Transcript of the Press Conference on the Regional Economic Outlook Update for Latin America & the Caribbean
IMF News, June 26, 2020
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- Published: June 26, 2020
Regional outlook and pandemic impact
- Regional GDP contraction in 2020: 9.4 percent.
- Regional recovery in 2021: 3.7 percent.
- Revision vs April 2020 projection: contraction is 4 points percentage more severe.
- Pandemic human toll: "more than 100 mil vidas perdidas."
- Share of global COVID-19 cases: "casi el 25 por ciento del total mundial."
- Epidemiological context: infection and mortality per capita approaching rates in Europe and United States.
- Fiscal/health capacity constraints noted: high informality, elevated ICU occupancy, limited testing and tracing capacity.
- Real-time indicators showing pronounced weakness: production industrial, consumo eléctrico, ventas minoristas, empleo — indicating a very pronounced Q2 activity decline.
- Social distancing measures likely to be prolonged, depressing activity, employment, and limiting speed of recovery in H2 2020.
- Capital markets: normalization of financial conditions after aggressive central bank expansions in advanced economies; several Latin American countries accessed international capital markets; observed stability and appreciation in major regional financial markets, but financing conditions still tighter than pre-pandemic and volatility risks remain.
Country-level projections (selected)
- Argentina 2020 contraction: 9.9 percent.
- Brazil 2020 contraction: 9.1 percent.
- Chile 2020 contraction: 7.5 percent.
- Colombia 2020 contraction: 7.8 percent.
- Mexico 2020 contraction: 10.5 percent.
- Peru 2020 contraction: 13.9 percent.
- Panama: no specific point estimate published on this update; region subgroup (Central America) contraction: 5.9 percent — Panama expected to contract less than subgroup average.
Policy priorities and recommendations
- Fiscal policy:
- Immediate priority: protect lives and household incomes.
- Support: programs for families, companies, and health budgets.
- Constraints: limited fiscal space requires reprioritization and efficiency gains in public spending.
- Need to find creative targeting mechanisms, especially where informality is high.
- Medium-term concern: debt sustainability risks — "un compromiso claro con un plan de mediano plazo de consolidación fiscal y reformas estructurales" crucial to restore confidence.
- Monetary policy:
- Should remain accommodative given low inflationary pressures.
- Expectation: policy rates to continue declining where space exists; some countries still have room for further cuts.
- Labor and corporate support:
- Maintain employment relationships and productive capacity via payroll support and working capital financing to avoid closures of otherwise viable firms, reduce long-term unemployment, and support recovery.
- Sequencing:
- Once pandemic stabilizes, countries should transition toward monetary and fiscal sustainability to preserve inflation gains and medium-term stability.
Debt, financing, and IMF support
- IMF emergency lending since pandemic onset: 70 loans approved globally for a total of 25,000 millones de dólares.
- Loans to the region: 17 approvals totaling 5,200 millones de dólares.
- Flexible Credit Line (FCL) access approved for Chile, Peru; renewed for Colombia; Mexico also has an FCL — combined FCL backing for these four countries: 107 mil millones de dólares.
- These FCL resources are contingent lines not yet drawn but available if balance-of-payments conditions deteriorate.
- Discussion of debt restructuring:
- Argentina and Ecuador are in ongoing negotiations with private creditors.
- IMF published two technical notes on Argentina's debt sustainability; no additional commentary beyond those notes at this time.
- Ecuador received an emergency credit line of approximately 650 millones de dólares; discussions ongoing for a new program with IMF teams working rapidly but no amounts or timing provided.
- Regional liquidity backstops:
- FLAR exists but is "very, very small"; lack of large regional mechanisms makes IMF instruments attractive for countries seeking buffers.
Country-specific observations and issues raised
- Argentina:
- Rapid and aggressive public health response helped keep contagion and death rates relatively low in region.
- Economic hit driven by containment measures; employment indicators not updated until broader macro review in October annual meetings.
- Use of central bank financing partly sterilized — seen as sensible under constraints, but normalization and monetary sustainability will be needed later.
- IMF awaiting formal requests regarding Article IV or programs; authorities focused on debt restructuring currently.
- Mexico:
- Monetary policy stance in late 2019 judged "more strict" than appropriate then; policy rate reduced to 5 percent.
- IMF team considers further room for rate cuts given low utilization of productive factors and recessionary conditions.
- Structural factors, more than monetary policy, are main constraints on growth; T-MEC and potential reconfiguration of global value chains ("from 'just in time' to 'just in case'") could benefit Mexico over time but unlikely to fully offset near-term investment contraction or be a large force over the next two years.
- Chile:
- Downward revision driven by weak recent activity data (IMACEC, industrial activity, sales, employment — ~1 million formal and informal jobs lost).
- More protracted and stricter distancing measures assumed, contributing to lower projections.
- Adverse scenarios from April have been rebalanced; overall risk balance improved relative to April but remains tilted to the downside.
- Ecuador:
- No explicit country projection published in this update; expected downward revision due to lower oil prices and early, severe COVID-19 outbreak.
- Authorities engaged in constructive debt negotiations with international creditors; IMF teams working on a new program but no details released.
- Panama:
- As an open, trade- and logistics-dependent economy, severely affected by global activity decline; expected to contract less than Central America average but still face a very difficult 2020 with recovery anticipated in 2021.
Risks and outlook for debt sustainability
- Global and regional public debt-to-GDP ratios expected to rise significantly.
- Importance of credible medium-term fiscal strategies to stabilize and eventually reduce debt-to-GDP ratios once output gaps close.
- IMF engagement: technical assistance to design fiscal plans consistent with fiscal responsibility frameworks and institutional strengths (independent central banks, floating exchange rates, inflation targeting, fiscal rules) to reassure markets.
- Policy trade-off: need to provide temporary fiscal impulse in 2020 while ensuring medium-term sustainability to avoid hampering future growth.
Transcript of the Press Conference on the Regional Economic Outlook Update for Latin America & the Caribbean, June 26, 2020, IMF Communications Department