Transcript of April 2021 Western Hemisphere Press Briefing
IMF News, April 15, 2021
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- Published: April 15, 2021
Regional growth outlook and key projections
- Latin America and the Caribbean contracted "7 por ciento" in 2020.
- The global economy contracted "3.3" in 2020.
- IMF projection for Latin America and the Caribbean in 2021: recovery of "4.6".
- Projection for emerging market economies excluding China in 2021: "5.8 por ciento".
- Projection for China in 2021: around "8 por ciento".
- U.S. growth cited as "almost al 6.5 por ciento durante 2021".
- Expected timing for GDP per capita to return to pre-pandemic level: "tal vez hasta 2024".
- Caveat: Projections are subject to elevated uncertainty given the pandemic’s persistence.
Drivers of the recovery and international spillovers
- Factors behind the second-half 2020 recovery:
- Economies adapted operations under distancing and quarantine.
- Stronger-than-anticipated policy responses (fiscal and monetary).
- External stimulus in advanced economies generated spillovers via:
- Prices of commodities.
- Remittances.
- Greater dynamism in manufacturing exports.
- International context supports regional recovery: U.S. and China growth and elevated commodity prices.
Risks and policy implications (fiscal, monetary, financial)
- Main near-term risk: persistence and intensification of the health crisis; importance of accelerating vaccination campaigns in 2021.
- Risk from rising international interest rates: potential for increased financial volatility that could limit the projected "4.6" recovery.
- Fiscal outlook:
- Region will exit the pandemic with significantly higher debt levels, raising vulnerability to interest rate shifts.
- Policy challenge: support recovery in 2021 where fiscal space exists while signaling credible paths to restore debt sustainability thereafter.
- Monetary policy:
- Central banks can maintain accommodative stances; rates are expected to remain below equilibrium and banks may expand balance sheets to support markets.
- Objective: prevent transitory inflation upticks from becoming entrenched expectations.
Labor market, poverty, and education impacts
- Labor market recovery: about two thirds of jobs lost at the pandemic peak have been recovered; one third remain lost, concentrated among lower-income and lower-education workers.
- Poverty: estimated increase in the population in poverty in 2021 of "casi en 20 millones de personas" relative to 2019.
- Education losses:
- Weeks of school closures in Latin America among the largest in emerging markets.
- Significant medium-term costs in future earnings for children and adolescents aged 10–19.
- Policy priority: implement measures to partly correct accumulated educational losses, especially for lower-income students with limited connectivity.
Inflation dynamics and central bank responses
- Regional inflation upticks expected in the second quarter of 2021, reflecting very low price levels in Q2 2020.
- These increases are expected to be transitory as economies operate below potential, but central banks must:
- Avoid letting transitory shocks contaminate medium-term inflation expectations.
- Rely on inflation-targeting with floating exchange rates where applicable; such frameworks have been effective in many countries.
- Country note: Mexico reported inflation in March as "4 67 por ciento" (as stated in the briefing); central banks should monitor expectations for 2023–2024.
Country-specific points from Q&A
- Mexico
- Second-quarter and transitory inflation factors explained as base effects from Q2 2020; central bank vigilance on expectations necessary.
- U.S. interest rate increases have not yet caused major problems; floating exchange rates and reserves are buffers.
- As of the briefing, Mexico had not formally requested use of the Flexible Credit Line; authorities have explored the option publicly.
- Argentina
- Inflation is elevated and a persistent concern; reducing it requires a macroeconomic framework and measures to anchor expectations.
- School and distancing restrictions risk weighing on the short-term rebound; economic adaptation moderates the mechanical impact of mobility reductions.
- Staff-level technical work on a possible program has advanced; timing to reach an agreement depends on Argentine authorities’ decision.
- On Special Drawing Rights (SDRs), comments by IMF management (Jeffrey Okamoto referenced) would be reviewed for exact wording; traditionally SDRs complement reserves.
- Ecuador
- IMF staff had worked with the current government; transition discussions expected with the president-elect’s team once they engage.
- Costa Rica
- Program approved by IMF Executive Board; pending approval by the national legislature (Asamblea Nacional).
- Peru
- IMF projection for 2021 growth was "8,5 por ciento" under an assumption of earlier control of the second wave; despite recent setbacks, prospects for a strong rebound remain due to large 2020 contraction and commodity prices.
- Peru contracted "más de 11 por ciento" in 2020.
- Chile
- IMF analysis: existing 2021 budgeted supports are adequate; Chile is projected to be the first Latin American economy to exceed 2019 GDP in 2021 under current policies.
- IMF view: avoid a third pension fund withdrawal or use of unemployment insurance funds for pandemic relief because:
- Such measures undermine pension system structure and long-term savings.
- They are poorly targeted and create medium-term costs.
- Prefer targeted, budget-funded, time-bound measures if additional support is needed.
- Brazil
- IMF expected Brazil to grow "around 3.7" in 2021.
- Comparative projected growth references: Chile "above 6 percent", Colombia and Mexico "around 5 percent", Peru "8.5".
- Brazil faces a trade-off: large 2020 fiscal support but need to avoid undermining debt sustainability; recent measures extended targeted cash transfers at a lower level and there are efforts to strengthen the fiscal framework.
- Vaccination: Brazil is in the region’s upper tier for vaccination rates but behind Chile; accelerating vaccination is important.
- Jamaica and tourism-dependent economies
- Many Caribbean economies saw debt ratios rise; an example: countries heading below a 90 percent debt-to-GDP threshold due to a "10 percent decline in GDP" are now "around 100 percent again".
- Policy trade-off: balance providing support for the poor and productive sectors with risks of triggering market volatility.
- IMF notes that a new allocation of Special Drawing Rights (SDRs) would increase authorities’ firepower and allow more forward-leaning support while retaining instruments to respond to volatility.
Policy recommendations and good-practice principles emphasized
- Health response: accelerate vaccination campaigns to enable economic reopening.
- Fiscal policy:
- Countries with fiscal space should continue supporting recovery in 2021, though generally at lower levels than in 2020.
- Communicate clear, credible medium-term plans to restore debt sustainability once the emergency passes.
- Use budgetary instruments for targeted support rather than drawing down structural funds (e.g., pension accounts or unemployment insurance) that cause long-term costs and poor targeting.
- Monetary policy:
- Maintain accommodative stances where appropriate; central banks should prevent transitory inflation from unanchoring expectations.
- Use central bank balance sheet tools to support financial market functioning when needed.
- External buffers:
- Floating exchange rates, sizable reserves, and contingent credit lines have helped manage capital flow volatility.
- SDR reallocations would strengthen central bank balance sheets and provide contingency space.
Transcript of April 2021 Western Hemisphere Press Briefing, April 15, 2021. IMF Communications Department.