Interview with Alejandro Werner on the Latest Economic Developments in Latin America

IMF News, October 28, 2019

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Growth in Latin America and the Caribbean is slowing down.
The region is expected to grow by 0.2 percent this year.
Slowdown drivers cited: continued trade tensions, lower global growth, subdued commodity prices, and in some large regional economies—high policy uncertainty.
To boost recovery and create more jobs, the region will need to rely on domestic drivers of growth, like consumption and investment.

The Regional Economic Outlook last year used data up to 2015; a closer look at more recent data is pending.
With slowing growth for the region as a whole over the past 3-4 years, progress in fighting poverty and inequality has also slowed down and possibly even reversed in some countries.
Policy priorities recommended:
- Strive for stronger growth that is more inclusive.
- Strengthen well-targeted spending and social programs to protect the most vulnerable groups.
- Address high levels of public debt that can affect governments’ ability to pay wages and invest in health, infrastructure, and education.
- These issues have remained a priority in the design of recent IMF supported programs.

Corruption erodes the government’s ability to help economies grow inclusively, diverts spending toward areas susceptible to embezzlement, and deprives the poor of essential public goods like health care and education.
Corruption corrodes the legitimacy of the state and undermines support for public policy implementation.
Regional initiatives mentioned to tackle corruption:
- Changes in campaign financing laws in Peru.
- New open government data portal in Paraguay.
- Inauguration of the Secretaría Anticorrupción de la Presidencia de la República in Ecuador.
IMF support roles: technical assistance, policy advice, and engagement in the context of IMF programs.

Venezuela is experiencing a dire humanitarian crisis driving large migration flows throughout the region.
Number of migrants from Venezuela is expected to reach 6 million people by end-2019.
About 90 percent of these migrants are expected to settle in Latin America and the Caribbean, putting immediate pressures on public spending needs and labor markets.
Over time, migrants integrated into countries could contribute to higher economic growth.
Key policy challenge: manage the transition while economic activity has slowed and several countries need to reduce fiscal deficits.
The issue is particularly acute for countries receiving large migration flows relative to their local population, including some small states in the Caribbean, as well as Chile, Colombia, Ecuador, and Peru.

The IMF congratulated President-elect Alberto Fernández on his election and looks forward to working with his administration to tackle Argentina’s economic challenges and promote inclusive and sustainable growth that benefits all Argentines.
Context note from the interview: "Argentina just had an election yesterday."

IMF priority and government goal: put in place economic policies to address existing challenges, including putting debt on a downward path, reinforce growth, support investment in health and education, and improve lives of all Ecuadorians.
Two important pillars of the government’s economic plan highlighted:
- Substantial increase in resources for social protection aimed at shielding the poor and the vulnerable; the government has recently announced an increase in both the amounts and the population covered under the social protection schemes.
- Restore transparency and good governance, including efforts to improve accountability in the oil sector, fight corruption, and make public accounts accessible to all citizens.
Additional program aims: boost competitiveness and create more jobs by reducing barriers to hiring and promoting more women in the workforce.

Achievements:
- Reducing public debt by 50 percentage points of GDP since 2013 to below 95 percent of GDP.
- Hitting an all-time low unemployment rate of 7.8 percent.
Key elements of success:
- Establishment of the Economic Programme Oversight Committee with ownership from local society, different stakeholders, and political parties.
- Consistent communication to keep the public informed and carry reforms through.
- Phasing in difficult reforms:
- Switch from direct to indirect taxes phased in over two years.
- Increase in pension contributions from public employees and the central bank recapitalization phased in over three years.

Interview with Alejandro Werner, IMF News, October 28, 2019.