Transcript of Western Hemisphere Department Press Briefing (April 26, 2022)

IMF News, April 26, 2022

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The war in Ukraine is "shaking the global economy" and raising uncertainty about the outlook for the Western Hemisphere.
The region is hit by "one inflationary shock on top of another." The poor are hit the hardest; higher inflation is affecting real incomes, especially among the most vulnerable.
Central banks in the region have acted promptly and decisively by raising interest rates ahead of many other emerging markets and advanced economies, helping to keep long term inflation expectations anchored.
The IMF underscores the need for vigilance: central banks "will still need to remain vigilant and continue taking decisive actions if needed to keep long term inflation expectations in check."
Inclusive consolidation is recommended to preserve fiscal sustainability while protecting vulnerable groups.

Latin America and the Caribbean:
- Growth in 2021: "6.8 percent."
- Forecast for 2022: "2.5 percent" (reverting toward pre-pandemic trend).
Brazil:
- 2021 growth: "4.6 percent."
- 2022 forecast: "0.8 percent" (revised up from "0.3" percent in IMF discussion).
Mexico:
- 2022 forecast: "2.0 percent."
Chile:
- 2022 forecast: "4.5 percent" (mentioned earlier); later expectation for growth to slow to "one and a half percent" (1.5 percent) amid removal of exceptional stimulus policies.
- 2021 growth: "11.7 percent."
Peru:
- 2022 forecast: "3.0 percent."
Colombia:
- 2022 forecast: "5.8 percent."
Panama:
- Noted "strong growth" with reference to end-of-year and start-of-year strength; specific drivers include construction of a new metro line, recovery of private investment, and commodity exports.
Regional policy response fiscal cost estimate:
- Average fiscal cost for measures introduced in response to rising prices: "0.2 percent of GDP" for this year.
- IMF also notes elsewhere a regional estimate of fiscal cost "around 0.3 percent of GDP up to now" for measures taken.

Inflation is an overriding channel through which the Ukraine war affects the region, notably via energy and food prices that disproportionately affect poorer households.
The IMF highlights that "the inflation of the poor is around 3 to 4 percent higher than the inflation of the rich."
Heterogeneous effects across countries:
- Net commodity exporters may benefit from higher export prices (grain, metals, oil).
- Commodity importers (some Central American and Caribbean countries) face a negative shock via higher import prices.
Policy priority: protect the most vulnerable using targeted, temporary support while allowing domestic prices to adjust to the extent possible.

Monetary policy:
- Large central banks in the region have raised interest rates promptly; hard-won credibility has helped anchor long-term inflation expectations.
- Central banks should remain vigilant and act decisively if necessary.
Fiscal policy and social protection:
- Use targeted temporary support to protect vulnerable populations.
- Protect spending on social programs, health, education, and public investment within consolidation plans.
- Pursue inclusive consolidation, including tax reform such as strengthening personal income taxes to include those who can afford to pay.
- Emphasize the temporary nature of subsidies or smoothing measures to limit fiscal costs.
Subsidy and price policy guidance:
- Where safety nets exist, increase coverage and target the poor.
- Where safety nets are weak, consider temporary smoothing of price increases over time, noting fiscal costs.
- As possible, allow domestic prices to move closer to international prices to incentivize production and restrain consumption.
Financial stability:
- Monitor and prepare for tighter global financial conditions, including spillovers from a more hawkish U.S. Federal Reserve and potential broader financial distress if the Ukraine war escalates.

Short-term and medium-term risk drivers:
- Escalation of the Ukraine war, with potential to cause global financial distress.
- Tightening of monetary policy in advanced economies, especially the U.S., affecting capital flows, currency depreciation, and borrowing costs in the region.
- A greater growth deceleration in China (e.g., from pandemic disruptions) that could reduce demand for regional exports and depress commodity prices.
Potential differential effects:
- Positive terms-of-trade shock for commodity exporters (opportunity to boost activity).
- Negative external price shock for commodity importers (worsening inflation and balance of payments).
Fiscal risk management:
- With "public debt the GDP ratios are above pre-pandemic levels and borrowing costs rising," countries need to ensure sustainability of public finances to preserve credibility and rebuild fiscal space.

Argentina:
- The IMF emphasizes that "the name of the game now is implementation" following program approval.
- Reviews are routine; the IMF staff is working with authorities to prioritize measures so program targets and objectives are met.
- The IMF expects to finalize the review in May.
- On targets vs. assumptions: inflation is an assumption in the program's macro framework; fiscal, reserve, and structural targets are program targets that the IMF indicated are not intended to change—staff will help authorities prioritize measures to meet them.
- Authorities reported meeting fiscal targets for Q1 with some extra room; IMF discussion covers implementation and prioritization under the review process.
Ecuador:
- The fourth review was delayed due to the need for additional data and reassessment in light of global shocks (Ukraine war).
- IMF and authorities have been actively engaging: a team visited Quito in mid-March and authorities met in Washington during Spring Meetings; discussions are ongoing and expected to conclude soon.
- The IMF sees a positive impact from higher oil prices and believes there is room for growth-enhancing public investment while maintaining fiscal sustainability and building buffers.
Panama:
- Upward revision in forecast reflects very strong Q3 and Q4 performance and indicators continuing into early 2022, plus public and private investment projects (e.g., new metro line) and commodity export gains.

Transcript of Western Hemisphere Department Press Briefing, April 26, 2022 — IMF Communications Department