Transcript of the April 2023 Western Hemisphere Department Press Briefing
IMF News, April 13, 2023
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- Published: April 13, 2023
Regional growth and resilience
- The Western Hemisphere "has proven to be very resilient" to multiple shocks and "growth has repeatedly surprised on the upside."
- Regional growth path:
- Grew by 7 percent in 2021.
- Grew by 4 percent in 2022.
- Expected to decelerate to 1.6 percent in 2023, with most of the region expected to avoid a recession.
- Drivers of the slowdown:
- Main trading partners are slowing.
- "The favorable terms of trade that we saw in the aftermath of COVID" have lessened somewhat.
- Global financial conditions are "less friendly than they were a year ago."
Inflation and monetary policy
- Inflation dynamics and distribution:
- High inflation "disproportionately hurts lower-income households" and has been concentrated in large increases in food prices.
- Headline inflation in the largest Latin America economies: peaked at around 10 percent in mid-2022; decelerated to around 7 percent in March.
- Core inflation in these economies averaged 8.4 percent in February.
- "For most countries, inflation remains well above the Central Bank’s target range."
- Central Bank response and outlook:
- Central Banks responded "quick and assertive[ly]"—effective in anchoring medium-term inflation expectations.
- Expectation that full impact of interest rate increases will be seen "during the course of this year."
- Central Banks "will need to remain resolute" until inflation is "unambiguously heading down towards target."
- Interest rates in the region will "likely remain high for much of this year and, in some cases, even well into next year."
Fiscal policy stance and recommendations
- Current stance:
- Fiscal policy in 2023 is expected to be "broadly neutral in most countries" despite low unemployment, constrained capacities, and unresolved wage and price pressures.
- Recommended rebalancing:
- Fiscal policy should play a bigger role via a "more contractionary fiscal stance this year and next" to:
- Bring demand back into line with supply.
- Lower public debt that increased abruptly due to the pandemic.
- Allow interest rates to decline earlier and reduce potential financial stability risks emerging in advanced economies.
- Design considerations:
- Preserve key social programs and continue spending on housing, education, and public infrastructure.
- Reduce inefficiencies in public spending (e.g., public procurement transparency and lower costs).
- Redesign taxes to raise revenue and make tax systems more progressive; "The wealthy and the more fortunate should pay more of their fair share."
- Well-designed policies can "restore macroeconomic stability, can tackle inflation, and can bring down debt in a socially equitable way."
Financial sector and external risks
- Banking stresses in advanced economies:
- "So far, we see these problems have had little impact on Latin America and the Caribbean."
- Reasons: limited direct linkages to troubled institutions in the U.S. and Europe; payoff from past investments in supervision, regulation, and high banking standards in the region.
Country-specific engagements and observations (Q&A highlights)
- Ecuador:
- Discussions with authorities on IMF financing are ongoing, but "we haven’t actually received any request, formal request, from the government on financing."
- On political uncertainty: uncertainty is empirically associated with lower consumption and investment; "the sooner the uncertainties are resolved, the better."
- Brazil:
- IMF supportive of efforts to design a fiscal framework; impressed with proposed medium-term primary balance improvement.
- Article IV Consultation in Brazil scheduled "next month" for more detailed discussion.
- Argentina:
- IMF completed a review in March and disbursed; drought has made the situation more difficult.
- IMF will engage with authorities for next review and to help recalibrate policies; specifics are premature.
- Honduras:
- Longstanding IMF engagement with capacity development support; continuing discussions on balancing protection of the vulnerable with stronger public finances.
- Program discussions ongoing; no new developments announced.
- Panama:
- Rapid recovery post-pandemic; reached pre-pandemic GDP levels though some sectors lag in employment.
- Expected to be among the fastest growing economies in the region in 2023.
- Structural shift from investment-driven growth (canal, mining, public infrastructure) toward services: logistics, finance, legal services, and trade-related services.
- Suriname:
- Program in place but reviews stalled around mid-2022 due to personnel changes and policy issues.
- Authorities reached agreement with Paris Club creditors and are close with India; progress on restructuring Chinese official debt would help the program.
- Chile:
- Only country in the region projected to contract in 2023: contracting 1 percent.
- Context: Chile grew 14 percent over the last two years and remains well above pre-pandemic trend output.
- IMF considers Chile to have strong fiscal and monetary institutions; IMF "do[es] think a tax reform is needed" and encourages dialogue with Congress to reach consensus.
- El Salvador:
- IMF engaging with authorities; Article IV discussions recently finished. No formal program request received; preliminary discussions on a possible program are ongoing.
- Caribbean tourism-dependent economies and Citizenship by Investment (CBI) programs:
- CBI programs have been "a very important feature of the region" and generated important revenues.
- IMF advice on CBI revenue management:
- Revenue is very volatile; recommended saving CBI revenue and spending from the income stream rather than lumpy, stop-go spending.
- Maintain and improve the integrity of CBI schemes; ECCU moving to improve integrity in conjunction with larger economies.
- Tourism outlook:
- U.S. economy expected to slow but still grow; shift from goods to services consumption benefits tourism-dependent Caribbean economies.
- IMF baseline does not assume U.S. recession, but counsels contingency planning for potential U.S. slowdown or higher U.S. interest rates.
Cross-cutting policy messages
- Macroeconomic policy coordination:
- With most economies operating at or above potential, macro policies should aim to realign demand with potential output to ease price pressures.
- Monetary tightening has done much of the heavy lifting; fiscal adjustment can complement monetary policy to accelerate disinflation and debt consolidation.
- Governance and reform priorities:
- Improve public spending efficiency and procurement transparency.
- Undertake progressive tax reforms to raise revenue and strengthen public finance credibility.
- Strengthen financial sector supervision to insulate the region from external banking stresses.
Source: IMF Communications Department, April 13, 2023.