Source:
IFIs Latin American Monitor
Tue Sep 27 2005
The IMF predicted a promising outlook for the region, although it also warned about the risks arising from the volatility in oil prices and a possible cycle of international market imbalances. The region is better prepared now than it was some years ago to face these challenges, although institutional reforms that would provide the framework to attract more and better investments are still pending.
Friday 23, 2005, no access to CSO
Anoop Singh predicts good economic perspectives for the region and expresses confidence in macroeconomic stability
Anoop Singh, IMF Director of the Western Hemisphere Department, predicted that the region will continue to enjoy a favourable external environment, not only due to benefits arising from commodity prices and export diversity and power, but also because of the level of domestic demand, consumption and investments.
According to Singh, the region will grow this year at an average of 4% and at about 3.75% next year.
Another good news, according to Singh, is that inflation seems to be contained, in spite of pressures arising from oil prices.
Unemployment also continues its downward trend and poverty indicators would be improving.
However, at the same time, Singh warned about some apparent risks. Among them there is the volatility in oil prices, which in import countries could be leading to significant fiscal deficits. The consequences of Katrina are still to be seen. Likewise, he warned about the possible imbalances in international financial markets, as a result of cyclic trends, which calls for further work on public debt reduction. He also referred to the risks arising from an increased trade protectionism as a result of pressures exerted by other countries on export markets.
Next and calming the audience down, Singh pointed out that the region would be prepared to face these risks in case they were materialized. In the first place and from a fiscal point of view, the region is better prepared than it was before, since efficient expenditure control policies have been developed (Argentina and Brazil expect primary surpluses of about 5%). In the second place, the countries of the region are prefinancing their future debt services, and in the third place, inflation has been contained due to the existence of a better monetary policy framework, with Central Banks playing a key role. Lastly, trade balances in the region are clearly favourable, with large increases in reserves in many countries (in Argentina $26 billion, in Brazil $40 billion).
Finally, Singh briefly referred to the challenges posed by medium-term policies. The focal point here is the urgent need of these countries to increase the size and improve the efficiency of investments and savings. To such effect, institutional reforms should be developed, particularly within the public sector, aimed at increasing the efficiency and quality of both public spending and tax systems in order to attract more and better private investment.
Questions put forward
Following Singh’s intervention, a round of questions was opened by journalists present in the room.
First, it was the turn of a Brazilian journalist of the newspaper “Valor Económico” who asked him about the risks arising from political uncertainties, as pointed out by the World Economic Outlook. Singh answered that although many elections are to be taking place within the next 18 months, the region’s macroeconomic stability framework, unlike what happened 10 or 20 years ago, proposes a different scenario and there is no indication as to a lack of continuity in terms of macroeconomic stability policies.
Then, it was the turn of an Argentine journalist of the newspaper “La Nación”, who asked Singh whether the Argentine macroeconomic framework was sustainable or not, and what would be the consequences of postponing negotiations with the IMF until mid-2006. Singh appeared optimistic about the growth of the Argentine economy, and even praised the fiscal discipline of recent years, the improvement in incomes arising from taxes and a primary surplus which is higher than expected. The concern among IMF authorities is whether this growth would be sustained in the medium-term and to such effect it is necessary to carry out structural reforms, which in his opinion, are shared by the Fund and the Argentine government authorities. It is up to the latter, and not the IMF, to define the times and stages in which they are to be carried out. We simply have to wait, without major concerns, for the government to develop its reform agenda.
A journalist of “El Espectador” from Uruguay, asked about the exchange rate, due to the discussion about the ratio to be maintained by the local currency against the dollar, and the pressures exerted by the private sector in favour of a higher exchange rate if the short-term competitiveness is not to be affected, particularly taking into account that exports have been the engine driving the recovery in the last year.
Singh undermined the seriousness of the issue by saying that it was natural for exporters to put pressure in this sense, within a context in which the local currency appreciates. However, facts do not go along the same line of reasoning. The region, including Uruguay, underwent a long depreciation and exchange rates at the beginning of the crisis shoot up. Nevertheless, once confidence is regained as a result of recovery, it is normal for this to be reverted. The important thing here, according to Singh, is not to misunderstand the currency appreciation resulting from loss of competitiveness, since in most countries, and also in Uruguay, the exchange rate is even much more depreciated than it was 3 years ago. Therefore, competitiveness has improved rather than decreased. The second point is not to fall in the trap of trying to fix the exchange rate again, as it had been done in the 1990s.
Singh, for the purpose of giving a more thorough answer, called upon the expert Mr. Markus Rodlauer, who stated that the macroeconomic outlook for Uruguay is of high growth, low inflation and strong balance of payments. According to this expert, the monetary policy is being adequately managed with both precaution and balance.
Related Information:
Transcript of a Press Briefing on Latin America and the Caribbean
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