Transcript of October 2019 Western Hemisphere Department Press Briefing
IMF News, October 18, 2019
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- Published: October 18, 2019
Regional outlook and growth projections
- Global growth revised down in the World Economic Outlook; synchronized global slowdown is weighing on Latin America through commodity prices (prices and quantities) and weaker manufacturing exports.
- Regional growth projections:
- Growth in América Latina y el Caribe projected to slow from 1.0 por ciento in 2018 to 0.2 por ciento in 2019.
- Excluding the economy of Venezuela, growth is projected to be "un poco menor al uno por ciento".
- Projected rebound to 1.8 por ciento in the following year, driven by private consumption and investment.
- Specific large economies:
- Brazil and Mexico: projected to grow less than 1 por ciento in 2019 and to rebound to above 1 por ciento in 2020.
- IMF projection mentioned later: Brazil projected at 2 percent growth for 2020 and 2.3 percent for 2024 (context: alternative forecast discussion).
- Financial conditions:
- Global financial conditions have been more favorable for the region; external financing costs (line described as "la línea morada") have fallen in line with long-term rates in developed markets.
- Key constraints to higher potential growth in the region identified:
- Low productivity, low investment, deficiencies in education quality, weak rule of law and judicial systems, high corruption, and unequal income distribution.
Crisis in Venezuela and migration effects
- Humanitarian and migratory crisis in Venezuela:
- As of October de 2019, Naciones Unidas estimated 4.5 millones de venezolanos had left the country.
- Of those, 3.7 millones se habían asentado en otros países de América Latina.
- Effects on host countries:
- Mixed effects expected; many recipient countries have so far absorbed migrants with “menores efectos distorsivos sobre el mercado laboral”.
- Smaller Caribbean economies face acute fiscal pressure because migrant inflows represent a large share of their populations.
- Colombia: process generating impact on public finances — referenced in the Article IV consultation — and the government has had to accommodate additional fiscal needs within its fiscal framework.
- Colombia specific figure cited by questioner: "un millón 300 mil venezolanos" already refugiados in Colombia (question context about fiscal impact).
Argentina: program status, elections, and debt restructuring
- IMF meeting recap:
- Recent meeting with the Managing Director, IMF senior management, Minister Lacunza, and Governor Sandleris reviewed recent economic evolution, effectiveness of measures from late August/early September, and constructed scenarios for coming months and the next year under different policy assumptions.
- Program assessment and conditionality:
- IMF staff emphasize need for comprehensive evaluation of policy frameworks (fiscal, monetary) over a multi-year horizon to assess debt sustainability; cannot judge isolated operations without a full macroeconomic framework.
- Staff view: premature to make a definitive judgment on whether the Argentine program “funcionó o no funcionó” at this stage; further analysis dependent on post-electoral policy proposals from the elected government.
- On debt restructuring / reperfilamiento and quita de capital:
- IMF will analyze proposals once there is greater clarity on macroeconomic and policy frameworks after the electoral process; evaluations of sustainability and program design require that context.
- Exchange and capital controls ("cep o"):
- IMF cannot make definitive statements about the risk of further tightening during transition until policies of the incoming government are clearer.
Ecuador: program review, social unrest, and compensatory measures
- Program status:
- Ecuador is in the midst of the second review. Authorities met quantitative fiscal and reserve targets in June (staff note: "met all the targets for fiscal targets and reserves and so on in June").
- IMF awaiting a new decree on fuel pricing policies; the government has submitted structural reforms to Congress and is negotiating compensatory measures.
- The program is “encaminado” but subject to uncertainty around fuel price policy and the final compensatory package; IMF will complete the review once the final package is available and interaction with the government is positive.
- Social unrest and implementation risks:
- Acknowledgement of consternation when programs are associated with social problems (including fatalities during protests).
- IMF has long recommended designing and strengthening compensatory mechanisms and social protection to protect vulnerable groups when measures affect household disposable income.
- IMF is working with the government and multilaterals (World Bank, IDB) to support design and reinforcement of compensatory and social protection measures.
Brazil: outlook, reforms, and structural constraints
- Growth outlook and drivers:
- IMF projects 2 percent growth for Brazil in 2020 (noted as slightly lower than April forecast), reflecting weaker external demand (China, Argentina, global slowdown).
- Recovery since 2015-16 has been slow; growth around 1 percent a year in the three years following the 2015-16 recession.
- Investment has been especially weak; some recent pickup in construction investment noted but overall indicators not showing a strong rebound.
- Role of reforms:
- Pension reform: confidence effects from approval (near approval in Congress at the time) are expected to support a pickup.
- Structural reforms under consideration: tax reform, financial sector reforms (including BC hashtag agenda), trade liberalization, privatizations.
- IMF does not mechanically assume higher medium-term growth from reforms until specific measures are in place; forecasts do not build in unannounced reform effects.
- Taxation and financial intermediation:
- Tax system identified as an impediment to investment; tax reform could enhance productivity.
- Nominal interest rates at record low levels as inflation is well within target; monetary policy appropriately accommodative if inflation expectations remain anchored.
- High intermediation spreads noted historically; reduction in policy lending share and further plans to reduce it could lower spreads and support intermediation.
Mexico: security, fiscal options, Pemex, and fiscal institutions
- Security and rule-of-law concerns:
- Recent violent events (example: Culiacán, Sinaloa) underscore structural importance of rule of law, judicial effectiveness, and crime control for Mexico’s growth prospects.
- Fiscal options and recommendations:
- IMF "Concluding Statement" discussed tax measures as options to preserve fiscal solidity in the face of medium-term fiscal pressures; any tax changes should consider compensatory mechanisms to protect vulnerable groups.
- Fiscal framework: authorities open to a more holistic reconsideration of the fiscal framework, including fiscal rule design and enforcement. IMF technical assistance is ongoing.
- Independent Fiscal Council: IMF team covering Mexico continues to view an independent fiscal council as a valuable element to reinforce the fiscal framework; recommendation remains valid.
- Pemex:
- IMF requested reconsideration of Pemex’s business plan: concerns include an ambition to increase oil production without clear upstream investment financing, heavy focus on downstream activities, limited non-core asset sales, and insufficient private sector participation—these factors could impose a significant fiscal burden.
Honduras: program review and near-term mission
- Program approved by IMF Executive Board in July.
- Program priorities: maintain macroeconomic stability, restructure the electric sector, increase social spending, and improve transparency and governance.
- IMF teams met with authorities; a staff mission scheduled at the end of the month to conduct the first review, update targets, and assess implementation amid more complicated international circumstances (e.g., lower FDI in H1).
Colombia: migrant absorptions and fiscal implications
- Colombia has absorbed large numbers of Venezuelan migrants; government has accommodated the fiscal pressures within its fiscal rule so far.
- IMF notes both costs and benefits: migrants often have human capital above host averages, but absorption creates fiscal and administrative challenges.
- A recent constitutional ruling (in the Q&A) added short-term fiscal pressure related to a fiscal reform that the government and Congress were expected to address quickly.
Cross-cutting policy guidance and priorities for the region
- Policy mix priorities:
- Fiscal consolidation remains a priority in several countries with elevated debt levels and significant foreign-currency denominated debt exposure.
- Monetary policy can support growth where inflation and inflation expectations are stable and well anchored; lower global rates provide additional space to respond if an unexpected slowdown occurs.
- Strengthening social protection and designing compensatory mechanisms are essential when fiscal or price measures negatively affect vulnerable households.
- Structural reforms (tax reform, improving rule of law, boosting investment, enhancing governance, increasing private sector participation in state enterprises) are key to raising potential growth.
- Program engagement principles:
- IMF programs include flexibility for authorities to choose different policy paths to meet targets, but program design assesses sustainability through an integrated multi-year fiscal and macroeconomic framework.
- IMF teams engage broadly with stakeholders (central banks, ministries, civil society, unions) during missions and will seek to expand outreach where appropriate.
Transcript of October 18, 2019, Western Hemisphere Department press briefing — IMF Communications Department