Transcript of Western Hemisphere Department Press Briefing

IMF News, January 25, 2019

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• Published: January 25, 2019

Regional growth outlook and drivers

• IMF projects regional growth of 2 por ciento in 2019 and 2.5 en 2020 for América Latina.
• Excluding Venezuela, the regional average is 2.3 por ciento in 2019.
• Acceleration in 2019 is driven mainly by:
  • A rebound in Brazil.
  • A substantially smaller contraction in Argentina in 2019 compared with 2018.
• Centroamérica is expected to grow at "alrededor del 4 por ciento, 3.8 por ciento".
• Caribbean economies are expected to accelerate toward growth rates "más cercanas al 2%".
• Risks slowing the regional acceleration:
  • Weakening global activity.
  • Increased uncertainty about economic policy implementation in countries with new administrations.
  • Intensification of trade tensions.
  • Tightening of global financial conditions and episodes of market volatility.

Key country assessments and near-term projections

• Argentina
  • 2018 contraction: 2.8 por ciento.
  • Projected 2019 contraction: 1.7 por ciento.
  • IMF expects Argentina to begin exhibiting quarterly growth starting in Q2 2019, supported by:
  • Real wage increases.
  • Falling interest rates.
  • Recent stability in financial variables.
  • Inflation and expectations:
  • Market expectations around "28 por ciento, 27 por ciento" for 2019.
  • Latest Staff Report projection remains at "20.2 por ciento" pending revision after the program's third review (team visit to Buenos Aires in the second week of February).
  • IMF notes a likely upward revision above "20 por ciento" given high end-2018 inflation.
  • IMF expects a reduction of inflation by "en los dos dígitos" in 2019 and stabilization toward single-digit inflation in the medium term if fiscal and monetary targets are met.
  • Political uncertainty around elections could affect investment and the medium‑term policy framework; a political shift could materially affect program outcomes.

• Venezuela
  • 2018 hyperinflation rate was "cercana a 2 millones por ciento".
  • IMF’s scenario for 2019 hyperinflation: "10 millones por ciento" if no policy changes occur.
  • 2018 contraction was "18 porciento".
  • IMF expects continued double-digit contraction in 2019 and cumulative contraction since 2013 to be "mayor al 50 por ciento" (economy today is "menos de la mitad" of 2013).
  • Continued acceleration of hyperinflation, deepening humanitarian crisis, and intensified migration flows are expected absent policy change.
  • IMF monitoring of official data delivery and member states' positioning on recognition is ongoing.

• Brazil
  • IMF projections assume compliance with the constitutional expenditure ceiling.
  • Implicit in forecasts is that either a social security reform or other large entitlement reform will be enacted to help comply with the ceiling.
  • IMF views social security reform as "one of the key elements" to place public finances on a sustainable path and to enable higher potential growth via improved fiscal sustainability and a more supportive environment for investment.

• Mexico
  • IMF notes market perception is favorable regarding fiscal objectives, the budget, and macroeconomic management.
  • Theft of fuel is estimated at "alrededor de 3000 millones de dólares anuales".
  • IMF supports the objective of eliminating fuel theft because it:
  • Improves PEMEX finances.
  • Supports public finance consolidation.
  • Reinforces the rule of law.
  • IMF cautions that design of anti-theft measures should minimize adverse collateral effects on the rest of the economy.

• Chile
  • IMF endorses structural reforms that:
  • Maintain fiscal consolidation toward a primary balance over the medium term and stabilize the debt/GDP ratio.
  • Reduce distortions to investment (tax reform).
  • Strengthen pension system viability (pension reform).
  • Reduce regulatory burdens and promote investment, including adoption of information technologies.
  • Quantitative effects on potential growth will be assessed in the next Article IV consultation.

• Peru, Colombia, other Pacific Alliance members
  • Peru: projected growth of "3.8 por ciento".
  • Colombia and Chile: expected growth "alrededor de 3.4 por ciento" (Chile decelerating slightly, Colombia accelerating).
  • These economies have largely absorbed earlier terms-of-trade shocks and are on a stable growth path, with growth slightly below potential.

• Smaller economies (Uruguay, Paraguay)
  • Have shown important resilience and strong economic management, limiting contagion from regional volatility.

Financial conditions and spillovers from advanced economies

• US monetary policy and the Fed
  • IMF considers a data-dependent, cautious Fed approach appropriate as the US nears neutral interest rates.
  • A more cautious Fed is broadly positive for Latin America through laxer global financial conditions, but:
  • Countries with strong real ties to the US (e.g., Mexico) may be more affected by weaker US real activity.
  • Commodity-exporting countries in the Southern Cone may benefit more from eased financial conditions.
• Global risks emphasized:
  • Trade tensions.
  • Episodes of volatility and tightening in financial conditions like those seen at end-2018 could spill over to the region.

IMF engagement, conditionality, and technical advice

• Ecuador
  • Ecuador has not formally requested a program from the IMF.
  • Over the last 6–8 months, the IMF has engaged in technical consultations with Ecuador's Ministry of Finance on macroeconomic projections and policy advice.
  • IMF views the Moreno administration's announced plan as moving in the right direction to restore macroeconomic balance while striving to protect social spending and vulnerable groups.
  • The IMF stands ready to negotiate a financial support program promptly if Ecuador requests one.

• IMF program approach and monitoring
  • For countries with programs (e.g., Argentina), IMF assessments stress adherence to fiscal and monetary targets as anchors of credibility.
  • For Venezuela, IMF has not revised full macro forecasts outside the WEO publication timetable due to severe data and policy uncertainty; a full update would come in spring with the World Economic Outlook.
  • IMF will closely monitor Brazil's announced reform agenda, especially social security reform, for its importance to fiscal sustainability and capital market development.

Policy implications and recommendations (summarized)

• Maintain fiscal consolidation where needed to stabilize debt dynamics (Brazil: comply with expenditure ceiling; Argentina: meet program fiscal targets).
• Pursue structural reforms to boost investment and medium-term potential growth:
  • Brazil: social security and entitlement reforms, regulatory and trade-opening measures.
  • Chile: tax, pension, and regulatory reforms plus technology adoption.
• Continue consistent and credible monetary policies to reduce inflation and anchor expectations (Argentina: continued monetary consistency expected to lower inflation trends).
• Design measures to combat illicit activities (e.g., fuel theft in Mexico) to achieve objectives while minimizing collateral economic impacts.
• Prepare for global risk scenarios (trade tensions and financial tightening) by maintaining policy buffers and clear communications.

Exact key numerical figures cited in the briefing

• Regional growth projections: "2 por ciento" in 2019 and "2.5" en 2020.
• Regional average excluding Venezuela: "2.3 por ciento".
• Centroamérica growth: "alrededor del 4 por ciento, 3.8 por ciento".
• Caribbean growth: toward "más cercanas al 2%".
• Argentina:
  • 2018 contraction: "2.8 por ciento".
  • 2019 projected contraction: "1.7 por ciento".
  • Staff Report inflation projection (previous): "20.2 por ciento".
  • Market inflation expectations cited: "28 por ciento, 27 por ciento".
• Venezuela:
  • 2018 hyperinflation: "cercana a 2 millones por ciento".
  • 2019 hyperinflation scenario: "10 millones por ciento" (if no policy change).
  • 2018 contraction: "18 porciento".
  • Cumulative contraction since 2013: "mayor al 50 por ciento".
• Estimated annual fuel theft in Mexico: "alrededor de 3000 millones de dólares anuales".
• Peru projected growth: "3.8 por ciento".
• Colombia and Chile projected growth: "alrededor de 3.4 por ciento".

Transcript of Western Hemisphere Department Press Briefing, January 25, 2019 — Alejandro Werner, Director, Western Hemisphere Department, IMF; IMF Communications Department.

References

• Argentina and the IMF
• Brazil and the IMF
• Chile and the IMF
• Colombia and the IMF
• Ecuador and the IMF
• República Bolivariana de Venezuela and the IMF
• Uruguay and the IMF
• Transcripts
• PRESS CENTER
• https://www.imf.org/en/home