Transcript of October 2020 Western Hemisphere Regional Economic Outlook Press Briefing
IMF News, October 22, 2020
Source details
- Canonical URL
- Transcript of October 2020 Western Hemisphere Regional Economic Outlook Press Briefing
Other formats
Bibliographic details
- Published: October 22, 2020
Regional health and economic impact
- COVID-19 hit Latin America and the Caribbean more severely than other regions: the region has "just 8.2 percent of the world population" but recorded "34 percent of the deaths by COVID-19 and 28 percent of the cases."
- Regional GDP outlook: "the regional GDP in 2020 is projected to contract 8.1 percent."
- Employment impact: employment fell more sharply than GDP in Q2 2020 — "20 percent on average in the largest countries and up to 40 percent in the case of Peru."
- Job losses: "a total of 30 million jobs" were lost in the second quarter in Brazil, Chile, Colombia, Mexico and Peru.
- Remittances: after falling in March and April, remittances began to recover from May and "retook historical levels" in May, June and July, in some cases reaching even higher levels.
- Sectoral vulnerabilities:
- Caribbean: highly exposed to tourism losses; tourism "basically disappeared" in months after the pandemic onset and countries are experiencing "very, very difficult" conditions.
- Countries with less pronounced contractions (examples): Brazil, Costa Rica, Uruguay showed less severe contractions and by July reached activity levels "closer to pre-pandemic levels."
- Ecuador and Peru: continued to show "relatively large contractions" with activity still depressed in summer 2020.
Macroeconomic projections and labor/social outlook
- Regional recovery pace: "the recovery is expected to be slow in general."
- 2021 growth forecast: "growth will be 3.6 percent on average in 2021."
- Timing to return to pre-pandemic levels:
- "In most countries, GDP will not return to pre-pandemic levels until 2023."
- "Real per capita income will take even longer to return to pre-pandemic levels, later than other regions."
- Distributional impacts: the most affected segments are "women, youth and low-skilled workers," implying significant deterioration in social indicators and poverty.
Policy recommendations and fiscal stance
- Short run: policies should remain focused on containing the pandemic and supporting the recovery; avoid premature withdrawal of fiscal support while recognizing fiscal constraints and financing availability.
- Policy design principles:
- Maintain demand support for families, accompanied by "explicit commitments, framed in laws and clearly communicated" to rebuild fiscal space over the medium term.
- As pandemic control improves (vaccines, medicines, treatments), shift to measures sustaining aggregate demand (e.g., infrastructure financing), while strengthening social safety nets, education and public investment.
- Medium-term structural agenda:
- Undertake structural reforms to accelerate growth and strengthen social indicators and safety nets; region faces a dual challenge of boosting growth and expanding social protection after decades of mediocre growth.
- Fiscal sustainability:
- Countries will emerge with higher debt levels and possibly weaker credit ratings; medium-term policies should aim to stabilize and eventually reduce debt to restore fiscal buffers for future shocks.
Country-specific notes and risks
- Mexico
- IMF baseline: "a contraction of 9 percent in 2020" and "a recovery of 3.5 percent" in 2021.
- Even with support from U.S. manufacturing recovery, auto sales recovery and remittances, the "two-year period 2020–2021 will be a very bad period for the Mexican economy."
- Policy advice: combination of a stronger current fiscal stimulus, plus a future tax reform that (1) anchors sustainability expectations and (2) strengthens the government's ability to implement more redistributive social policies. Absent the tax reform, "there are many alternatives" but the visiting IMF team considered the combined approach the "most appropriate" for Mexico.
- Argentina
- IMF engagement: staff are working closely with authorities to design a program that balances pandemic support to vulnerable households and recovery with restoring macroeconomic stability.
- Debt restructuring of private debt identified as "an important milestone" already completed.
- Mission schedule: IMF team planned to return to Argentina in November to continue program discussions; modalities of potential financing were not discussed publicly at this stage.
- On tax and social security reforms, price monitoring and parallel market exchange rate gaps: these are under discussion between IMF teams and Argentine authorities; specific policy details were not disclosed pending program formulation.
- Haiti
- Exchange rate movements: gourde depreciated earlier in 2020 and then appreciated amid higher remittance inflows and regulatory changes; IMF emphasizes the importance of a clear path forward to address Haiti's dire economic situation.
- Caribbean
- IMF emergency response: in the first stages of the pandemic the Fund provided "about $1 billion" in emergency financing for the region.
- IMF is exploring additional bilateral and regional financing options, including grants and other financial assistance, to support countries whose tourism-dependent incomes have collapsed.
- Colombia
- IMF view: a combination of short-run fiscal support and medium-term fiscal consolidation to stabilize debt would allow Colombia to maintain a sustainable public debt trajectory.
- Institutional support: IMF approved an increase in the Flexible Credit Line (FCL) for Colombia recently; Colombia announced likely use of part of these resources for fiscal support.
- Brazil
- Fiscal space: Brazil has the largest debt-to-GDP among large Latin American economies and implemented a very aggressive fiscal response in 2020, which was judged appropriate.
- Recommendation: as recovery progresses, send a clear signal of commitment to a prudent fiscal stance and "stick to its tough fiscal rules" to preserve debt sustainability and rebuild fiscal buffers.
- Contingency: a conservative fiscal approach provides flexibility if a renewed pandemic wave forces additional support.
- Panama
- IMF estimates: Panama's economy expected to "contract 9 percent this year" (2020) and to "grow 4 percent next year" (2021).
- Assessment: Panama has strong risk perception, good credit ratings and solid debt indicators historically; deterioration in debt metrics reflects the large contraction due to COVID-19.
- Recovery drivers: rebound in international trade and global connectivity benefiting Panama's logistical node role, and commodity developments (e.g., new copper mines and recovering copper prices) are potential growth drivers.
- Bolivia
- Political/economic outlook: IMF notes Luis Arce's past role as an effective minister of finance who oversaw a period of strong growth and fiscal buffers; IMF expects to work with the new administration as requested.
- Chile
- Constitutional process: IMF has incorporated the constitutional discussion into its forecasts. The plebiscite and subsequent constituent process may reduce uncertainty over time.
- Risk scenarios:
- Upside: if the process preserves the elements that supported Chile's past economic success while adding stronger social coverage and progressive public finances, this could enhance inclusive growth and Chile's regional leadership.
- Downside: if the process yields expanded social ambitions without macroeconomic support and resource framework, this could raise fiscal and financial risks and undermine investment and regulatory certainty.
- Uruguay
- Success factors highlighted: effective virus containment (non-politicized public health decisions, empowered scientific authorities), social cohesion, high education levels, strong public health system, and an economic reform agenda with potential to boost growth and inclusion.
- IMF view: Uruguay's pandemic response and pre-existing social and health strengths helped minimize the pandemic's economic and social impact.
IMF operational stance and instruments
- Emphasis on continued close engagement with countries to design calibrated short-term support and medium-term consolidation and reform strategies.
- Instruments and support cited:
- Emergency financing deployed early in the pandemic for the Caribbean "about $1 billion."
- Flexible Credit Line (FCL) was extended/increased for countries with strong fundamentals (example: Colombia).
- IMF is exploring a range of financing instruments, grants and other assistance for heavily tourism-dependent Caribbean countries in the "second stage" of the pandemic response.
Transcript of October 2020 Western Hemisphere Regional Economic Outlook Press Briefing — IMF Communications Department