Transcript of Western Hemisphere Economic Outlook October 2024 Press Briefing
IMF News, October 25, 2024
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- Published: October 25, 2024
Major messages and regional outlook
- Two key messages from the report release:
- Need to rebalance macroeconomic policies in the region.
- Urgency to press on with structural reforms to boost potential output growth.
- Growth projections and baseline figures:
- Excluding Argentina and Venezuela, growth in Latin America and the Caribbean is expected to moderate from 2.6 in 2023 to 2.2 in 2025, passing through 2.6 in 2024.
- Risks to near-term growth are tilted to the downside, partly reflecting global risks including persistent geopolitical tensions.
- Inflation and monetary policy:
- Inflation has fallen markedly since the peak of mid-2022 and is near target in most countries, but "not a target almost everywhere."
- Expectation of continued easing of monetary policy, but "gradually" because of sticky services, imperfectly re-anchored inflation expectations, upside inflation risks from commodity price volatility, geopolitical risks, and fiscal slippages.
- Output gap and inflation gap:
- With both gaps mostly closed, policymakers should focus on rebuilding policy space and boosting potential growth by rebalancing policy mix and advancing structural reforms.
Policy mix, fiscal consolidation, and monetary policy interaction
- Current regional policy stance:
- Generally tilted toward tight monetary policy while fiscal policy remains loose in many countries.
- Earlier monetary tightening was essential to bring down inflation; however, policy rates remain elevated in many countries while inflation is near target.
- Fiscal challenges and recommendations:
- Public debt levels are high and will continue rising without fiscal consolidation.
- Most countries have ambitious fiscal consolidation plans, but implementation has been delayed; timely implementation is crucial.
- Key fiscal policy actions recommended:
- Proceed with fiscal consolidation without further delays.
- Protect priority public spending, investment, and social spending during consolidation.
- Strengthen current fiscal rules so they can deliver consolidation objectives.
- Delivering fiscal consolidation is critical to support normalization of monetary policy and credibility of macro frameworks.
- Policy coordination:
- Rebalancing implies fiscal policy moving in the right direction would allow central banks to proceed with monetary easing while remaining vigilant against reemerging price pressures.
- The interaction between fiscal and monetary policy described metaphorically as a "tango" requiring careful coordination.
Structural reforms and medium-term growth constraints
- Causes of subdued medium-term growth:
- Longstanding unresolved challenges including low investment and especially low productivity growth.
- Shifting demographics: labor force is growing less than before, weakening a key engine of growth.
- Ongoing reform agendas are thin in many countries, risking a vicious cycle of low growth, social discontent, and populist policies.
- Priority reform areas (cross-cutting and country-specific):
- Strengthening governance: reinforce rule of law, improve government effectiveness, tackle crime more efficiently.
- Improve business environment and public investment to increase overall investment.
- Reduce informality and make labor markets more conducive to productivity gains; increase women’s labor force participation to offset demographic headwinds.
- Position the region to harness benefits of the global green transition and technological advances.
- Specific observation on mining investment:
- Despite opportunities for green minerals, mining investment in the region has not picked up; IMF Managing Director’s quote: "we can do better."
Country and regional vulnerabilities highlighted in Q&A
- Security and investment:
- Security (crime, violence) has macroeconomic impacts—matters for growth, investment, and well-being.
- IMF estimate: if the region halved the difference between its homicide rate and the world average, growth could increase by about half a percentage point for a good 10 years.
- Caribbean vulnerabilities and climate-related losses:
- Countries in the Caribbean lose 2.5 percent of GDP in capital per year on average; over 10 years this can amount to a 25 percent loss in capital.
- Policy recommendations for the Caribbean:
- Integrate mitigation and adaptation strategies into public investment plans.
- Foster private finance participation to increase investment for climate resilience.
- Reduce fuel consumption through electrification and invest in renewable energies to enhance resilience and competitiveness.
- Use insurance, contingency bonds, and resilient investment practices; example: Jamaica used contingencies effectively after a hurricane.
- Ecuador:
- Growth forecast for Ecuador increased from 0.1 to 0.3 percent for 2024 (report includes strength in first part of the year).
- Ecuador faces a severe electricity crisis due to the worst drought in many decades; crisis is unfolding and expected to impact economic conditions and fiscal needs.
- IMF stance on Ecuador program:
- Authorities have made strong progress on the stabilization program.
- First Review of the program is expected to be discussed at the Board by the end of the year.
- Upon successful completion of the review, the second disbursement of $500 million would be available.
- Argentina:
- IMF does not disclose private conversations between authorities and management; engagement has been active and constructive.
- Management meetings highlighted important progress: reduced inflation, a strong fiscal anchor, nine months of primary surpluses, improvements in central bank balance sheet and international reserves.
- Challenges remain: need to balance domestic and external considerations; gradual and carefully calibrated unwinding of exchange restrictions and controls discussed.
- Teams continue to engage within the current EFF while authorities explore options for a new program; more information on engagement strategy expected in coming weeks.
- Honduras:
- Staff-Level Agreement for combined First and Second Reviews recently reached; bringing the program to the Board will support macroeconomic stability and facilitate disbursement of financing from other partners (e.g., IDB, World Bank).
- Ley de Justicia Tributaria (tax justice law) under congressional consideration:
- Honduras has about 15 corporate income tax special regimes; proposal aims to consolidate to three regimes.
- Tax exemptions amount to around 7 percent of GDP.
- IMF estimates the law could yield about 1 percent of GDP in revenues in the medium run.
- Chile:
- IMF notes efforts to make investment processes more predictable and shorten permitting procedures; initiatives to facilitate women’s labor force participation are also highlighted.
- No detailed fiscal judgment in the transcript beyond noting ongoing reforms and structural measures to raise potential growth.
- Reference to external forecasts in questions: Central Bank of Chile long-term GDP growth expectation mentioned as 1.8 (questioner reference).
- Brazil:
- Fiscal challenge: need to implement consolidation to stabilize debt; many expenditures are rigid and politically difficult to adjust.
- IMF recommends combining spending measures with revenue mobilization and structural reforms (wages, pensions, tax expenditures).
- Consolidation can reduce risk premia and open the possibility of lower interest rates, supporting growth.
Additional points from the briefing
- Institutional cooperation and alternatives:
- The region has multiple development finance and reserve arrangements (IADB, CAF, FLAR); IMF emphasizes coordination across institutions rather than competing monopolies.
- Data and mission timelines:
- Regional Economic Outlook launch event planned in Paraguay on November 4.
- The IMF is conducting Article IV and program reviews (e.g., Mexico Article IV ongoing; Ecuador EFF First Review mission scheduled; Argentina engagement ongoing within EFF).
- Notable numerical and factual references preserved from the briefing:
- Growth path: 2.6 in 2023; 2.6 in 2024; 2.2 in 2025 (excluding Argentina and Venezuela).
- Caribbean capital loss metric: 2.5 percent of GDP in capital per year (on average); 25 percent loss over 10 years as illustrative.
- Ecuador growth forecast revision: from 0.1 to 0.3 percent for 2024.
- Ecuador EFF second disbursement: $500 million.
- IMF estimate on growth gain from halving homicide gap: about half a percentage point for a good 10 years.
- Honduras tax exemptions: around 7 percent of GDP; potential revenue yield from reform: about 1 percent of GDP.
- Number of corporate income tax special regimes in Honduras: about 15; proposed consolidation target: three regimes.
- Argentina: nine months of primary surpluses (as cited during management discussion).
- Energy disruptions mentioned: Ecuador power outages of up to 14 hours (question context).
- Reference to global/national estimates in questions: potential GDP hit of 1.5 percent to Germany from trade war (questioner citation); potential 10 percent euro depreciation (questioner citation); Central Bank of Chile long-term growth referenced as 1.8 (questioner citation).
- Broad historical and institutional references: 80th anniversary of Bretton Woods institutions (questioner context); $3 billion tax revenue shortfall reference for Colombia (questioner context); historical Colombian growth of 4 percent versus current below 2 percent (questioner context).
Source: Transcript of Western Hemisphere Economic Outlook October 2024 Press Briefing (October 25, 2024), IMF Communications Department