## Transcript of October 2019 Western Hemisphere Department Press Briefing

_IMF News, October 18, 2019_

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## Bibliographic details
- Published: October 18, 2019

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### Regional outlook and growth projections
- Global growth revised down in the World Economic Outlook; synchronized global slowdown is weighing on Latin America through commodity prices (prices and quantities) and weaker manufacturing exports.
- Regional growth projections:
  - Growth in América Latina y el Caribe projected to slow from 1.0 por ciento in 2018 to 0.2 por ciento in 2019.
  - Excluding the economy of Venezuela, growth is projected to be "un poco menor al uno por ciento".
  - Projected rebound to 1.8 por ciento in the following year, driven by private consumption and investment.
- Specific large economies:
  - Brazil and Mexico: projected to grow less than 1 por ciento in 2019 and to rebound to above 1 por ciento in 2020.
  - IMF projection mentioned later: Brazil projected at 2 percent growth for 2020 and 2.3 percent for 2024 (context: alternative forecast discussion).
- Financial conditions:
  - Global financial conditions have been more favorable for the region; external financing costs (line described as "la línea morada") have fallen in line with long-term rates in developed markets.
- Key constraints to higher potential growth in the region identified:
  - Low productivity, low investment, deficiencies in education quality, weak rule of law and judicial systems, high corruption, and unequal income distribution.

### Crisis in Venezuela and migration effects
- Humanitarian and migratory crisis in Venezuela:
  - As of October de 2019, Naciones Unidas estimated 4.5 millones de venezolanos had left the country.
  - Of those, 3.7 millones se habían asentado en otros países de América Latina.
- Effects on host countries:
  - Mixed effects expected; many recipient countries have so far absorbed migrants with “menores efectos distorsivos sobre el mercado laboral”.
  - Smaller Caribbean economies face acute fiscal pressure because migrant inflows represent a large share of their populations.
  - Colombia: process generating impact on public finances — referenced in the Article IV consultation — and the government has had to accommodate additional fiscal needs within its fiscal framework.
- Colombia specific figure cited by questioner: "un millón 300 mil venezolanos" already refugiados in Colombia (question context about fiscal impact).

### Argentina: program status, elections, and debt restructuring
- IMF meeting recap:
  - Recent meeting with the Managing Director, IMF senior management, Minister Lacunza, and Governor Sandleris reviewed recent economic evolution, effectiveness of measures from late August/early September, and constructed scenarios for coming months and the next year under different policy assumptions.
- Program assessment and conditionality:
  - IMF staff emphasize need for comprehensive evaluation of policy frameworks (fiscal, monetary) over a multi-year horizon to assess debt sustainability; cannot judge isolated operations without a full macroeconomic framework.
  - Staff view: premature to make a definitive judgment on whether the Argentine program “funcionó o no funcionó” at this stage; further analysis dependent on post-electoral policy proposals from the elected government.
- On debt restructuring / reperfilamiento and quita de capital:
  - IMF will analyze proposals once there is greater clarity on macroeconomic and policy frameworks after the electoral process; evaluations of sustainability and program design require that context.
- Exchange and capital controls ("cep o"):
  - IMF cannot make definitive statements about the risk of further tightening during transition until policies of the incoming government are clearer.

### Ecuador: program review, social unrest, and compensatory measures
- Program status:
  - Ecuador is in the midst of the second review. Authorities met quantitative fiscal and reserve targets in June (staff note: "met all the targets for fiscal targets and reserves and so on in June").
  - IMF awaiting a new decree on fuel pricing policies; the government has submitted structural reforms to Congress and is negotiating compensatory measures.
  - The program is “encaminado” but subject to uncertainty around fuel price policy and the final compensatory package; IMF will complete the review once the final package is available and interaction with the government is positive.
- Social unrest and implementation risks:
  - Acknowledgement of consternation when programs are associated with social problems (including fatalities during protests).
  - IMF has long recommended designing and strengthening compensatory mechanisms and social protection to protect vulnerable groups when measures affect household disposable income.
  - IMF is working with the government and multilaterals (World Bank, IDB) to support design and reinforcement of compensatory and social protection measures.

### Brazil: outlook, reforms, and structural constraints
- Growth outlook and drivers:
  - IMF projects 2 percent growth for Brazil in 2020 (noted as slightly lower than April forecast), reflecting weaker external demand (China, Argentina, global slowdown).
  - Recovery since 2015-16 has been slow; growth around 1 percent a year in the three years following the 2015-16 recession.
  - Investment has been especially weak; some recent pickup in construction investment noted but overall indicators not showing a strong rebound.
- Role of reforms:
  - Pension reform: confidence effects from approval (near approval in Congress at the time) are expected to support a pickup.
  - Structural reforms under consideration: tax reform, financial sector reforms (including BC hashtag agenda), trade liberalization, privatizations.
  - IMF does not mechanically assume higher medium-term growth from reforms until specific measures are in place; forecasts do not build in unannounced reform effects.
- Taxation and financial intermediation:
  - Tax system identified as an impediment to investment; tax reform could enhance productivity.
  - Nominal interest rates at record low levels as inflation is well within target; monetary policy appropriately accommodative if inflation expectations remain anchored.
  - High intermediation spreads noted historically; reduction in policy lending share and further plans to reduce it could lower spreads and support intermediation.

### Mexico: security, fiscal options, Pemex, and fiscal institutions
- Security and rule-of-law concerns:
  - Recent violent events (example: Culiacán, Sinaloa) underscore structural importance of rule of law, judicial effectiveness, and crime control for Mexico’s growth prospects.
- Fiscal options and recommendations:
  - IMF "Concluding Statement" discussed tax measures as options to preserve fiscal solidity in the face of medium-term fiscal pressures; any tax changes should consider compensatory mechanisms to protect vulnerable groups.
  - Fiscal framework: authorities open to a more holistic reconsideration of the fiscal framework, including fiscal rule design and enforcement. IMF technical assistance is ongoing.
  - Independent Fiscal Council: IMF team covering Mexico continues to view an independent fiscal council as a valuable element to reinforce the fiscal framework; recommendation remains valid.
- Pemex:
  - IMF requested reconsideration of Pemex’s business plan: concerns include an ambition to increase oil production without clear upstream investment financing, heavy focus on downstream activities, limited non-core asset sales, and insufficient private sector participation—these factors could impose a significant fiscal burden.

### Honduras: program review and near-term mission
- Program approved by IMF Executive Board in July.
- Program priorities: maintain macroeconomic stability, restructure the electric sector, increase social spending, and improve transparency and governance.
- IMF teams met with authorities; a staff mission scheduled at the end of the month to conduct the first review, update targets, and assess implementation amid more complicated international circumstances (e.g., lower FDI in H1).

### Colombia: migrant absorptions and fiscal implications
- Colombia has absorbed large numbers of Venezuelan migrants; government has accommodated the fiscal pressures within its fiscal rule so far.
- IMF notes both costs and benefits: migrants often have human capital above host averages, but absorption creates fiscal and administrative challenges.
- A recent constitutional ruling (in the Q&A) added short-term fiscal pressure related to a fiscal reform that the government and Congress were expected to address quickly.

### Cross-cutting policy guidance and priorities for the region
- Policy mix priorities:
  - Fiscal consolidation remains a priority in several countries with elevated debt levels and significant foreign-currency denominated debt exposure.
  - Monetary policy can support growth where inflation and inflation expectations are stable and well anchored; lower global rates provide additional space to respond if an unexpected slowdown occurs.
  - Strengthening social protection and designing compensatory mechanisms are essential when fiscal or price measures negatively affect vulnerable households.
  - Structural reforms (tax reform, improving rule of law, boosting investment, enhancing governance, increasing private sector participation in state enterprises) are key to raising potential growth.
- Program engagement principles:
  - IMF programs include flexibility for authorities to choose different policy paths to meet targets, but program design assesses sustainability through an integrated multi-year fiscal and macroeconomic framework.
  - IMF teams engage broadly with stakeholders (central banks, ministries, civil society, unions) during missions and will seek to expand outreach where appropriate.

*Transcript of October 18, 2019, Western Hemisphere Department press briefing — 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)
- [Colombia and the IMF](http://www.imf.org/external/country/COL/index.htm)
- [Ecuador and the IMF](http://www.imf.org/external/country/ECU/index.htm)
- [Honduras and the IMF](http://www.imf.org/external/country/HND/index.htm)
- [República Bolivariana de Venezuela and the IMF](http://www.imf.org/external/country/VEN/index.htm)
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_Source: https://www.imf.org/en/news/articles/2019/10/20/tr101819-transcript-of-october-2019-western-hemisphere-department-press-briefing_