if it does not suffice with all the other measures.

But to be clear, there are countries like, for instance, Mexico or Chile, within our region that were already for many years deeply integrated into the international financial markets, meaning that the interest rates that prevailed in the economy before QE (Quantitative Easing) 1 and QE2 and the abandonment of the dollar liquidity were already close enough to the interest rates in the advanced economies that the coverage of the financial system in terms of the depth of the financial system--for instance, in Chile credit-over-GDP is almost 100 percent--mean that the effect of loose monetary policy in the U.S. or other advanced countries is much more muted than in other countries, like, for instance, Brazil, where the interest rate differential between the domestic rate and the international rate is enormous.

So, in the case of, for instance, Mexico or Chile, the size of the financial tailwind is manageable with traditional policies; in some other countries, it's not. So, this is a pragmatic view, it's not an ideological view, and at the end of the day, we have to remember that our main public good that we have to preserve is international financial stability. And if countries haven't exhausted all the other measures and still risk a boom/bust kind of cycle with potential financial crises down the road, it is better to use unconventional capital controls than to just let them run towards the abyss that is going to end up in a crisis, not just for that economy, but for many others as spillovers, then, to occur.

MR. ADRIANO: Thank you.

MR. EYZAGUIRRE: Long answer for a difficult question.

QUESTION: [Through interpretation.] According to the WEO, Argentina is among the countries with an overheated economy. What do you think that Argentina should do? Should Argentina, for example, adjust its fiscal policy, which are so flexible and expansive, to increase domestic demand and therefore tackle inflation, or do you think that Argentina may apply another type of policy, sort of micro prudential or pragmatic policy? Second point, in relation to inflation, how do you assess the inflation situation within the context of overheating of Argentinean economy?

MR. EYZAGUIRRE: I'll take the first of the question, the second part I will hand it to Gilbert Terrier. He is in charge of Argentina, among other countries. So, I'm taking the part of the overheating, you may take the part of inflation. What the WEO does is a comparison of the relatively cyclical decision of the G20 countries, it is not for the whole world, is for the G20 countries. And the ones in red are the ones with more advanced cyclical positions. The ones-- I don't remember the color, now, blue or whatever -- are the ones that have big output gaps, big unemployment, potential now, not so clear, but in the past, potential even deflationary problems. So, it's a relative ranking.

As you can see in that chart, that was built on the basis of a homogeneous methodology, applying the same kind of indicators to all the countries in the G20, the ones more advanced in the cyclical position that is not something that is a critique, it is just a stocktaking of where they are relative to the other partners in the G20. The countries in that situation were, as I was repeating a moment ago, Argentina, Brazil, Indonesia, and India. If you glance at the WEO and look at the growth prospects for this group of countries, you will see that the growth prospects for this group of countries are very good going forward five years down the road. So, this is not something that is sort of a warning thing, though, it is just a recommendation that pace of growth should be ameliorated somewhat to make growth sustainable. That is what that chart means. Okay. Let's turn to inflation, now.

MR. TERRIER: Well, thank you. Obviously, we all know that the question of inflation in Argentina is a difficult question, and as you know, the Fund has been providing technical assistance, and you also know that there are large discrepancies between the official estimates and the estimates that are prepared by private analysts. If we go beyond this discussion, I think there a few observable facts. One is that clearly the monetary aggregates that are used by the central bank have gone up, and they are now in the range of 20 to 30 percent or in some cases a little bit higher.

The other aspect is that, depending on which measure of inflation, the level of interest in real terms is different and can be assessed differently. So, I leave it up to you to choose which index you want to use. And we also observe that the wage settlements have been, in recent times, at higher levels. When there are wage agreements in the economy, they are at higher levels than they were in the past. So, these are a few observable facts, but obviously we are not going to comment more than we have done in the past on this complicated issue of inflation.

QUESTION: [Through interpretation.] The Group of 24, to which several countries in the Latin America region belong, they issued a communiqué and basically the communiqué is telling IMF not to get involved in capital control policies. That is, I imagine, a great debate, simply, to any type of intervention or measure, but the IMF should not assume any role, not in that case--not in the case of monetary reserve. So, in a few words, IMF let us do our own policy. Which is your reaction regarding?

MR. EYZAGUIRRE: Well, this has been a very longstanding issue, something that has been very difficult to forge a consensus, but when the IMF was created, financial flows were not important. So, in our Articles of Agreement, we have sort of been empowered to rein in exchange rate matters and trade matters, or convertibility of the current account, as they say. The IMF does not have a mandate on the capital account measures; however, at the same time, the IMF has the mandate given by the international community to preserve financial stability, and we need to have some common criteria in terms of a number of issues, and that includes the capital account convertibility, when it is appropriate. When it is not appropriate, when does a certain movement in the capital account of one country hurt other countries? Because as you know, the capital account does have an implication of the exchange rate, and you have heard words like "currency wars." So, perfectly, a country can use capital account restrictions to depreciate its currency and to gain a competitive advantage in terms of world trade as--vis-à-vis the other partners.

A stable international monetary system needs cooperation, and for cooperation you need some rules of the game. It is true that the IMF does not have a mandate, but as I was saying, it does have a mandate on international financial stability, and it is becoming each day more apparent that, to have some kind of consensus about how countries should or should not move their capital account policies does have an implication in our ability to preserve the international monetary system stability.

But this will be a long process. Some countries have considered that we should not have ever mentioned that capital controls are a legitimate part of the toolkit. Some others consider that even trying to have guidelines for capital controls is unacceptable. So, as you see, positions are very much in the extremes, but I think that in the years to come, the international community will have to come to terms in this area as it will be each day more apparent, especially after Lehman, to have some kind of governance on international capital flows is paramount to preserve the stability of the international monetary system.

QUESTION: Have you recommended the application of capital control for Uruguay? In which countries do you see those bubbles and on which asset do you find those bubbles?

MR. EYZAGUIRRE: Miguel and Steve may want to take this question.

MR. SAVASTANO: The first part was whether we recommend for Uruguay capital controls? Well, this is part of the issue of capital controls, part of the policy dialogue with every country, and on what they are considering to doing, and so, if--in the consultation with Uruguay and the normal dialogue happened recently, at the end of last year, and that was then, not now--it was not perceived as one of the necessary tools at the moment, the need for Uruguay, as Nicolas was saying--Uruguay falls into the countries in which they need still to work on the macro policies first to put it more in line to sustainable growth than to look on something else. It is very early in the process. Do you want to do the assets?

MR. PHILLIPS: Well, you asked which countries where we're seeing a bubble. We're not seeing a bubble in any country. What we're talking about is bubbly conditions or tendencies to move in that direction. You only really know a bubble after it's popped. We are not saying there is a bubble right now. The point is, though, that for a couple markets, say, equity markets and maybe housing markets, we are able -- in our report that Nicolas mentioned will be released on May 3-- to just talk about some information, some data that are suggesting that valuations of these assets, especially equities, are kind of on the high end of where they've been in historical experience. Now, there could be some very good reasons for that. For example, equity prices of commodity-exporting firms, it's no surprise why they should be up, but in our report, we talk, for example, about whether the price/earnings ratios of some of those companies have been rising quite fast recently.

And the message is really just draw everyone's attention, as there is attention on this already, to keeping an eye on this and not sort of making recommendations, we are not investment advisors. We are not going to give an opinion on any one country or company's stock.

As part of the same message of keeping an eye on it, we really highlight in our report how very few countries in the region really give themselves or give us enough data, enough information, to make a judgment on the housing sector. Whether there is a housing price bubble is a question that you can't answer if you don't have any systematic information on housing prices. But in our report, we're able to mention a few countries that do have some partial information and talk about that, but our real main message isn't to identify a bubble in any one country or in any one market, but to say that--the message is to keep an eye on it, and just especially be aware that the conditions to fuel these kind of bubbles, low interest rates, et cetera, are really ripe right now, so it merits more than the usual amount of attention.

QUESTION: Do your projections point to a growing current account deficit in Brazil?

In your opinion, is it time for Brazilian authorities to start worrying or worrying more seriously about the problem?

MR. VEGARA: I understand that you are referring to worrying about the current account levels; right? Well, if one looks at the projections we have in the current account balance in Brazil both for the end of 2010 and 2011, it is less than 3 percent--it is 2.6 in 2011 if I remember correctly. So, those levels do not seem to pose, in this regard, a level that could be considered--

QUESTION: But the trend points to 3.6 percent.

MR. VEGARA: Yeah, in 2015, you mean, in the long term. This is basically a result of having favorable terms of trade. Domestic demand growth is pushing up imports. Now, these levels--I'm answering your specific question given that capital inflows have been around 5 percent in the last 12 months, do not seem to pose a risk in this horizon.

QUESTION: I have two questions. The first one is that, recently the Salvador Central Bank revised the growth figures and decided that the former government had distorted those figures, then the growth figures for the last year under the new government, they say that it grew more than the preliminary estimate. We were told that those figures had been revised by the IMF. If this is so, we would like to know when that revision was done and on what basis you did that revision of the figures of growth.

MR. SAVASTANO: Well, I understand that you are alluding to the national account that is part of normal revisions that all countries do on updating their series. And as part of this revision that's done in the case of El Salvador is done by the Central Bank, and other countries--it is the statistics agency that does it. They revise the series going back, I believe, seven, eight years, applying new data on the components of output that are usually and normally done in every country to assess the level of output, and they got a different series.

Now, for every single year over the ten years or eight-year period of revision, the difference between the series, when you compare the levels with the previous years, they are not that big. If the difference between the series themselves, the levels of GDP are within a range of 1 or 2 percent difference per year--so they are not that different in the revision, and that's the normal revision that--there's a normal size of results that you get in this type of periodic revisions.

When you compute a rate of change between these levels--so, you get the growth rates, then you can get very different numbers, and that's exactly what happened in Salvador. So, the series of growth was revised as a consequence of a regular, periodic revision of an update of the GDP series. There was nothing particularly salient about the revision in particular. That's what we can say about that.

QUESTION: A couple of questions. A follow-up on the status of the report presented by the Fund to the government and which you said was in the hands of INDEC, what is the subject of that report? Is it an explanation of the mission or does it include actual recommendations on the new price indices that Argentina is about to apply.

The G24 also issued a communiqué on certain viewpoints with regard to the capital control policy and recommendations which are being issued by the staff in various papers as regards monitoring by the Fund. The G24 has refused emphatically in that communiqué and I would like to know what is your opinion on the communiqué of the G24 and also, as regards the solutions to the raw materials prices that the G24 has formulated that has to do with rethinking the credits and adapting the credits of the IMF for the poor countries to try to bring about compensation.

MR. EYZAGUIRRE: Well, three questions. The first one, as I was saying, the technical assistance mentioned has some particular protocols. Those are missions whose product is the property of the government. So, what we do is we write some Terms of Reference that were public, by the way, that meant that we were going to advise the Argentinean Government in how to build a national CPI. So, that's why we went to Buenos Aires, we went to provinces, to see the way the prices were manufactured, and of course what would be needed to both build consistent CPIs throughout the provinces and how to integrate them into a national CPI. So this is a very technical report in how that process can be done and what would be the requirements to arrive to that point. That is the report and it is in the hands of the Argentinean authorities.

The second question I guess I covered already when I was answering the gentleman over there about the position of the G24 against the Fund having mandate over the capital account convertibility, or what was the same, recommending whether capital controls are appropriate, when and where. As I was saying, that position is very understandable since the default option is continuing like it is now--is a situation where the Fund does not have a mandate to recommend or to criticize measures in the capital account area.

My only comment to that, understanding that there are some other countries that, just because we have said that capital controls are a legitimate part of the toolkit--have said that this is completely inappropriate, that we should remain in our former line, that capital controls are demons all the time; so we are in the middle ground. Some are saying that we are too dovish or too sort of light accepting capital controls. Some are saying that we are trying to empower ourselves to be the judges of when those controls are appropriate or not.

We are trying to work with all the international community to come to terms with that. It's going to be a long process, it's difficult, but the only thing I would like to emphasize is that the eventual proliferation of capital controls--sometimes countries retaliating on one another is something that, of course, may create turmoil in the international financial system, that we have the mandate to preserve.

Third question was on the G24 call for using funds to promote the supply of scarce food and energy products. I guess that's much more the mandate of the World Bank rather than ours. We are not particularly in the business of what to do in each sector of the economy, and sort of the world equilibrium in prices, supply and demand of energy and food is more when you go to a particular country level--is more the work of the World Bank.

What we have said is that, for social cohesiveness and for sustainability of the macroeconomic environment, countries need, ought to, must do something about the effects on the poor from the hikes on food and energy. But at the same time, we are warning against generalized subsidies that will give a wrong signal to suppliers and demanders about the true scarcity of those items worldwide.

QUESTION: Could you give us some specific remarks on the case of Venezuela which indeed is one of the three countries which had a contraction last year. And the Fund is a forecasting a growth of only 2 percent in spite of the fact that the barrel of oil has good outlook, good perspective. Could you give us a comment in that regard?

MR. TERRIER: You have to admit this is a very broad question. Can you narrow it a bit or--you know, we haven't been to Venezuela since 2004. There has been no Article IV since 2004. So, it's--I know we cannot answer a very specific question, but I thought perhaps yours was very broad.

QUESTION: Why is there going to be growth of just 2 percent, is the question.

MR. TERRIER: Obviously, there is a positive impact of the increase in oil prices, but there is, as we know, a lack of investment--or low levels of investment in the economy that seem to affect the economy broadly. And we've seen that there are still some issues in the electricity sector, as we have seen recently. So, this seems to be one of the issues that are driving a relatively low level of growth; however, there will be, in our projection, a positive level of growth for this year, and that in itself is important because we are working with a slightly negative rate of growth for last year. So, the turnaround in itself is an improvement, really.

MR. ADRIANO: Okay. I think we will have to conclude. Thank you very much for coming to this press conference of the Western Hemisphere Department. Have a good afternoon.