Transcript of Western Hemisphere Department Press Briefing

April 26, 2022



Director, Western Hemisphere Department, IMF


Communications Officer, IMF

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MS. CANDIA: Good morning, everyone. Thank you for joining this press conference on the IMF’s Regional Economic Outlook for the Western Hemisphere. I am Maria Candia with the Communications Department and I’m pleased to introduce to you this morning Ilan Goldfajn, the IMF’s Director of the Western Hemisphere Department. Ilan will give his remarks and after that we will take your questions. Ilan, good morning.

MR. GOLDFAJN: Good morning. 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 will be hit the hardest. Higher inflation is affecting real incomes in Latin America especially among the most vulnerable. Policymakers are reacting to this challenge by tightening monetary policy and implementing measures to soften the blow on the most vulnerable and contain the risks of social unrest.

A recent country focus commentary elaborates more on inflation. Large central banks in the region have acted promptly and decisively to tackle rising inflationary pressures by raising interest rates ahead of central banks and many other emerging markets and advance economies. These actions, together with the hard-won credibility have allowed them to keep long term inflation expectations anchored. This is important for stability and predictability. Central banks will still need to remain vigilant and continue taking decisive actions if needed to keep long term inflation expectations in check.

Latin American’s growth rebound from the pandemic was strong, but was poised to slow even before the war in Ukraine. After a sharp rebound in 2021, growth is returning to its pre-pandemic trend, rate has policy shifts slowing to 2.5 percent for 2022. Exports and investments are resuming the role as main growth drivers, but central banks have had to tighten monetary policy to combat an increase in inflation. The forecast for Brazil expansion was slowed to 0.8 percent this year, following last year growth of 4.6 percent. Mexico will decelerate to 2.0 percent. Growth in Chile and Peru is expected at 4.5 percent and 3.0 percent respectively. Colombia conversely is expected to grow at the higher 5.8 percent. The war in Ukraine will have a differential impact on growth in commodity importers and exporters.

For net commodity exporters higher prices can be an opportunity to boost economic activity as the export revenue go out. For others, the negative effect of higher import prices could dominate. To protect the most vulnerable, government should use targeted temporary support while allowing domestic prices to adjust to the extent possible. This will help vulnerable groups and contain fiscal costs while incentivizing production and restraining consumption.

Several countries in the region have acted in the wake of Ukraine invasion to contain the effects of rising prices on vulnerable groups, ranging from tax and import tariff reduction, to price caps, or social transfers. Close to 40 percent of countries in the region have introduced new measures, most of them on the tax side. We have estimated average fiscal cost equal to 0.2 percent of GDP for this year. Inclusive consolidation is needed. With public debt the GDP ratios are above pre-pandemic levels and borrowing costs rising, countries will need to ensure the sustainability of public finance to help preserve credibility and rebuild fiscal space.

However, it will be equally important to implement measures that protect the most vulnerable. This will require strategies that focus on inclusive consolidation. What does that mean? Spending on social programs, health, education, and public investment should be protected, while implementing tax reform such as strengthening personal income taxes to include those who cannot afford to pay. This will bolster growth in an inclusive manner and help countries maintain fiscal sustainability. Downsized risks prevails.

Financial conditions in Latin America have remained benign so far. However, a possible escalation of the Ukraine war could eventually lead to global financial distress and tighter financial conditions for the region. In addition, the ongoing tightening of monetary policy in the United States as the Federal Reserve take a more hawkish stance will eventually affect global financial conditions. Higher global and domestic financing costs can accelerate capital outputs and represent a challenge to the region. Given large public and external financing needs in some countries, and the limited resources to find investment in the region. A greater growth deceleration of China because of the pandemic or other reasons, could also have an impact on key export prices and trade in the region.

All these risks to growth could cloud growth prospects for Latin America and require timely and well-calibrated policy actions. But not all is gloomy. I want to stress that during a series of very productive meetings with the authorities of the region over the past few weeks, I have been encouraged by the clear recognition of the challenges and the risks lying ahead as well as their strong commitment to tackle these challenges. We are ready to work with them to promote the best outcomes for Latin America.

MS. CANDIA: Thank you, Ilan. We’re going to start with an online question, is regional focused, from Raphael Balago, de Folha de S. Paulo. How the higher prices of commodities could affect Latin America? Could it bring some benefits for the economies’ region, or will it bring more problems?

MR. GOLDFAJN: Well, all the countries in Latin America and the region are affected by inflation. Inflation is a global shock and even if the shock could be positive for some export commodity countries, they are all facing higher prices. And especially they have facing highest prices of energy and food that affect disproportionally the poorer.

So, the main channel where the invasion -– the Russian invasion of Ukraine, the main channel to the region is inflation and the impact of energy and food prices on the poor. However, there is quite a bit of heterogeneity. We have importers of commodities, food and energy, quite a bit on central America, some Caribbean. They have a negative shock, while the countries, for example in South America, they export grain, they export metals. Some of them export even oil. Those will have a positive shock.

In a more strategic way, some of the countries in the region who position themselves as the solution to the global problem of food insecurity and the need to provide more food to the world. So, they can position themselves as a solution to the problem, exporting food, increasing the production having a positive impact.

MS. CANDIA: Thanks, Ilan. We have several questions on Mexico. Let me read you a few of them. Maybe we can group them. So, Sylvia Rodriguez from Milenio. She’s asking about the war in Ukraine, also rising inflation, tighter financial conditions for the region, and you also mentioned in your blog social unrest and growth, that social unrest -– I’m sorry -– could worsen growth prospects in Latin America and the Caribbean. So, she’s asking in Mexico which are the variables we should pay –- we should pay more attention to?

MR. GOLDFAJN: This is an important question. Our blog comments that the region has unusually high risks at the moment. Those risks come from two shocks, the pandemic dynamics that led to high inflation, and later, the inflationary shock coming from the Russian invasion of Ukraine. It is an inflationary shock on top of another inflationary shock. What are the risks of that? Of course, if this eats into the real income of the population, and especially the most vulnerable, there is a risk on the social cohesion and social unrest.

But those are not the only risks. If the war broadens or its affects financial global conditions. It may generate financial distress, and we know that the region is very well affected by financial conditions, global financial conditions. And talking about financial conditions, we also have the tightening of monetary policy in advanced economies, especially in the U.S. And traditionally, when the U.S. tightens, when advanced economies tighten, we get an impact on capital flows, on the depreciation of the currencies, and higher borrowing conditions. And the financial conditions locally in the countries also tighten.

So, there's a risk coming from inflation, risk coming from financial conditions, or from the war, and from the tightening of monetary conditions. And last, but not least, we have a risk coming from deceleration, for example, from China where we may have still the pandemics, having an impact on growth, or other impact on growth from several causes.

MS. CANDIA: Thanks, Ilan. Let me just recognize a few questions on Mexico from other reporters. So, Silvia was also asking what the Federal government can do to protect the most disadvantaged and promote economy growth.

Yolanda Morales from El Economista is asking about inflation and the risk of stagflation in Mexico. Leonor Flores from El Universal is asking about Mexico's growth potential. What is in it for Mexico to take advantage of this growth potential. And finally, Leticia Fernandez from El Financiero, she's asking about the government's policy of subsidizing emerging prices. If you think you consider this measure appropriate, and would that be an effective way to do this without causing further fiscal damage?

MR. GOLDFAJN: So, I think the two set of questions that are coming, one is about the growth prospect on what is happening, and the other one is about the impact of energy and food and what countries are doing and what they can do to protect the most vulnerable, or, to protect the general population.

In terms of the growth prospects, the region rebounded quite strongly. I think the vaccination programs, the policies in general, and also, global economy grew very strong last year. That meant that the rebound in the region was strong. Last year, growth in Latin America and the Caribbean was 6.8 percent which is a strong growth for the region. We don't expect this rebound to continue. This year, we have a rebound for 2020. And now, we are heading towards a more traditional growth in Latin America that tends to be lower. So, going into the more traditional growth is 2-1/2 percent. That's what we are forecasting for Latin America and the Caribbean.

And also, the declining growth has other reasons. For example, trade partners, the major trade partners part of the region are also decelerating. And last, but not least, we have seen the inflationary shock either reducing real incomes in the region, but most importantly, it has meant that central banks in the region had to act, they had to increase interest rates, they have to rein on inflation expectations, and over the next year, two years, it will have an impact on global demand coming from monetary policy. So, the deceleration is a deceleration coming from the rebound, and also some factors globally and domestic.

Now, on energy. Inflation is a problem by itself. It risks stability. The region has a memory of high inflation, high indexation and inertia mechanisms coming from its past. So, any time you have an inflation is a risk as I mentioned, and especially, when inflationary shock happens over another inflationary shock over an already high inflation. And that is something that generate risks, reduces income in general, and has to be dealt with.

However, even most important, is that the inflation of the poor is around 3 to 4 percent higher than the inflation of the rich. The most vulnerable part of the population of the region has a higher consumption of food and energy for transportation.

So, countries are now dealing with that and I must say we did a survey, and more than 40 percent of the countries have reacted to some measures. Either reduce taxes, or reducing for duties, or subsidize. And the way to react to that, the main recommendation if there is social safety nets that are built. You should protect the poor, focus on the most vulnerable, and allow prices to react to international prices.

And even if you have a safety net which is well developed, you can increase the coverage. However, some of the countries in the region do not have a well-developed safety net. In those cases, there may be scope for temporary measures to smooth the increase in prices temporarily. This has fiscal consequences, so the main recommendation here is even if you're going to smooth, the key word is temporary because there are fiscal costs. In the same way the region acted temporarily to deal with the COVID, they should act temporarily to deal with the energy and food price increases.

MS. CANDIA: Thanks, Ilan. Let me just turn to WebEx. I see colleagues there. Just a reminder, if we could see your faces turn on your cameras and also raise your hands, that's the way we know that you're interested in asking a question. We're seeing a lot of colleagues from Argentina. Let me go to Eric Martin first from Bloomberg, and then we'll follow-up with them. Hi, Eric.

SPEAKER: Good morning, good morning, Ilan. Good morning, Maria. I'm going to surprise you, I think, speaking before my Argentine colleagues by asking about Argentina. I wanted to know, you know, with the program review that is upcoming and the economy minister, Martin Guzman's visit to Washington last week, what adjustments need to be made in the Argentina program that was recently approved? Obviously, it was approved in an environment of, you know, of many factors, you know, that were still on the move, or were still developing. And so, you know, whether there are adjustments that you can say, at this point, that will need to be made to accommodate the evolving situation in Ukraine and with Russia. Thank you.

MS. CANDIA: Ilan, if you let me, I'll collect two more questions because we have a lot of colleagues that are interested in Argentina. So, maybe we can give them a chance. Rafael, Liliana, do you, do you want to come in?

SPEAKER: Thanks, Maria. Good morning, Ilan.

MR. GOLDFAJN: Good morning.

SPEAKER: I also have a question regarding the Argentine program. The Argentine authorities claim they have met the fiscal targets for the first quarter with some extra room. But one of the reasons they accomplished this is that the government took a huge increase in revenue in March from the difference in valuation of inflation adjusted bonds. Some economists have pointed out that this goes outside the bounds of the agreement and against IMF rules. My question is, is the staff okay with this maneuver and will you allow this going forward? Thanks.

MS. CANDIA: And let's give room for just one more question, then we'll come back. Liliana, please. Liliana from Ambito. I think you need to unmute yourself, Liliana. We're not hearing you.


MS. ROMERO: There you go.



LILIANA: Okay, good morning. Sorry. I wanted to know when the IMF staff mission is coming to Argentina. And the second question is related to Argentina has a very safety net for the vulnerable people. And in the blog, you suggest that the prices should lead to the market which is not happening in Argentina and related, I mean, with the commodity prices and energy prices. What is your consideration with that? Thank you.

MS. CANDIA: Thanks, Liliana. Ilan.

MR. GOLDFAJN: So, thank you, good morning, for those who asked the questions here in the WebEx. In Argentina, the name of the game now is implementation. The program was approved and now we need to see implementation. And having the program implemented, I'm sure we're going to start addressing Argentina's needs and needs of the people.

As you know, reviews are normal. They happen for all the programs, and this is also the case in Argentina. We are now looking into prioritizing and looking over the measures to prioritize in order to ensure that the program and targets of the program are met and they're not going to change. We are just going to give support to the Argentine authorities to prioritize in order to fulfill the targets and objectives of the programs. There has been conversations, negotiations with the authorities here in Washington. These continue and we expect to finalize the review in May.

As in many other countries, Argentina has been affected by the global shock inflation. As you know, from what I just mentioned, in all the region, all the region is facing higher inflation and this is also the case in Argentina and reviews usually take into account whatever the new reality is, as it is in all the countries.

In terms of the safety net and the energy this is, the recommendation is similar to any other of the countries we have just mentioned. You should prioritize, target the poor, be able to protect the most vulnerable, and be sure to respect your fiscal conditions and, as I mentioned, the name of the game is temporary.

MS. CANDIA: Thanks, Ilan. We have one question, I think, from Paula Lugones from Clarin.

SPEAKER: Also. I'd like to repeat my questions about the fiscal targets, if possible, please. Thanks.

MS. CANDIA: Thanks, Rafael. Let me go to Paula and I'm not sure if also Patricia wants to come in. Paula, do you want to ask a question or -- I don't think we can hear you.

MR. GOLDFAJN: I think you are muted.

MS. ROMERO: Yeah. Let me just go to Patricia in the meantime. Patricia Valli from El Cronista.

SPEAKER: Hi, good morning.

MS. CANDIA: Hi, good morning.

SPEAKER: I was also wondering what Rafael asked. Whether the way the bonds are registered in the balance sheet is something that the IMF allows. And, also, if you could explain a little bit, with the rise of international prices, why the inflation target hasn't been changed or will not be changed.

MR. GOLDFAJN: I mentioned that under the reviews we analyze everything that has changed globally. You made a question an affirmation which I did not make about not changing. This is of course under consideration under the review this is normal and any other you have several countries being under review is to analyze even either for the surveillance or programs and they all taking into account the new reality of the Ukraine war. Regarding the question of the fiscal targets as I mentioned, the objective now is implementation, is to prioritize and find the measures to be able to ensure that the targets are met and the objectives of the program continue and we are looking at all the measures and in the middle of the conversation So, I am not going to give you anything that has not yet been reviewed and we are going to have this review fortunately by May.

MS. CANDIA: Thanks, Ilan. Let me just move to Brazil and then we can come back to WebEx if there is an additional question. So Marcelo Osakabe from Valor Economico is asking regarding Brazil, what made IMF raise its 2022 GDP forecast from 0.3 to 0.8 percent and forecasts for 2023. Also, regarding Brazil, which is one of the countries that are being benefited by better terms of trade, what are the main risks ahead.

MR. GOLDFAJN: So, we have seen in the region not only in Brazil, a very strong rebound last year, and we have seen in several countries the beginning of the year signals of continuation of this growth. This is valid in several countries, Brazil, Argentina and several other countries growth last year has been strong in the beginning of the year. And that's the reason why we have increased the forecast from 0.3 to 0.8 percent in Brazil. Now, as I mentioned there is deceleration of trade partners and especially countries are facing the inflationary global shock and monetary policy has been tightened. And that means that we will see some impact on demand going forward and this means that we have an impact on the end of this year but next year too.

MS. CANDIA: Thanks, Ilan. So, we're moving to Chile. So, Amanda Mars from [Diario Financiero] is asking, ‘what are the projections for this and next year and where are the biggest risks for this year's as well’, and Linea Castaneda from El Mercurio. She sent an online question asking about the new GDP growth projections for Chile. Has the IMF considered the effects of the constitution process? Is there a concern related to the Constitutional Convention in Chile?

MR. GOLDFAJN: So, Chile has had an economic recovery that is well underway. It was 11.7 percent in 2021. It was supported by policy response and vaccination, and now we are seeing this policy being removed. Those were exceptional stimulus policies and we believe it is appropriate and will mitigate risks that I mentioned, but also inflationary risks that we have been talking here. So, with this tightening of policies, we expect growth to slow to one and a half percent. So, risks are elevated because of what I mentioned globally, not in Chile, which are risk of financial tightening in advanced economies, risks of the war, the Russian invasion of Ukraine having an impact on global financial conditions, China deceleration, all of these are risks that Chile also has from the global conditions. But we do have in Chile a track record of strong policies and institutional frameworks, and low public debt, so all of them enhance Chile’s resilience and capacity to respond to shocks.

MS. CANDIA: Thanks. I think that question was actually from Amanda; from Diario Financiero she's also on Webex. And we can call on her, but she's not raising her hand. So, Amanda let us know if you like to come in. And we're here in case you have an additional question. Let me let me turn to Ecuador, Ilan, another online question from Sebastian Angulo from Expresso. He's asking why has the fourth review of the program that Ecuador maintains with the IMF been delayed, and he also is asking, the government has mentioned that it will ask for more fiscal space for public investment and boost growth. Is the IMF considering it?

MR. GOLDFAJN: So, Ecuador, it was supposed
-- normally it will have happened the review the fourth review in December last year. There were some decisions that required some more plans. Around the end of the year, we needed to see additional data. But then at the beginning of the year -- there were these shocks that we mentioned, the Ukraine war division, the Russian invasion of Ukraine, that of course meant as you asked the question several countries, that also meant that we needed to look at the new numbers the review.

So, as you see in Ecuador, in other countries, they're all looking at the global shock and reviews. So, the staff and the authorities are working very closely together on an ongoing basis. The last week, and before that a team visited Quito in mid-March. Last week, the authorities were here in the Spring Meetings. So, the engagement continues. A lot of very good progress has been made. And we expect to finalize the discussion soon. Regarding the whether there is space for public investment, and boost growth. We believe that Ecuador has a positive shock coming from the oil increase. And the authorities are committed to fiscal sustainability. Which means that you have space for both growth enhancing investment and building buffers; so that you have fiscal sustainability over the long term. So, we are confident that we are going to finalize soon, and we also confident there is enough space for both investment and building buffers for fiscal sustainability.

MS. CANDIA: Thanks, Ilan. Let me read just one more question online, from Panama, Roberto Gonzalez Jimenez asking if you can confirm, you know, the trends; If you can talk about the factors that explain the upward revision for Panama, and what are the elements that will generate economic growth in 2022.

MR. GOLDFAJN: So, there is a pattern here in the region, very strong rebound that went to the end of the year and at the beginning of this year. So that's the question on Brazil that has happened in Argentina, we just talked about Chile. And again, on Panama, why would there is an increase in the forecast for Panama, basically, we had a very strong third quarter and fourth quarter. So that carries over for the average increase in 2022.

In addition for that, there is a construction of new metro line, recover of private investment, and increase in commodity as we mentioned, export of commodities is where the region can position itself as the solution of what the world needs. So here we have the export of copper, but we have export of grains in part of the region, export of metals, and even export of oil. And this position in the region can provide what the world needs is a positioning that could help boost credibility in the region. So, Panama, strong growth, end of the year, beginning of this year, growth had seven and a half percent more demand in a sense of more investments, public and private and export of commodities.

MS. CANDIA: Thanks, Ilan. We're going to go to WebEx before we take one final question online. Eric, you have your hand? Can you raise it?

SPEAKER: Yeah. Thank you, just wanted to, to follow up on a couple of the questions with Argentina about targets because, Ilan, I just want to make sure, you know for clarity that I'm understanding right that my colleagues are understanding correctly. I've heard you say that the targets will not change. But then the Liana asked about the target for inflation. And you said you hadn't said it would not change are we using targets in -- I'm wondering if we're each using targets in a different definition. Or if you could just explain a little bit what you mean, by targets not changing or, you know, if you're focusing on the fiscal target, or which target, you're describing?

MR. GOLDFAJN: Yes, so thank you very much for your question. They are assumptions in the program, and targets. And inflation is one of the assumptions on the framework. And the targets are fiscal targets, monetary financing, structural targets. So those are the targets that I mean, of course, the assumptions could change, because of the new monitor--new macro framework that comes from a global from the global economy. New shocks, as I mentioned, in the case of Ecuador, they need to be changed those, those are assumptions that build into the framework, while the targets are fiscal, and reserves, and structural. And those will not change, because we have program objectives. And what we need to do is help the authorities prioritize the measures in order to fulfill these targets.

MS. CANDIA: Thanks, Ilan. And let me just finalize with a question from the Caribbean, from Peter Richards. Caribbean Media Corporation. He is asking, given the sharp escalation in price of stable food items and fuel should Caribbean countries be looking to cut subsidies at this time?

MR. GOLDFAJN: There is, as I mentioned, a very important impact of food and energy in most countries and in the Caribbean, in addition to the impact on the most vulnerable, there's also impact on balance of payment on the country that has import. What is important at this point is to be able to protect the most vulnerable part of the population. Use the existing safety nets, if they exist, increase the coverage of them. And as possible, try to implement prices to be as close as possible to international prices. Having in mind that there are fiscal costs, we calculated that the fiscal costs of the region of those measures that have been done are around 0.3 percent of GDP up to now. So, we need to be a careful on the vulnerable, use the safety nets, increase them, if possible, but have in mind the fiscal cost. In places where you don't have well established safety nets, you could try to smooth the shock over time, by not increasing by one by immediately but smooth it over time. That also has cost. But here the name of the game is temporary, so that you can protect the population but at the same time have fiscal sustainability over the long term.

MS. ROMERO: Thank you, Ilan with this question we end this press briefing. Thank you everybody for joining us today. And stay safe. Have a good day.

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IMF Communications Department

PRESS OFFICER: Maria Candia Romano

Phone: +1 202 623-7100Email: