Transcript of Western Hemisphere Department Press Briefing

IMF News, April 21, 2017

Source details

Canonical URL

Transcript of Western Hemisphere Department Press Briefing

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: April 21, 2017

Regional outlook and medium-term projections

• The region is "recovering slowly" from the recession of the previous year and from very low or negative growth in 2015.
• Average growth:
  • 2017: expected average growth of 1.1% (after a negative 1% in the prior year).
  • Medium term: projected to stabilize around 2.6%.
• Structural assessment:
  • Growth potential for the region is estimated to be "substantially lower" than in the previous decade.
  • Key structural priorities to raise medium-term growth: eliminate bottlenecks to investment, increase productivity, accumulate human capital, improve education quality, improve infrastructure, boost female labor force participation, and strengthen anti-corruption legal reforms.

Country-level summaries and forecasts

• Argentina
  • 2016: economy contracted "a little more than 2%".
  • 2017: IMF expects growth of 2.2%.
  • Inflation debate: IMF cited Argentina inflation expectations in the WEO as "around 21%" (government targets "around 17%"); Argentina ranks as the sixth country with highest expected inflation in the WEO table.
  • Fiscal approach: IMF supports a steady, well-communicated fiscal adjustment accompanying disinflation; pace should avoid excessive demand withdrawal while restoring fiscal sustainability.
  • External stability: authorities should be conscious of potential capital flow reversals; IMF supports reserve accumulation.

• Brazil
  • Deep recession prior years: contractions of about 3.8% in 2015 and 3.6% in 2016 referenced in discussion (earlier in remarks another figure for 2016 contraction was 3.5%).
  • 2017: IMF projection of 0.2% growth.
  • 2018: IMF baseline projects 1.7% growth (Finance Minister publicly stated 3% for 2018; IMF views this as unlikely given leveraged household and corporate balance sheets).
  • Pension reform:
  • IMF baseline assumes a "good" pension reform will be passed soon.
  • Minister Meirelles said a reform reaching 75% of the original proposal implies savings of $600 billion over 10 years; IMF will assess strength and exact parameters during the Article IV mission.
  • Political/corruption context: "Lava Jato" and related issues have affected confidence/liquidity; stronger, higher-quality reforms produce larger gains for confidence and growth.

• Mexico
  • Growth: IMF anticipates 1.7% in 2017 versus 2.3% in 2016.
  • Factors restraining growth: NAFTA renegotiation uncertainty affecting investment; weaker real wage growth (higher inflation) affecting consumption.
  • Public debt: around 55% of GDP.
  • Policy priorities: preserve strong macro framework (fiscal discipline, inflation targeting), diversify products and trading partners (including Asia and Europe), consider somewhat more ambitious fiscal targets to reduce public debt.

• Chile
  • 2017: growth expected to remain at 1.7%.
  • Recent episodes: mining strikes likely produced a technical recession in the latest quarter; underlying conditions point to recovery once supply disruptions end.

• Colombia
  • Adjustment following a near 50% decline in the value of exports.
  • Policy: timely restrictive policies produced an orderly deceleration; inflation spike (around 8%) viewed as transitory and returning toward target.

• Ecuador
  • 2017: IMF projects a contraction of 1.6%.
  • Rationale: sustained adjustment following the collapse in oil prices; slightly milder contraction than previous WEO due to somewhat higher oil prices and more accommodative financing conditions.

• Venezuela
  • 2016: economy contracted 18%.
  • 2017: IMF estimated contraction of 7%.
  • Inflation: IMF noted inflation "moving at four-digit rates" and "walking toward hyperinflation"; IMF had projected 720% (earlier number mentioned), while the WEO reported a consumer price inflation of 274% December-over-December from the Central Bank of Venezuela (acknowledged as the official, lower-end estimate); IMF highlighted a severe humanitarian crisis.

• Caribbean
  • Prospects improving with recovery in commodity-exporters and tourism-dependent economies.
  • 2016: significant recessions in commodity exporters (e.g., Surinam, Trinidad and Tobago).
  • Jamaica: stabilization programs showing positive results and accelerating growth.
  • Vulnerability: public sector debt remains an important regional vulnerability.

• Central America
  • Growth: maintaining an average around 4%, helped by Panama and the Dominican Republic.
  • Sustainability: IMF judges the growth performance in Central America to be sustainable, though averages are influenced by high-growth outliers.

Risks, spillovers, and macro-financial guidance

• Political/electoral risk
  • Upcoming electoral cycle across the region (elections in Argentina, Chile, Mexico, Brazil, Venezuela, Paraguay within ~18 months) increases uncertainty, which can delay investment and consumption and dampen near-term growth.
  • IMF concern centers on uncertainty effects rather than specific policy ideology.
• Corruption and governance
  • Corruption episodes (e.g., Odebrecht, "Lava Jato") have macroeconomic implications via liquidity, confidence, and investment channels; addressing corruption is a priority for macro stability and growth.
• Spillovers from Venezuela
  • Migration is the principal spillover channel; trade and financial linkages are limited, so direct economic contagion has been limited to date.
• Exchange rate regime guidance
  • IMF view: exchange rate flexibility has served the region well and should be the first line of defense against shocks.
  • Where countries opt for less flexible regimes, they must offset with consistent policies (e.g., strong fiscal positions, supporting policies).
• Reserves and capital flows
  • Countries (e.g., Argentina) should remain mindful of capital flow volatility and consider reserve accumulation as insurance against global reversals.

Policy recommendations and priorities emphasized by IMF officials

• Strengthen medium-term growth by:
  • Removing structural bottlenecks to investment.
  • Raising productivity and human capital accumulation.
  • Improving education quality and infrastructure.
  • Increasing female labor force participation where low.
  • Continuing legal reforms to strengthen anti-corruption frameworks and governance.
• Fiscal policy guidance:
  • Pursue steady, well-communicated fiscal consolidation paths that avoid abruptly contracting demand during fragile recoveries.
  • For countries with fixed or less flexible exchange rate regimes, ensure complementary macroeconomic policies (strong fiscal stance, etc.).
• Structural reforms:
  • Pension reform is critical in Brazil to sustain the expenditure cap and fiscal sustainability; reform strength matters for confidence and growth.
  • Diversify trade partners (including with Asia and Europe) to reduce reliance on any single market.
• Crisis and contingency planning:
  • Accumulate reserves as insurance against capital flow reversals.
  • Closely monitor political/electoral developments for their potential to generate investment wait-and-see effects.

Key statistics and projections (as stated in the briefing)

• Regional average growth:
  • 2017 expected: 1.1%
  • Medium-term projection: 2.6%
• Country highlights:
  • Argentina: 2016 contraction "a little more than 2%"; 2017 projected 2.2%.
  • Brazil: 2016 contraction about 3.5% (also referenced 3.6%/3.8% for 2015/2016); 2017 projected 0.2%; 2018 baseline projection 1.7%.
  • Mexico: 2016 growth 2.3%; 2017 projected 1.7%; public debt around 55% of GDP.
  • Chile: 2017 projected 1.7%.
  • Colombia: exports fell "almost 50%"; inflation spike to about 8% was transitory.
  • Ecuador: 2017 projected contraction of 1.6%.
  • Venezuela: 2016 contraction 18%; 2017 projected contraction 7%; WEO consumer price inflation reported as 274% December-over-December (official Central Bank of Venezuela number); IMF earlier projection cited 720% in discussion.
  • Central America: maintaining average growth "around 4%".
• Pension reform in Brazil: minister referenced a 75% version of the proposal equating to savings of $600 billion over 10 years (IMF will assess exact impacts during the Article IV mission).

Transcript of Western Hemisphere Department Press Briefing, Washington D.C., April 21, 2017 — IMF Communications Department

References

• People's Republic of China and the IMF
• Argentina and the IMF
• Brazil and the IMF
• Chile and the IMF
• Colombia and the IMF
• Ecuador and the IMF
• El Salvador and the IMF
• Mexico and the IMF
• República Bolivariana de Venezuela and the IMF
• Trinidad and Tobago and the IMF
• United States and the IMF
• IMF Policy Advice -- A Factsheet
• The IMF and Good Governance -- A Factsheet
• Transcripts
• PRESS CENTER
• https://www.imf.org/en/home