Statement by main speaker Anoop Singh, Director
of the International Monetary Fund (IMF) Western Hemisphere
Department, during Press Briefing on Latin America and the
Caribbean held in Washington, DC, September 23, 2005.
MR. SINGH: Good morning all of you.
We have our senior staff here also with
me, so you can see all of us. We like to be very transparent
in everything that we do. So this is another exercise in
that transparency, almost knocked my name plate over.
Well, I will be brief this morning in my
opening remarks for two reasons. You will have a copy of
them after I speak. And also this year it is proposed that
we will present a more detailed regional outlook in Bogotá
on October the 13th. And that will be an occasion to go
into the global context and how we see the challenges in
the region in somewhat more detail than we will cover this
But let me start first on the global context
for Latin America and the Caribbean. You heard now the press
conference of Mr. Rajan and you heard Mr. de Rato speak
about this in the last few days.
The bottom line is that our sense is that
the overall external context remains benign and favorable
for our region. This is, of course, for a number of reasons.
Over the last year or two we have seen the region benefit
in different ways in different countries from commodity
prices, from terms of trade gains, from diversifying and
strong exports across South America. In Brazil you know
what those numbers are. We have seen very favorable financial
market conditions, low spreads.
What perhaps is not as well known is that
the growth in the region is also being supported, substantially
now, by domestic demand, by both consumption and investment.
There were some signs of a softness earlier in the year
but we see in the second quarter in many countries, again
including Brazil, in the second quarter renewed strength
in domestic demand. This is helping overall GDP growth.
We expect that the region will have overall
growth on average this year of around 4 percent, and that
it will be still close to that, about 3.75 percent, next
Now, these are high rates of growth for
the region. Of course, we want to do better. But what we
have in front of us is robust growth and it is also growth
that it is well above historical averages. It may be less
than last year but last year's was a record rate, strongly
influenced by those countries that were recovering from
The other favorable context we have in the
region is that inflation is still well contained. And this
is despite the pressures we see from oil prices. And I will
have more to say on that in a few moments.
I want to also emphasize that unemployment
continues to trend down. Poverty indicators continue to
improve. We see in Argentina that unemployment is now down
to 12 percent compared with over 20 percent at the height
of their crisis.
And just this morning or last night, I believe
the government has released new poverty indicators that
show in Argentina a further drop in the poverty rate, which
is now well below where that was at the height of their
crisis a couple of years ago.
So the context we have, both globally and
in the region, I think, is good. Of course there are risks,
and I will go into those risks very briefly. But I want
to emphasize this morning a theme that Mr. Rajan picked
on a few days ago. And that is we do believe that countries
in the region, such as the Brazil, have built up the strength
to deal much better with these risks than perhaps 10 years
Among the risks, of course, are those from
continuing high and volatile oil prices. We have had some
shocks from Hurricane Katrina. We may have some more in
the coming days. So far, the impact of these oil shocks,
both on the global economy and on the region, has been surprisingly
Of course, the impact has been higher in
Central America and the Caribbean, which comprise countries
that are net oil importers. Those countries in particular
are facing great difficulties in trying to balance the pressure
on their fiscal positions and how to balance the pass-through
into domestic prices of the higher oil prices worldwide.
So there are fiscal pressures that are rising
and we need to watch those carefully.
There are also risks that will arise if
the global financial market conditions were to tighten abruptly.
I say abruptly because some tightening is inevitable and
will happen as a result of the cyclical trends. What we
are concerned about is if there is any abrupt change in
market sentiment which could be sparked by any jump in inflation
expectations following either concerns about oil prices
or following concerns of about how the global imbalances
could be resolved.
Although much progress has been made in
bringing down the public debt, there is no doubt, I believe,
that Latin America and the Caribbean remain vulnerable to
any abrupt tightening of financial markets.
The third risk I will point to is a risk
of continuing competitive pressure from other countries
in export markets and also risks from any increase in protectionist
sentiment around the world.
Now here I should say three things. First,
as I have just said, the export growth in the region has
been impressive and so there is that background and context
that helps us.
Number two, we have now falling into place
the Central America Free Trade Agreement and that should
help, particularly as countries are now strengthening their
institutions to maximize the benefits from that trade agreement.
And third, we should all be resolved--and
this is the challenge for the wider world — to press
forward with the Doha round.
But now let us talk briefly about the ability
of countries in our region to withstand these risks and
shocks if they were to materialize.
Here I will make four quick points.
The first is that the region is stronger
from a fiscal perspective. Most countries in the region
have used the last two or three years of better growth to
undertake structural improvements in fiscal policy. They
have held tight control over spending. They avoided, by
and large, the cyclical tendencies of the past. And this
has resulted in positive and high primary surpluses, declining
public debt ratios, and improved debt profiles. We see primary
surpluses now around 5 percent for Brazil and Argentina
for this year. And a number of countries have gone further
and have increased their reliance on the issuance of domestic
debt. This further reduces the vulnerability to exchange
rate risk and it also helps deepen local currency markets.
So to summarize this point there is structural
improvement on the fiscal side which has accompanied the
cyclical improvement that has taken place. This will help
our countries cushion and absorb shocks from the region
much better than perhaps 10 years ago.
The second point I would make is that countries
have, in a cautious and preemptive way, pre-financed their
future needs of foreign exchange and their future debt service
obligations. Many countries have already completed their
financing needs for 2005. And some of them have already
begun to either start or advance substantially into pre-financing
their need for 2006. And some are even now beginning to
look at pre-financing 2007. So this is a wise and preemptive
move on the part of many countries in the region.
The third point I would make is that inflation
has been well contained and this is because of improvements
in the monetary policy framework. We see inflation targeting
working reasonably well in many countries. We see central
banks more committed, publicly committed, and institutionally
committed to keeping inflation low. Clearly, we have public
pressure from the population at large to ensure that inflation
And finally, I have already said that external
positions have improved. We have large trade and current
account surpluses across the region. You can look at almost
any country and you see large surpluses, Argentina, Brazil,
across the region.
We see high reserves. Reserves in Argentina
now are almost at $26 billion. Net reserves in Brazil I
believe are now close to or above $40 billion. This is a
sea change from the external positions of our countries
just two or three years ago.
And of course, many of them have adopted
more flexible exchange rate regimes and clearly that needs
to be maintained.
Finally, what I will talk about is one of
the policy challenges over the medium term. Now I do not
want to get into this topic in any detail now for two reasons.
Firstly, the agenda is still complex and we should discuss
that when we have more time.
The second reason is we have outlined this
agenda, to some extent, in our Latin American paper that
came out a few months ago. For those who have not seen it,
we can certainly make it available.
And third, I will have more to say on these
kinds of issues when I talk of the regional outlook in more
detail next month.
The main point is that countries in our
region need to raise the quantum and the efficiency of investment
and savings. And this will need institutional reforms, particularly
to public sectors, to improve the efficiency and the quality
of public spending and of tax systems so that we can crowd
in more and better private investment. This underscores
the importance of having a business climate that attracts
that private investment.
So finally, let me just end by saying that
the region has done well over the past year. The external
environment remains so far still fairly benign. The region
has improved its resilience to shocks. And now the countries
are building on these achievements and trying to address
the challenges to ensure that growth remains high and sustained
over the medium term.
So that was my brief introduction, perhaps
not so brief. And now if you have any questions, I certainly
will be happy to take them.
QUESTION ON URUGUAY
by Anoop Singh and Markus Rodlauer Senior Advisor, Western
QUESTIONER: I would like to ask about the
exchange rate because in our countries there is a big discussion
about what is the right level for currencies against the
dollar. In Uruguay, the private sector is increasing pressure
to have a higher exchange rate and they are saying that
it is going to affect our competitiveness in the short-term.
Exports have has been one of the engines of growth in Uruguay
last year and even in this year.
How do you see this problem? And how is
it going to be fixed?
MR. SINGH: Well, it is quite normal for
exporters to complain about the exchange rate when the exchange
rate is currently appreciating. The facts are, in a sense,
The fact is that in many countries in the
region, including Uruguay, there was a very large depreciation
some years ago. And what we have observed in other crises
is that this is a kind of pattern. Exchange rates typically
overshoot at the start of a crisis. And then, as a recovery
builds and confidence comes back, as it has come back for
Uruguay, it is normal that the overshooting is then somewhat
The important thing is, firstly, not to
mistake the appreciation that takes place for a loss of
competitiveness because overall in most countries, and in
Uruguay, the exchange rate is still much more depreciated
than it was three years ago. So competitiveness has improved
not decreased over the last two or three years.
The second point is not to fall into the
trap of trying to fix the exchange rate again because that
is the legacy that many countries in the region have had
in the '90s of fixed exchange rates. Many countries now
have moved away from fixed exchange rates precisely because
exchange rates do need to move. So again, I will say that
flexibility has served Uruguay well.
Markus, do you want to add to that?
MR. RODLAUER: Just to say for Uruguay, you
look at the macroeconomic picture today, which is high growth,
very low inflation, and a very strong balance of payments.
I think monetary policy, in that context, is being conducted
with the right kind of balance and caution.
As you know, just recently there was some
moderate easing of the monetary policy that was implemented.
Uruguay does not have an inflation problem at this point.
At the same time, the authorities are mindful of the need
to further strengthen the reserve cushion of international
So to find the right balance between
making sure that inflation stays on track, which it is,
and taking opportunities to further strengthen the reserve
cushion, we think is exactly the right approach going forward.
A complete transcript
of the Press Briefing is available on the IMF's website.