Transcript of Western Hemisphere Department April 2024 Press Briefing
IMF News, April 19, 2024
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- Published: April 19, 2024
Regional outlook — resilience and growth
- The region "has showed quite a bit of resilience" with a stronger-than-expected rebound from the Pandemic attributable partly to progress in strengthening macroeconomic frameworks.
- With most economies operating near potential, activity has been "generally moderating in recent quarters."
- Growth projection: slowing from "2.3 percent that the region grew in 2023 to 2 percent this year."
- Risk assessment: "We see risk around this baseline projection as broadly balanced."
Labor markets and inflation
- Labor markets: "unemployment still at historical low levels almost everywhere."
- Inflation trajectory:
- "Inflation is receding throughout the region" and is projected to "continue falling during this year."
- Decline attributed to "swift actions of the region's central banks," "the global disinflation trend," and normalization of supply-side shocks.
- Central banks "have started to reduce rates, although policy rates remain in contractionary territory."
- Policy guidance on monetary easing:
- "More policy easing should continue," with careful calibration to balance bringing inflation back to target and avoiding undue economic contraction.
Fiscal policy, public debt, and policy space
- Public debt context:
- "With public debt at high levels, we think that fiscal policy should focus decisively on rebuilding policy space."
- Many countries "have withdrawn the Pandemic related fiscal stimulus" but entered the Pandemic with "high debt from before the Pandemic."
- "Risks of slippages are increasing as consolidation plans are being postponed."
- Recommendations:
- "Faster consolidation is needed to put public debt on a stronger footing."
- "Timely fiscal tightening will also allow for faster normalization of the monetary policy mix."
- Fiscal adjustment should include "revenue mobilization to protect key social spending."
- "Maintaining social cohesion should be a centerpiece of a fiscal consolidation plan given the region's high, still levels of poverty and inequality."
Structural reforms to raise potential output
- Medium-term growth outlook:
- "The region's medium-term growth is projected to average about 2 percent* in the next few years, and this is well, well below the growth rate of peer economies in other regions."
- *[Reference to region in the sentence above refers to: Brazil, Chile, Colombia, Mexico, Paraguay, Peru, and Uruguay.]
- Policy priorities to boost potential output:
- "Identify structural reforms with high growth payoffs and build political consensus to implement them durably and inclusively."
- Key reform areas: strengthen governance, improve the business environment, raise historically low investment levels.
- "Comprehensive and well sequenced climate change strategies" including investment in green minerals and energy sectors.
- Labor market reforms: raise participation rates amid slowing population growth and aging, "including tackling gender gaps," reduce informality, foster firm growth.
- Security: "reducing crime and violence ... would also have substantial socioeconomic gains."
Remittances, gold, and external environment
- Remittances:
- Remittances "have been very strong in the last few years" and "have been much more durable than expected," supported by a strong U.S. economy.
- Gold and commodities:
- Market observations raised by press: "The price gold is $2,394 by ounce today."
- Over the last 12 months, gold "raises like more than 12 percent."
- Market purchases cited: "the market bought like 4,900 tons the whole year."
- IMF comment: global commodity and inflation movements can affect gold prices, but future gold prices are uncertain.
Country-specific highlights and program engagement
- Argentina:
- Program progress: "The authority Stabilization Plan has yielded better results than we anticipated": "the first fiscal surplus over a decade," reserves being rebuilt, central bank balance sheet strengthened, inflation "coming down more quickly than we anticipated."
- Program dialogue: IMF and Argentine authorities are "working to complete the 8th review of the existing Fund supported program."
- Foreign Currency Liquidity (FCL) and repayments:
- Argentina "drew the FCL in 2020" and "they will continue their longstanding plan to meet the repayment obligations to the Fund as scheduled initially."
- Repayments "had already programmed these repayments in the budget for this and next year."
- Authorities have "reiterated their request of a new FCL for purely precautionary purposes" expected to be considered by the IMF Board in the coming weeks.
- Exchange rate and capital controls:
- Any unwinding of FX controls "will need to be carefully considered" in light of remaining imbalances, reserve buffers, and sequencing across measures.
- On equilibrium real exchange rate: "critical that at the end policies have to be consistent and that includes the level of the real effective exchange rate, although it's a result, not a policy."
- On growth targets and removal of capital controls: IMF commentary emphasized sequencing and cautioned that unwinding controls is not a single-step action; no categorical yes/no that exit from controls is a necessary condition for a specific growth target.
- Mexico:
- Performance: "Mexico is growing more than we had expected in the past" and benefits from proximity to the U.S. amid changing trade dynamics.
- Risks and constraints: bottlenecks in energy and infrastructure noted; fiscal policy described as "procyclical this year" with "considerable consolidation towards 2025" expected.
- Exchange rate movements: recent peso fluctuations partly reflect markets reassessing the timing of U.S. rate cuts; floating exchange-rate frameworks act as a shock absorber by design.
- Ecuador:
- Program negotiations: IMF "actively engaged with authorities" and "making good progress in the program negotiations," with outcomes to be informed in due course.
- Recent events: IMF "following very closely the recent events in the embassy, in the Mexican embassy in Ecuador" and expects diplomatic resolution in line with international norms.
- Constitutional court/debt limits: authorities have raised domestic legal constraints; IMF is engaged but no program details or commitments were disclosed in the briefing.
- El Salvador:
- Performance: "El Salvador did very well last year. Growth was higher than expected, the fiscal results were better than expected."
- Program discussions: IMF "would like to see the implementations of several recommendations" including composition of fiscal consolidation and governance reforms.
- Bitcoin: "the legal status of bitcoin" and associated risks "is part of the discussion for us" and measures to address those risks are important.
- Bond issuance: IMF "was not consulted and we haven't endorsed that operation." The bond was an operation between the country and the private sector.
- Haiti:
- Engagement: IMF has a "staff monitoring program" and is closely engaged.
- Security and macro outlook: restoring security is a precondition for macro stability and growth; IMF projection: "We are projecting 3 percent negative growth this year."
- Caribbean region (general) and small states:
- Recovery: Caribbean economies, particularly tourism-dependent ones, "rebounded very quickly and are normalizing."
- Drivers: tourism rebound is a key driver; outcomes vary across countries.
- Vulnerability and classification: no current plans "to change our definitions of which country is either -- which is not one who has concessional lending"; discussion on additional measures of vulnerability is ongoing.
- Policy advice: emphasize building fiscal space and buffers to prepare for natural disasters; adapt program design to vulnerability.
- St. Kitts/Nevis: IMF expects the economy to "continue to grow by 3 percent on average in the medium run." Reserves described as "five months of import" in context of regional reserve coverage.
- Diversification recommendations: advance renewable energy transition, increase investment in water/infrastructure/climate adaptation, better target current expenditures, and pursue tax reform and revenue mobilization to reduce reliance on citizenship-by-investment revenues.
- Chile:
- Crime and investment: rising organized crime is a concern that can be detrimental to growth; IMF work shows "security weaknesses are detrimental to growth."
- Growth forecast timing: IMF noted its published forecast may miss late data releases (e.g., February GDP) and could be revised upward; the REO forecast cited "2 percent" for Chile in context of recent data.
- Honduras:
- Performance: "Honduras also has done well, better than expected."
- Reserves and policy: reserves at "five months of import" (regional context earlier), fiscal policy "in line with the program," and structural reforms have been advanced.
- Recommendations: improve quality of fiscal policy with more investment and better-targeted current spending.
IMF role, assistance, and operational notes
- IMF support: "We stand ready to help to support all countries in the region through our policy advice, capacity development, and financial assistance."
- Program design: IMF emphasizes flexibility in program design to account for country vulnerability and stresses sequencing of reforms, particularly for capital account and FX policy changes.
- Communications and next steps: ongoing Article IVs, program reviews (e.g., Argentina 8th review), and continued engagement across countries mentioned; outcomes will be shared in due course.
Key policy recommendations (summary)
- Rebuild fiscal policy space via timely consolidation and revenue mobilization while protecting social spending.
- Continue calibrated monetary easing as inflation recedes, ensuring pace balances inflation objectives and growth.
- Implement structural reforms to raise potential growth: governance, business environment, investment, climate strategy, and labor force participation (including gender gaps).
- Strengthen resilience in small states and the Caribbean by building buffers, investing in climate adaptation, and tailoring program support to vulnerabilities.
- Address security and crime as part of the growth-enhancing agenda.
IMF Communications Department, Transcript of Western Hemisphere Department April 19, 2024 Press Briefing.