Transcript

Anoop Singh, Director, IMF Western Hemisphere Department
Singapore, September 16, 2006

Mr. Baker - Good morning, and welcome to the Latin American Press Briefing. I am Francisco Baker, Senior Press Officer for Latin America at the IMF. Let me introduce the table to you. Mr. Anoop Singh, at my right, is the Director of the Western Hemisphere Department and he will be the main speaker this morning. Also here with us are three Deputy Directors of the Western Hemisphere Department. Well, actually so far two; Mr. Fajgenbaum will be joining us very soon. But we have Ms. Caroline Atkinson, Mr. Ranjit Teja. We have two Senior Advisors, Mr. Markus Rodlauer and Mr. Chris Towe. We will have simultaneous interpretation in Spanish and in English.

Before we take questions, as usual Mr. Singh will have some opening remarks that we will later make available to you.

Mr. Singh - Good morning. It is a pleasure to welcome you to our update of the economic situation and the outlook for the region. I will open this press conference with some brief remarks on the key regional trends. Before I do that, let me inform you that our full presentation of the regional economic outlook will be made this year in Mexico City at the LACEA meetings in early November.

I would like to start by briefly discussing the global context, which I am sure you have heard described by the Managing Director and Mr. Rajan during their press conferences. The key message is that global economic growth remains solid. The United States continues to play a major role in propelling the world economy forward. Growth in the United States is projected to reach about 3½ percent in 2006-still the highest in the G-7 economies-and slowing modestly to 3 percent in 2007, with inflation easing as reaffirmed by yesterday's August CPI data. Growth in Canada is forecast at around 3 percent in both 2006 and 2007, in line with capacity. In both the United States and Canada, healthy corporate profits and business investment provide key support to the outlook. Nevertheless, as the Managing Director and Mr. Rajan have cautioned, downside risks remain a concern, and many of these have important implications for Latin America and the Caribbean.

Turning to Latin America and the Caribbean, this region continues to enjoy robust growth for the third successive year, which has helped achieve further reductions in unemployment and poverty. Real growth in 2006 is now projected to average around 4¾ percent, about ½ a percentage point higher than we forecast in the spring, and to stay in the 4 percent range in 2007. The moderating trend over the next 12 months reflects the more measured global expansion, the projected easing of commodity prices, and the maturing of strong recoveries in several countries.

The region continues to benefit from a favorable global environment, including strong commodity prices. Between 2002 and 2006, primary fuel and non-fuel commodity prices have risen by some 170 and 70 percent, respectively. Although higher world oil prices have placed a difficult burden on a number of countries, the broad-based boom in commodity prices has helped many countries in the region to achieve large trade and current account surpluses and accumulate external reserves. Favorable global financing conditions and continuing record low sovereign spreads have also sustained the growth momentum, notwithstanding some bouts of financial market volatility in the first-half of the year.

Encouragingly, growth has generally been quite broad-based, and domestic demand is expected to remain the main driver of the expansion in the near term. Private consumption is projected to account for more than two-thirds of regional growth in 2006 and 2007, and private investment ratios are set to increase further.

It should be underscored that hard-won improvements in macroeconomic stability have provided an important foundation for the continued economic expansion, and placed the region in a much better position to take advantage of global growth. And the commitment to stability has been reinforced significantly this year, with strong macro policies maintained during political transitions in a number of countries. This is a further signal that the region's commitment to macroeconomic stability is grounded on broad political and social support.

Most notably, perhaps, inflation has remained subdued during this upswing, despite sustained increases in commodity prices. After dropping to 6 percent in 2005, inflation is projected to decline further in 2006 and to 5 percent in 2007. This progress toward price stability provides further testimony to the growing credibility of monetary policy frameworks in most countries. This, in turn, has allowed for lower interest rates in a number of countries, markedly so in Brazil and Mexico, and helped to support increases in credit and investment.

The favorable macroeconomic performance has been generally well grounded in better fiscal policy and declining public debt ratios. Primary fiscal balances have been in surplus and are projected to strengthen further this year. In some cases, this reflects in part the impact of high oil and commodity prices on revenues. But large primary surpluses are also being maintained in some countries that do not have sizeable commodity revenues, such as Brazil, that continues to show exemplary fiscal discipline.

However, government spending increases have recently begun to accelerate in a number of countries, in a trend that needs to be monitored. Looking ahead, rising spending is projected to lead to a slight decline in fiscal surpluses next year, although these remain high by historical standards. Growth in real primary spending averaged 7½ percent in 2005 and is projected to accelerate further in 2006 (to 9 percent). These increases have outpaced real economic growth, thereby pushing up the average primary spending-to-GDP ratio by some 1½ percentage points since 2004 compared with a decline in spending ratios during 2003-04. It appears that the bulk of the recent increase reflects current spending. However, while higher commodity revenues have led to spending pressures, some countries in the region-most notably Chile-have shown exemplary discipline in channeling these revenues for debt reduction, rather than large spending increases.

While the outlook remains solid, there are downside risks-some related to the global outlook, and others rooted in domestic conditions-and important challenges. Turning first to the roles:

Tightening global financial market conditions. The compression of bond spreads to historic lows in recent years was partly driven by high levels of liquidity in mature financial markets. A tightening of global liquidity, especially if coupled with an abrupt shift in risk aversion, could lead to a much less favorable financing environment, although the region is less vulnerable to this risk than in years past.

U.S. demand. A sharp slowdown in the United States, triggered, for example, by a sharper-than-expected cooling of the housing market, would affect the region. For some Caribbean, Andean, and Central American countries, the risk is compounded by the challenge of adjusting to the loss of trade preferences.

Volatile commodity prices. While oil prices have recently fallen sharply, they remain high by historical standards and the oil market is expected to remain tight and volatile. Moreover, non-fuel commodity prices are projected to begin a gradual decline in 2007.

Domestic policies. Given still-high levels of public debt, deviations from macroeconomic policy discipline could undermine the region's progress toward entrenching macroeconomic stability. In this regard, a key risk is whether governments will be able to rein in the growth of public spending, especially if commodity-based revenues decline.

The key challenge for the region continues to be to raise growth on a sustainable basis, and to share its benefits broadly so as to reduce poverty and improve living standards across the board. The favorable global environment and sustained economic recovery provide the region with a rare historical opportunity to reduce resolutely its macroeconomic vulnerabilities and emerge from its history of macroeconomic volatility. This requires entrenching recent improvements in macroeconomic stability, improving financial intermediation, and reducing remaining barriers to investment and long-term growth. Fortunately, the policy agenda that will achieve this should also have a positive effect on equity, and I will have more to say on this framework when I present the regional outlook in Mexico.

In summary, the region continues to prosper. Furthermore, the widespread strengthening of macroeconomic policies achieved throughout the region has greatly improved its resilience to shocks compared with the start of the decade. Looking ahead, the overriding challenge today is to seize the opportunity afforded by the expansion to achieve a further and lasting reduction in the region's macroeconomic volatility and vulnerability to shocks, and allow a shift to a faster sustained rate of growth.

Before we move into the Q and A phase of this press conference, I would like to take a few moments to announce the launch of a new volume from the IMF entitled "The Caribbean: From Vulnerability to Sustained Growth"-there are a number of copies available at the back of the room.

This volume is in many ways a tangible demonstration of the increased focus in the Fund on the regional dimension of surveillance. The issues covered are those that I know are uppermost in the minds of policy-makers in the region [and I see several of them in the room today], including the challenge of coping with natural disasters, the decline in official development assistance, and the erosion of trade preferences. And I would like to take this opportunity to thank the authorities throughout the Caribbean for their cooperation in our work in the region. I am pleased that one of the principal authors of the book is here today-Ms. Ratna Sahay-and I am sure she would be happy to meet with you afterward and brief you more fully.

Mr. Baker - This book will be available for you at the back.

Question - I just wanted to ask you about the vulnerability of the region and the prospect that it will ever have to lean on the IMF again. They have been doing quite a lot to reduce outstanding dollar debt. I just wondered if you could tell me about that and the development of domestic bond markets in Latin America.

Mr. Singh - Well, I think the picture on that in many respects is very reassuring. There are countries in the region that have reduced their debt very markedly over the last two years. You know how Chile has been ensuring that its copper windfalls are being used to bring the debt down further and increase fiscal savings. The average debt for the region as a whole remains still relatively high, at close to 50 percent, but it has been coming down. In particular, the external debt component of that has fallen even further. I will ask Caroline if she has some numbers on this to give them to you. But you try to link this with a return to the Fund and to Fund resources.

I think one of the important functions of the Fund is to be there if conditions change. Right now, our emphasis is to make sure that countries are building their resilience, the need to withstand the shocks, which will inevitably come. As our Economic Counsellor has said repeatedly, there will be shocks; that is for sure. So, we have been trying to work with the authorities to ensure that they are protected against the shocks and that they do not face the kind of crises the region has faced in the past. At the same time, the Fund as an institution must and does stand ready to come to the support of its members if conditions do change and if they want that financing. Much of the financing that is now being given is being given in a precautionary way to signal our support for the policy framework. That is why we have a team going to Lima, Peru very shortly. It will negotiate a precautionary arrangement for the new government.

Ms. Atkinson - External debt, which used to average for the region about 25 percent of GDP, has now fallen to around 15 percent of GDP: 16 percent this year and 15 percent next year for the region as a whole. The numbers are very similar for the largest economies in the region. As Mr. Singh mentioned, total public sector debt remains around 50 percent of GDP for the region as a whole, although there are some economies with considerably lower ratios than that, notably Chile, just around 5 percent of GDP for total public debt. But the external component which has certainly been a vulnerability in the past is indeed much reduced.

Question - I was wondering if you could elaborate a little more about public spending in Brazil and your assessments about the tax burden in Brazil, that it is still high. There is discussion now that this money that is coming in because the economy is improving is going to finance public spending and not to investments in infrastructure or social spending.

Mr. Singh - Thank you. Well, as I said, in the region as a whole, spending was greatly compressed after the 2002 crises, and spending ratios to GDP actually fell in many countries. So, it is natural that that would rebound. So we have seen in virtually all the countries spending increases taking place. Now, as I said, these spending increases-and Brazil included-are not yet at a level that causes great concern, although the trend needs to be monitored closely. The point I was trying to make is there is an upward trend, not just in Brazil but in other countries. We know that as we decompose that increase, we know that the increase in capital and infrastructure support is reasonably high in Brazil and other countries, and that is a good thing. What we need to ensure in all these countries is that spending increases are sustainable and, as I said, that they are increasingly oriented toward equity-enhancing and poverty reduction. What I would say is that it takes time for countries to develop the projects that are worthy of that support. Brazil in fact is one of the pioneers of trying to ensure that spending is well-targeted.

I would point out two specific examples for Brazil. We know that spending on the (Bolsa de Familia Program) has been going up in a very steady and a well-targeted way. Over time, this program has expanded its reach and will, I believe, be reaching as many as 11 million families by the end of this year. This is a huge improvement and enhancement in the reach of a critical social spending program. We believe that this program, together with other policies, has been greatly instrumental in bringing poverty down in Brazil. Poverty in Brazil has come down substantially in the last three years and I think we need to recognize that.

I would also go on to say that as we look at the effectiveness of government spending in Brazil, there is encouraging recent information, I believe only yesterday, that shows that an important indicator of inequality in Brazil, the Gini coefficient, has improved even further. So, what I am trying to say is that the authorities have in the past taken great care to direct their spending in areas that will be poverty-reducing and equity-enhancing. Under the last program with the Fund, there was for example special treatment of sanitation spending, which was meant to be carefully controlled to ensure that the right incentives develop between the center and the provinces. So, we are very pleased that this orientation of spending is now paying dividends in terms of poverty, in terms of equity. This a huge development for a country as large and as important as Brazil.

Now, as we look ahead, obviously we need to make sure that the good record is maintained and that the spending increases are sustainable and in areas that will support poverty reduction.

Question - I have two questions. One is why, despite all of the reforms that Latin America has undertaken in recent years, it is lagging behind Asia and do you have any recommendations about what it can do. Again, on this issue of how spending has increased, I am wondering if perhaps investment has been a factor in other countries increasing investment, and also has spending in Venezuela been a big factor in pushing this number up. Also, with regard to Mexico, where current spending has increased quite a bit, has that been a big factor in the regional average?

Mr. Singh - Well, the first question you raise is very important because, in the end, we want our region to be at the forefront of global emerging market growth. We have recently prepared a paper that tries to look at how Latin American countries could sustain their recent growth rates and increase them, and looks at some of the lessons both from Asia and from the region's own experience. That paper will be available at a seminar that will be held, I believe, on Monday, in the Program of Seminars.

To answer your question, to my mind there is one economic fundamental we need to bear in mind-that high growth, sustainable high growth, requires in the end investment and it requires that investment to be productive. If you look at all the countries that have grown rapidly in the region-Chile, for example--and in Asia, you find that that group has higher investment and has higher productivity than the group that does not grow so fast. So, the lesson to me for the region is very clear. The region needs more investment and needs it in a sustainable way. It needs the investment to be productive. That is the key. You can draw your own implications how we get investment in a region where the public debt is still reasonably high and how we make that investment productive. We need more efficient private investment; there is no escaping that.

Now, coming back to your question on spending increases, it is true that the data on average spending increases are affected by the oil exporters and spending increases have been skewed and highest in certain oil exporters, such as Venezuela. Spending is well under control in Mexico but, as a rule, oil exporters' domestic spending has been running at a higher rate than the others.

Question - You have been speaking about Venezuela. What is your opinion on the performance of the Venezuelan economy? Is Venezuela taking advantage of its high revenues of oil? Since I have asked the first question on Venezuela, I would like to ask a second one on Cuba, to know if you have any plan to support any transition or any succession in Cuba.

Mr. Singh - Well, on your first question, we were very pleased to have a discussion on Venezuela just yesterday with an important member of the central bank Board, and we appreciated that very much. He conveyed to us some of the recent trends in Venezuela. Now, Venezuela has a tremendous opportunity currently, with high oil prices and oil windfalls, to use these oil resources to support poverty reduction and to make the investments within the oil sector so as to preserve its competitiveness for the future. So, this is a time of historic opportunity for Venezuela to use its windfalls in an efficient way.

Now, spending in Venezuela has been rising very rapidly. In fact, as we look at other countries, the spending increase in Venezuela, I believe, is probably the highest. We do not currently have the kind of disaggregated information on spending for me to give you a definitive answer on where the spending is going, but we are very interested to see that breakdown. This is a historic time for Venezuela to use oil revenues to establish conditions so that its nonoil economy and its unemployment rate can improve.

Question - You did not change the inflation outlook for Colombia and it has been picking up in the last months. Could you make an assessment of the current prospective for inflation?

Mr. Singh - Well, I think Colombia has been very pre-emptive, its central bank, in acting to keep inflation well under control. I do not see us being overly concerned over the inflation outlook over there.

Ms. Atkinson - I think that is right. Although inflation in the past couple of months has been a bit higher, we remain unchanged in our view that it is well under control, with a satisfactory inflation targeting regime which has considerable credibility.

Question - A question on Ecuador and Bolivia. I wonder if you have any estimate or any idea of what could be the impact of the end of the (ANDEAN) trade preferences which is a law that expires, as you know, at the end of December and which benefits their exports. Also, on the issue of energy policy, it was mentioned in the WEO and it was very criticized. I was wondering if you feel there would be a crisis in those countries because the production of oil is going down. I mean, do you expect, for example, that production will keep on going down?

Mr. Singh - Well, there is no doubt that the ending of the preferences with the U.S. will have a significant effect on the domestic economies of Bolivia and Ecuador. We have been doing some work trying to estimate what those effects would be in the different countries. I do not want to throw out numbers as a percent of GDP, but we have some numbers and they do show that there will be a significant effect on jobs in the domestic economy. So we are concerned about that prospect.

On energy, I think that the message from everywhere is one that I think has been well quite transmitted to Bolivia and to Ecuador, among other countries. The message is not so much about the role of the state in energy, because you can have different levels of state control in different countries around the world. The main issue for these countries is to have a predictable and a transparent environment for private sector involvement and one that does not change in a unilateral way. I do think that message is being internalized, so we have to wait and see what happens next. I would not necessarily be on the pessimistic side. I think both these countries realize they need more investment in their energy sectors; that is understood. I think these countries realize that their own public sectors are not able to provide all that investment. I do believe or I would like to hope that these countries are currently engaged in trying to see how they can now improve that environment so as to have a sustainable framework for the private sector. We have to wait and see. I think there will be more developments.

Question - Just two questions about Mexico. First of all, spending has increased but the government said that that is historically the most highest spending on social issues and reducing poverty. Is it true? Second, this increased spending with the increased windfalls, is it not linked more to the transfers to the states and municipalities, and what has been done with this kind of spending if it is not used in infrastructure, for example, or in bettering the conditions of the public partnership investments? The second question especially linked to Mexico is that Larry Summers said that countries like Mexico, maybe Brazil, Chile, have been increasing its international reserves and it could be this acceptance of the international reserves investment in more productive ways, especially financial instruments that are more profitable. It would be this kind of issues in support by the atmosphere (..unintelligible..)

Mr. Singh - I am going to ask Caroline to speak on the spending issues. There have been a lot of interesting views expressed on the use of foreign reserves. I know Larry Summers spoke on this issue sometime ago as well; I am not sure what he said this morning. The point is that the region is coming from a recent history where, in many countries, reserves had been run down. So, what we are seeing in many countries now is that reserves have been restored to very comfortable levels and that gives a lot of reassurance to markets..

By and large, the process of restoring reserves-I say by and large-has been carried out without significantly impairing the flexible exchange rates that most of these countries have, and that is a good achievement. You continue to see in most countries, if not all countries, flexibility in the nominal and real exchange rates and that is good because we want to keep that flexibility so that we keep our eye focused on inflation control. Reserves have been accumulated, they have been restored--iIn many countries this is an appropriate response to a recent history where reserves have been depleted..

Now, on Mexico and spending, I am not sure if we have that detailed information, but let me ask Caroline again if she might comment on your first question.

Ms. Atkinson - I think your first question was whether social assistance, social spending has been rising in Mexico. Yes, indeed it has, so the information that you have is correct on that. As you know, in particular the Opportunidades Program, which is conditional and targeted, this and other similar programs in other countries in the region, in Chile, Brazil, Mr. Singh mentioned Peru, these programs have been shown to be very successful in reaching the poorest who need that kind of assistance the most.

Mr. Singh - Just on that, it is a very good point that Caroline has raised is that we are seeing in the region also a real change in terms of social spending. We have seen in these countries that Caroline mentioned, and also in Argentina, we are seeing a transformation of social spending programs so that they are well-targeted. So, there has been a change in the targeting of social spending. I do believe it is that factor that underlies the reduction in poverty that we have seen in all these countries, including in Argentina, of course.

Question - Mr. Singh, as you know, this Annual Meetings has as a main topic of its agenda the increase in quotas, a powerboat of four countries. Mexico is the only one from Latin America. Do you agree that Mexico is the right candidate at this time for that purpose or would you have preferred other countries like Brazil, Venezuela or Chile?

Mr. Singh - Well, let me just say that Mexico was very clearly underrepresented and that is the reason why it is among the four. What is important for me is that, if you look at the region as a whole, Latin America, the increase that is taking place in the share of Mexico outweighs any reductions in the share of the others. I think this is an important beginning; and it is an effort by the Managing Director to show that the Fund is going to become more responsive, and more inclusive of the more dynamic emerging market countries.

Question - Going back to the growth issue, there is a hot debate in Brazil now about growth. There are people who say, look, Brazil has a very strict inflation target regime, a low band target, and look at Argentina; they have almost a two-digit inflation and they are growing at 8 percent the first half. Look at Chile. There are people inside the government that said that Brazil needs a growth target for the next years. So, when you earlier talked about what is needed for growth of more investment and sustainable productivity, I would like to know if you could specify what Brazil needs to get it from 2007 onwards, please.

Mr. Singh - You know, growth is not just about one number. It is not simply that we are trying to raise the growth rate of a country to the highest level. That is not the whole story. I think the story of Brazil in the last 3-4 years needs to be further examined very carefully by economists and by others, because I do think that it has been quite remarkable. What Brazil has achieved is not just raising the growth rate; it has recovered well from a crisis, which you remember, in just a few years. Growth should be 4 percent next year again. But that is not the only reason why it is remarkable.. The reason is that it has been able to reduce its poverty in quite a significant way in this period. We are getting data that this is also the case for inequalities. What we are seeking in these countries is growth that is poverty-reducing and equity-enhancing. The early evidence we are seeing is that Brazil's growth is that. So, they are doing this in a manner that is affecting the underprivileged, and reducing unemployment. You need to look very carefully at the whole story and not just one number.

Now, obviously we want that number to rise; Brazil does and we do and that is a fact, but there are lags in this process. I think you will find that the lags can be of several years. So, I do really believe that the foundations that are being laid now that were laid previously with education, which are being laid now with macro stability, with social spending, will continue to affect growth in the coming years. So, you will see a growth dividend increasingly over time, but it cannot happen in the same timeframe. We need to look at the whole story.

Question - Minister (Miceli) will state in her speech in the Financial and Monetary Committee tomorrow that you already published in your page that the government will not tighten fiscal and monetary policy as the IMF asked in the outlook, in the World Economic Outlook. What do you think will happen with the inflationary pressures you mentioned in that outlook? The other question is, well, what do you think will happen with the inflationary pressures and what are the bad effects of price controls that you state in-if you can give more details of the bad effects of the price controls that you reject in the outlook. The other question is about what analysts say in Argentina, in Brazil, and other countries that have paid off their debt to the Fund. I want to know how do you think it has affected the capability of the Fund to place public policies in those countries and the capability of the Fund to promote policies in the world economy.

Mr. Singh - Well, those are very good questions. I was becoming concerned that we had not had a question on Argentina until now. It is a big change from a few years ago. We have just had a consultation and our views in that consultation were presented and discussed very candidly with the government's economic team. So, I think we had a very constructive dialogue. I do think that the payment of debt, to jump to your third question, has had a very good effect in that we are able to exchange views of this sort in a very normal way. There are differences of views; economies are complex, and inflation is a complex phenomenon. There is normally a range of views of how to address the problems. So, what we have is a very normal, constructive discussion in which there will always be a difference of view, to some extent; this is very normal.

The second comment I will make is that I am convinced that Argentina wants to bring inflation down, so I think this is the first thing to recognize. In Argentina, as well as in other countries in the region, there is now a kind of social commitment, a kind of compact between the governments and the people, that inflation will not come back like it used to be. If I am correct in saying that the region now has a new understanding between its governments and the people that inflation will never come back again, I think we are already laying the basis for a tremendous improvement in macro stability in the next ten years.

Inflation in Argentina is in the double-digit range; that is a fact. The government would like to bring it down and that is also a fact. In our view, we think that the response should cover all the policies and instruments available to the government. That is what Mr. Teja has said in his report. The government's response on such an important issue should naturally use all the instruments it has at its command, and so we have a very healthy dialogue with Argentina. It is a very normal, constructive dialogue.

Mr. Teja - I think that pretty much covers it. I would also like to stress the point that Anoop made on the nature of the Fund's dialogue with Argentina and how it has changed since the repayment to the Fund. It has, I would really like to emphasize, become very constructive and very deep in terms of the quality of dialogue, especially on the inflation issue. The Fund did not go in with some ready-made prescription, you know, like tighten the fiscal or tighten monetary policy; let the exchange rate rise. The advice came after a very extensive discussion and was not made lightly. We took account of the complexities that are there. Argentina has come out of a very deep recession, a huge change in its exchange rate. So a delayed effect in terms of inflation is understandable.

In our report, and I think a summary of it is available to you on the web, we lay out a common understanding of inflation, but note differences of views on how to approach it. Our emphasis has been on using macro policy tools. The Argentine authorities have felt that there are structural issues that they need to address with controls. So, I think there is, I would call it, a difference in how the two sides are approaching it.

Question - This is continuing the questions on Argentina and Venezuela. Both economies are the fastest growing economies in the whole region; you pointed that out in your world economic report. Still, there are concerns. There are risks that this fast expansion in those two economies may be slowing and perhaps it will have to do with government policies, you know, undertaken by each of these two countries. Specifically, what do you see are the risks underlying these two economies that may put these economic expansions at risk? The second one is about Venezuela. The Venezuelan government of President Hugo Chavez has been saying that they have actually successfully made the oil portion of the economy less important and sort of like propped up the nonoil part of the economy. Do you in the Fund see that, have you seen that under the seven years of the Chavez term? What do you think is the risk of the oil economy growing again and crowding out the nonoil part of the economy in Venezuela; what do you think is the long-term risk of that.

Mr. Singh - Okay. Well, Argentina and Venezuela-and it is not always that I am asked to group those two countries together but, since you have done that I will continue-both of these economies are growing very rapidly. Both in a way are recovering from serious economic downturns earlier in this decade. The issue now is that with that recovery having taken place, with Argentina clearly above its pre-crisis level of GDP, the issue is what are the risks, as you ask, for keeping the recoveries going. Well, it goes back to what I said a little while ago in answer to the question of what does Latin America have to do to compete and to grow as fast as other emerging markets, and that certainly includes Argentina. It needs more investment; it needs more investment in key areas of the economy; in both countries, the energy sector needs more investment. We need that investment to be productive.

So, as you look at both economies, the issue is to raise investment. Investment has been going up in Argentina in recent years, in certain sectors. The ratio of investment to GDP is now above 20 percent of GDP, which is much higher than what it was a few years ago. However, the investment ratio in Venezuela is well under 20 percent of GDP. While, these are reasonable numbers, they are not high numbers. So, if you want the region, if we want Argentina, Venezuela to grow at rapid rates, investment has to rise. That is an economic fundamental. It needs to rise, however, in a sustainable way, not through fiscal deficits, and it needs to be productive, and that is a clear lesson from other countries in the region and from Asia. So, the region needs more investment and the region needs productive investment. How the region establishes a framework that will draw in that investment, that is the critical test for keeping Latin America keeping on course with rapid growth.

Question - I have two questions, please. The first question is, Mexico will be changing its President next December and the question is do you see risk in the economy of Mexico in fiscal policy, in monetary policy? What is the (??) of the (envy?) about oil, because Mexico needs it in the future?

Mr. Singh - Well, I think Mexico has an outstanding macroeconomic policy framework and an outstanding economic team that has done very well to bring Mexico where it is. I think I would like to believe that in Mexico there has been a very wide debate-and a very healthy debate-on the competition from China, on its share of the U.S. market, and on the conditions that are necessary to lift Mexico's growth rate above where it has been. It is clear what needs to be done. That debate in Mexico has been very open and very transparent, and that debate has covered fiscal issues, tax reform, structural issues, competition, energy sector, and investment. So, I do believe that the main reform areas and issues for Mexico have been in the public debate in the last three years. I would like to believe that a consensus is developing on how to raise Mexico's reform efforts and its share in the global economy. I am confident that that is what Mexico will do next. I am also confident that Mexico will use its macroeconomic policy framework to increase still further its spending on social areas so as to ensure that policies become even more inclusive and to ensure that the benefits of growth are accruing to all the sectors of the economy. So, we have a program of reform in the public debate for growth and there is a need to ensure that that is made inclusive so that all sectors of the economy share in it. I think that poverty orientation of policies is also very important.

Mr. Baker - This is it, because we have to close for another session here, same room. Thank you very much.