## Transcript of a Press Briefing by the Western Hemisphere Department

_IMF News, October 8, 2016_

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## Bibliographic details
- Published: October 8, 2016

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### Regional economic outlook and key projections
- Latin America and the Caribbean: contraction in 2016 of .6 percent (average for the region).
- Regional recovery expected in 2017 at 1.6 percent.
- Assessment: recent disappointing results indicate lower potential growth on the midterm and reinforce the need for structural reforms to increase investment, productivity, and competitiveness.
- External environment:
  - Stabilization and slight recovery in some commodity prices; more significant recovery in oil.
  - Loosening of financial conditions for emerging markets since summer 2016.
  - Weaker-than-expected recovery in the United States noted as a potential negative factor.

### Country-specific outlooks — Brazil and Argentina
- Brazil:
  - Forecasted growth in 2017 of .5 percent, implying a change of almost four percentage points from minus 3.3 percent in 2016.
  - Forecast assumptions for 2017 include approval of a proposed spending cap by Congress and some kind of pension reform to make the spending cap viable.
  - If those reforms pass, expected further momentum in confidence, foreign investment, and growth.
- Argentina:
  - Forecasted GDP change from a drop of 1.8 percent in 2016 to growth of 2.7 percent in 2017 (change in growth of 3.5 percent).
  - Inflation outlook published with two numbers:
    - 23 percent (average for the year as a whole).
    - 20.5 percent (presented alongside the 23 percent in reporting).
    - Around 20 percent referenced as the year-end number; IMF clarifies Central Bank targets of 12 to 17 percent for the year and the December-to-December measure is typically used by central banks.
  - Observations: recent devaluation earlier in the year followed by relatively stable exchange rate; strong wage and price increases have led to a real appreciation in dollar terms and a higher cost of living in dollar terms.

### Venezuela and Colombia
- Venezuela:
  - Described as experiencing the largest negative growth and a continued contraction for a second/third consecutive year with the highest inflation in the world.
  - Humanitarian concerns emphasized; outlook for 2017 unclear due to lack of Article IV consultation and unclear policy changes.
- Colombia:
  - Fiscal reform aimed at replacing revenues lost from the fall in oil prices (about 3/3.5 points of GDP) to maintain fiscal sustainability and comply with the fiscal rule, thereby avoiding deeper spending cuts.

### Mexico
- Structural reforms (energy, telecommunications, electricity, natural gas pipelines) are proceeding but take many years to fully materialize in investment and output.
- Observed outcomes:
  - Fall in electricity prices and increased investment in telecommunications.
  - Energy auctions are taking place; pace may be slower due to lower world oil prices.
- Peso performance:
  - Peso has not rallied like other emerging market currencies since August 2016; linked to prospects of increased protectionism and U.S. election-related factors.
- Fiscal policy:
  - Public debt referenced at 56 percent of the gross public debt (question cited).
  - IMF recommendation: consider establishing an independent Fiscal Council to enhance transparency and public debate; government had indicated differing views on this proposal.
  - Government target: reduce public sector borrowing requirement to 2.5 percent of GDP by 2018; current deficit around 3 percent of GDP.

### Chile
- Public debt projected by the Ministry of Finance to reach 25.6 percent of GDP in 2017 (highest since 1993).
- IMF view: not concerned given Chile’s fiscal framework, low debt level relative to region, commitment to gradually lower the primary deficit and stabilize the debt-to-GDP ratio; recommend gradual consolidation using available fiscal space.

### Caribbean and Central America — growth drivers and policy challenges
- Caribbean:
  - Slight rebound in economies oriented toward international tourism; difficulties persist for commodity-tied economies.
  - Recommendations to diversify and adapt tourism offerings; invest in infrastructure, logistics, renewable energy, and non-traditional services (e.g., medical education, retirement communities).
  - Fiscal and financial sector challenges remain; some countries undertaking banking sector restructuring.
  - Case highlight: Jamaica’s IMF program implemented over almost four years seen as strengthening financial stability, gradual growth recovery, and attracting investor interest.
- Central America:
  - Recommendation to open fiscal space by eliminating exemptions/waivers that distort resource allocation; reallocate to lower rates and a more level playing field to foster productivity-driven investment and employment.
  - Advice: when times are good, build fiscal buffers; different countries face different fiscal pressures (e.g., Costa Rica, Nicaragua).
  - On proposed U.S. legislation to restrict Nicaragua’s access to IDB/World Bank/IMF funding: IMF is monitoring closely and considers implications speculative until outcome is known.

### Paraguay
- IMF adjusted growth projections rank Paraguay among the more dynamic economies (third-most dynamic in the region referenced).
- Strengths: consolidated macroeconomic conditions, access to international financial markets, strengthened banking system, and infrastructure investment supporting countercyclical forces.
- Recommended priorities: continued infrastructure and energy investment (critical for a land-locked economy) and a social inclusion agenda emphasizing education to foster inclusive growth.

### Fiscal and monetary policy guidance
- Fiscal policy:
  - Many economies exhibit a countercyclical fiscal position with primary deficits higher than midterm expectations.
  - Guidance: use fiscal space where available for gradual adjustment, protect social expenditure, and return to sustainable long-term fiscal positions; countries with higher debt and costs should pursue faster fiscal consolidation.
- Monetary policy and exchange rate flexibility:
  - Flexible exchange rates have helped mitigate external shocks and act as countercyclical buffers.
  - In many countries, a contractive monetary stance is no longer required as inflation moves back toward targets (examples cited: Chile and Colombia).
  - Central banks generally reference December-to-December inflation measures as the annual metric.

### Investment, confidence, and channels for recovery
- Investment trends:
  - Argentina had one of the lowest investment-to-GDP ratios last year; significant capital stock rebuilding needed.
  - Market interest in investing in Argentina noted, but conversion into real capital formation remains uncertain; agricultural sector among early sectors attracting investment.
- Role of policy reforms:
  - Structural reforms are long-term processes; persistence and full implementation are essential to realize benefits.
  - For Brazil and Argentina, policy changes are expected to generate positive impulses beginning late 2016 and into 2017, contributing to regional improvement in growth and confidence.

_Transcript of a Press Briefing by the Western Hemisphere Department, October 7, 2016, IMF Communications Department_

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## References

- [Argentina and the IMF](http://www.imf.org/external/country/ARG/index.htm)
- [Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)
- [Chile and the IMF](http://www.imf.org/external/country/CHL/index.htm)
- [Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm)
- [Nicaragua and the IMF](http://www.imf.org/external/country/NIC/index.htm)
- [Paraguay and the IMF](http://www.imf.org/external/country/PRY/index.htm)
- [República Bolivariana de Venezuela and the IMF](http://www.imf.org/external/country/VEN/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
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_Source: https://www.imf.org/en/news/articles/2016/10/08/am16-tr100716-transcript-of-a-press-briefing-western-hemisphere-department-whd_