Category: Europe

Source: International Monetary Fund

October 25, 2024

PARTICIPANTS:

RODRIGO VALDES

Director of Western Hemisphere Department

International Monetary Fund

ANA CORBACHO

Deputy Director ofWestern Hemisphere Department

International Monetary Fund

LUIS CUBEDDU

Deputy DirectorWestern Hemisphere Department

International Monetary Fund

JULIE ZIEGLER

Senior Communications Officer

International Monetary Fund

MS. ZIEGLER: Good morning.  Welcome everyone.  This is the press briefing for the Regional Economic Outlook for the Western Hemisphere.  My name is Julie Ziegler, and I am with the Communications Department at the Fund.  I’m going to introduce our panel today.  To my immediate left is Rodrigo Valdes, who.  the Director of the Western Hemisphere Department.  And he is joined by his Deputies, Ana Corbacho and Luis Cubeddu.  So, we are going to start with some opening remarks from Rodrigo, and then after that I will have some housekeeping items, and we will take your questions.  

MR. VALDES: Thank you, Julie.  And good morning to everyone.  Welcome to this press briefing.  We have just released, and it is on the internet, our Annual Regional Economic Outlook for the Western Hemisphere.  This is a bit like the WEO, but for the region.  And here we have two important messages, two key messages.  

The first one is that there is a need to rebalance macroeconomic policies in the region.  And the second one is the urgency to press on with structural reforms to boost potential output growth.  And I will explain this.  The monetary policy part of the first message, the rebalancing applies to several of the flexible exchange rate and inflation targeting countries in the region with different degrees of intensity.  The second message, the urgency to deepen reforms for growth, really applies to almost all economies in the region.  

Over the last few years, the region has successfully weathered a series of major shocks in the world economy.  They showed resilience and they have adopted really macroeconomic policies in most countries that are at the top of the frontier of what we know.  And so far, largely the region has stayed in the sidelines, on the sidelines of global geopolitical tensions.  

Now growth in the region is moderating as most economies are operating back near their potential.  What is concerning, however, growth in most countries is expected to return to its low historical average and this will not help with the region’s macroeconomic, fiscal and social challenges.  Overall, we expect growth in Latin America and the Caribbean — if we exclude Argentina, which has an important rebound next year, and Venezuela with its own dynamics — growth will moderate from 2.6 in 2023 to 2.2 in 2025, going through 2.6 also this year, 2024.  So we’re going back to the lower part of the 2 percent around these baseline projections.  We see the risks to near-term growth tilted to the downside, partly reflecting global risks, including importantly the persistent geopolitical tensions.

Turning to inflation, in line with global trends and also reflecting the effect of tight policies, inflation has fallen markedly since the peak of mid-2022, and it is near the target in most countries.   However, it is not a target almost everywhere.  In the region, I would say that the last mile of this inflation has been rather long.   We expect to continue to see easing of monetary policy, but gradually on account of sticky services and inflation expectations not being perfectly re-anchored and also because inflation risks are generally tilted to the upside, reflecting basically commodity price volatility — the factors that I mentioned before of geopolitical risks and also new risks of fiscal slippages.  

So, with the output gap and inflation gap mostly closed, what should policymakers do?  We think that they need to focus on rebuilding policy space and working on boosting potential growth – the messages I mentioned at the beginning.  This means rebalancing the policy mix and pushing forward with structural reforms.  

Let me elaborate a bit more on the policy mix.   The current combination of macro policies is generally not everywhere, but generally tilted toward tight monetary policy while fiscal policy remains loose.  Although the earlier tightening of monetary policy by the region’s central banks was essential to bring inflation down, inflation is now close to target while monetary policy rates remain elevated in many countries.  At the same time, however, public debt levels are high and will continue raising if we do not have fiscal consolidation.  

So, at this juncture it is necessary to rebalance policies, starting with strengthening public finances.  Most countries have quite ambitious fiscal consolidation plans, but their implementation –so from plans to reality — has been in such a way that they have been pushed back.  It is crucial in the region that these plans proceed without further delays to rebuild the buffers while protecting priority public spending, investment, and social spending.  Strengthening the current fiscal rules is also important so they can deliver these consolidation objectives.  

A timely implementation of this fiscal consolidation is critical not only for fiscal sustainability, but also for supporting the normalization of monetary policy and the credibility of the frameworks more broadly.  With fiscal policy moving in the right direction, most central banks will be well placed to proceed with the monetary policy easing that we expect, while remaining on guard, of course, against risks of reemerging price pressures.  

Let me now speak about the second point, that is the need to press with structural reforms and I will go from need to urgency.   As mentioned before, medium-term growth is expected to remain subdued, reflecting longstanding unresolved challenges which include low investment and especially low productivity growth.   Also, the region is suffering shifting demographics that will slow growth further.  The labor force is growing less than before, and this will weaken one essential engine for growth.  The impediments for growth are many and country specific, some are more common, and that reality is confronted with an ongoing reform agenda that is thin in many countries.  This could lead to a vicious cycle of low growth, social discontent and populist policies.  So greater efforts to advance with structural reforms are needed to boost potential growth and raise living standards.  

We see that strengthening governance is a priority that cuts across all areas of growth.  This includes, for example, reinforcing the rule of law, improving government effectiveness, and, importantly, tackling crime more efficiently.   Improving the business environment and public investment is also needed to increase overall investment.  While reducing informality and making labor markets more attuned to more productivity gains is important.  This part of the labor market is also really important for women labor force participation, because this is one of the sources to offset the demographic headwinds.  

These reforms will also be essential in positioning the region to fully harness the benefits of the global green transition and new technological advances.  It is disappointing that until now mining investment, for example, in the region has not picked up despite the new opportunities for green minerals.  This suggests, and I quote here, “we can do better,” as the IMF Managing Director stressed in her initial annual meeting speech, that also applies to our region.  

From our side, through policy advice, capacity development, and financial support, we are ready to continue engaging, supporting countries in their efforts to strengthen their macroeconomic frameworks and increase economic resilience and growth opportunities.  

With this, let me stop here and we are ready to take your questions.  Julie.

MS. ZIEGLER: Thank you.  Before we take questions, let me please just go through a few housekeeping items.  I want to remind everyone first of all that this is on the record.  Also, as Rodrigo mentioned, the report has just been published for the Western Hemisphere Regional Economic Outlook and you can find it on imf.org.  

So, when we go to your questions, I ask please that you raise your hand, that you state your name and your affiliation, and if you are online, please can you keep your cameras on.  We cannot go to you unless your camera is on.  So, I appreciate it if you keep your cameras on.

Finally, please keep your questions brief.  We are going to start, as in practice in the past, with questions on the region, meaning the entire region, Western Hemisphere or the Caribbean.  We will get to country questions after that.  Please bear with us, but we would like to start with questions from the region — on the region.  

Does anybody have a region-specific question?   Yes, please.  

QUESTIONER: A question about protectionism.  How do you see the growing threat of resurgent protectionism, threat to macroeconomy and to markets as well?  And how do — how should the region prepare for that?   And then maybe another thing on insecurity, which is another theme as well.  How could it deter or curb investment in the region insecurity, please?   

MS. ZIEGLER: Do we have any other questions on the region?  Please. The lady in the back.

QUESTIONER: Thank you.  How are you analyzing the effect of the U.S. election and potential tariffs on emerging markets, particularly on interest rates and capital flows?  And on Latin America, do you think the fiscal stimulus measures in the region are compromising the efforts of central banks in combating inflation?  And does it endanger years of macro stabilization?   Thank you.  

MS. ZIEGLER: Okay, one more.  

QUESTIONER: I am sorry, The Financial Times has an article out just this morning saying that the EU is accelerating — well, within the block — accelerating or rating contingency plans for a possible Trump presidency.  The German Institute — Economic Institute — in Cologne says that a trade war could hit GDP growth in Germany by about 1.5 percent.  And I think Goldman Sachs has a forecast saying that the euro could fall by about 10 percent if those tariffs move forward.  So, I’m wondering if that is the biggest threat.  And then secondly, on outlook, I thought there would be a lot more optimism since inflation is decelerating — in the euro area and interest rates are being cut.  That — would lower the cost of borrowing and actually spur investment there.  So, if you could share your thoughts on that. Thank you.  

MR. VALDES: Okay, so — let me start from the last question.  Why we are not more optimistic in the medium run given that inflation is coming to targets?  Reality is that there are two forces here.  The cycle around the trend and that part of the cycle has been readily well managed in the region.  We are back — to trend.  But that trend, unfortunately, is not very strong in terms of growth.  That does not depend on macro policies in the short run.  Macro policies can produce a stable environment, can facilitate that growth.  But ultimately it is investment.  It is the accumulation of capital, productivity, the labor force, what produces — that trend.  And there is this call for you need, the region, needs to refocus from micromanagement that was very important the last few years to this low trend because we are hitting capacity basically.  And this is across the region.  It’s the Caribbean.  It is Latin America.  Perhaps Central America.  A few countries are the higher growing countries right now because exactly that, because they have a bigger trend.  

That brings me to the issue of trade for the region.  Trade is very important.  These are almost all open economies, small open economies.  I have to say, on trade at first, the region has been very protective of open trade.  If you look at measures against trade and across the globe, the region has been the ones that have put less constraints to that.  

Second, in terms of the election, as we always say, we would not speculate on that.  No, that is not something that is a role of the Fund.  But what we can say is that open trade is good for the region depending on how is fragmentation at the end, if it happens.  Further fragmentation, where is the circles where is the near shoring, for example.  Some countries may even benefit, but others may suffer.  But we do not know yet.  What I can say though is that for this trend growth, open global economy is better for the region.  

Two more things.  Security.  This is an issue that has been a new concern, I would say, for the macroeconomy.  We have — some estimates that this matters.  Matters for growth.  Matters for investment, and especially matters for the well-being of people.  So it’s something that in the region at least is top of mind — for households.  And . need to take it very, very seriously. It has macro impact in the region.  We will have a conference, by the way, in November on this precisely.  It’s not that we will become experts on this, but we want the financial community to be more on top of these issues.  

 And finally, let me mention this tension — fiscal-monetary policy.  I do not think it is the case that we are in a position that we are risking the two decades of very strong work that we have gained.   But at the same time, we are not well-balanced.  On average, some countries are better, some countries — less good.  A good balance between monetary policy and fiscal policy.   

Debt dynamics are such that debt-to-GDP is increasing.  Plans are good, but they have been postponed in many countries.  So, we need to deliver on those.  And that will produce this opportunity to continue also easing monetary policy.  We have said that this is like a tango, and it is not an easy tango to have between the central bank and the Ministry of Finance.  But it is needed, this coordination. 

Let me stop there. I do not know if my colleagues would like to add anything on this in general.  No?   Perfect.  

MS. ZIEGLER: So before we go, just last call for regional.  These are on the region, not country specific All right, go ahead.  In the center.   

QUESTIONER: Thanks very much. Just this is the 80th anniversary of the Bretton Woods institutions.  For most of that period, Washington-based financial institutions have had pretty much a monopoly on lending to Latin America.  We have just had a BRICS conference in Russia.  BRICS have a development bank.  There are other alternatives for Latin American countries for finance and development.  How does the IMF feel about that?  

MS. ZIEGLER: Okay, maybe one more on the region. Okay, go ahead.  Right there.   

QUESTIONER: Hi, good morning. Of course, there have been some glowing words about how Caribbean countries have handled their policies over the past couple of years.  But of course, we also know that several Caribbean countries are vulnerable, particularly as a result of climate change.  So, my question is, what policies or what reforms can we see that will help provide a buffer with regard to climate activity that has been affecting the Caribbean?  

MS. ZIEGLER: Okay.

MR. VALDES: Okay. Look, reality is that we have been working for years with other partners in terms of regional arrangements.   We have Development Banks in the region, the IADB, we have CAF, we have FLAR (Latin American Reserve Fund) as another arrangement that lends money to central banks.  So perhaps the issue here is not whether we have these new institutions, but how to coordinate well.  We are convinced that the more coordination, the less fragmentation, that everybody works together is better.  Nobody needs the monopoly of this, but we need to work together.

In terms of the Caribbean, I will ask Ana to go a bit more in detail. But it is very important to face reality for the Caribbean.  And they are doing it.  There’s a striking number.  Countries in the Caribbean lose 2.5 percent of GDP in capital per year, on average.   It does not happen every year, but every 10 years you can have a 25 percent loss.  So, you have to be prepared for that.  And that means that fiscal policy has to be geared towards that.   This is a multilayer system.  You have to be careful with investment.   Investment has to be more resilient.   You have to work in the insurance side, in contingency bonds, for example.  So, there is a lot to do.  Some countries have been very good on that.  Let me take the case of Jamaica and the last hurricane.  They had some possibilities to use contingencies for that case.  

But let me pass to Ana to add a bit.  

MS. CORBACHO: Thank you.  Certainly, the Caribbean region is very vulnerable to climate change shocks.  And we are concerned that the patterns of these shocks may be changing, becoming more severe and more frequent, which certainly requires more action on the government side and the multilateral community to support Caribbean economies.   

In particular on policy measures, what we have emphasized in our dialogue is the need to integrate better mitigation and adaptation strategies in public investment plans.  Also fostering more active participation of private finance in increasing investment for climate resilience, as well as reducing the consumption of fuels through electrification.  An upside for the Caribbean is the green energy transition.  It could certainly give countries a chance to enhance resilience by investing in renewable energies, and through that, boosting competitiveness and lower exposure to climate change shocks.  Thank you.  

MS. ZIEGLER: Great. We are going to take some questions online.  She says the IMF reduced the growth prospects for Mexico.   Could you tell me about the greatest risk that my country faces and the possibilities to grow a little more?  

We have another one. She said, is it possible for Mexico to achieve the reduction of the fiscal deficit from 6 percent to 3 percent as the government intends, while maintaining spending on social transfer programs and energy subsidies?  

So, while we are on Mexico, anybody else on Mexico in the room?  Please go ahead.  Wait — for the mic, please.    

QUESTIONER: A bit more about violence and the risk that it poses to all the general policies, the challenges.  

MS. ZIEGLER: Thank you. 

MR. VALDES: Well, let me first say that we are in the middle of the Article IV process with Mexico.  So you will have a lot of details after it goes through the Board and the Article IV is published.  You probably have seen also the concluding statement published a couple of weeks ago.  But I can add a couple of things here.  One, we see bottlenecks in certain areas, and energy is one.  Infrastructure more generally as something that is a constraint right now in Mexico to take more advantage of — the opportunities it has with nearshoring and other possibilities.  The government is working on this, and we support fully that these are constraints that need to be alleviated.  

In terms of fiscal, I would not want to make any… I mean, let us wait — for the budget. There is always the possibility, as we mentioned in the concluding statement, of have revenue mobilization at some stage.  We see, though, very importantly that there are steps towards consolidation.

In terms of violence.  Look, here, I think we need to recognize that macroeconomists at least do not know a lot about how violence has impacts on the economy and the economy on violence.  So, I think it is very important to invest more knowledge on this.  Our own estimates – and this is a broad estimate – it’s not for Mexico specifically, but if the region were able to cut by half the difference it has between homicides suffering to the level of the world economy, growth could increase about half a percentage point for a good 10 years.  And that is more or less aligned with other estimates that are around.  So, in terms of the macro, this is something that is important.  

Now, easier said than done because then the next question is what to do.  And there is where I would not want to make any comment because — we really, as macroeconomists, know very little. But we know that it’s important.  

QUESTIONER: Good morning.  Can you hear me?  

MS. ZIEGLER: We can hear you.  If you bear with us, we can’t see you yet.

QUESTIONER: Good morning, Julie. Good morning, Mr. Valdes. The projection for Ecuador is 0.3 percent in 2024.  We want to know if the projection includes the energy crisis in Ecuador that has worsened with power outages of up to 14 hours.  What impact can the energy crisis have in Ecuador?   And do you feel that it will affect the fiscal goals of the extended facility program that Ecuador has?  Is there a possibility of a recession this year?   

MS. ZIEGLER: Thank you. We have also we had questions submitted on Ecuador from Evelyn Tapia from PROMESA.  Does Ecuador’s growth projection for 2024 and 2025 include the effects of the electricity crisis that the country is experiencing?  When is the review of the program’s goals expected to end so that the country can receive the second disbursement for the Fund?  And when would that disbursement be made effective?   

Ecuador? Anything else?  Okay.

MR. VALDES: Okay, so everybody to be on the same page. Ecuador has a program with the Fund, an EFF, and we are close to have the First Review of the program.  I will ask Ana to go into more details on the growth considerations and other considerations you may want to add.  But let me just say that the authorities have been implementing this very strongly.  So — we are very optimistic, at least from the side of the commitment from the authorities on their own program that has been supported — by the Fund.  There will be a mission soon for this Review.  And of course, this new shock about electricity that has to do with climate, again — is bad news.  At the same time, the first half of the year was a bit stronger than expected.  

But let me ask Ana to elaborate.  

MS. CORBACHO: Thank you, Rodrigo.  I want to emphasize, as Rodrigo did, that the authorities are making very strong progress in advancing their stabilization program.  They have taken very important fiscal measures that are already showing results with an improvement in their fiscal position.  And we also see liquidity conditions, and notably the reserve position of the country, being stronger than we had expected when we approved the program in May.  

Now Ecuador faces a very difficult electricity crisis with the worst drought in many decades.  The situation is still unfolding, but we would expect that it would have an impact both on economic conditions and fiscal needs.  And as we have more information, we may need to revise then the growth outlook for ’24 and ’25.  As of now, because the first part of the year was stronger than we had expected, we actually increased our forecast for 2024 growth from 0.1 to 0.3 percent.  

In terms of the program, we expect that this would be discussed at the board by the end of the year, and upon completion of that review, if it is successful, there would be availability of the second disbursement in the program of $500 million.  Thank you.  

MS. ZIEGLER: Now let us turn to Argentina. And we will take a bunch of questions.  Don’t worry.  

QUESTIONER: Hi, good morning.  Thank you very much for taking my question.  My first question will relate — related that yesterday Kristalina Georgieva had a meeting with our Economy Minister, Luis Caputo.  Can you tell us what were the conversation and is coming very soon a mission to Argentina?  Just to the review of Nine and Ten Review.  Thank you very much.  

MS. ZIEGLER: Thank you. I am going to take a few questions in the room first.  Please go ahead.  

QUESTIONER: Thank you.  Rodrigo, I wanted to ask you, after criticism from President Javier Milei decided to step aside from the day-to-day negotiations with Argentina, but I was hoping you could tell us if you’re still involved in the back office discussions with the rest of the team about the future program and the ongoing economic situation in Argentina.  And for Luis, you were in both meetings with Gita Gopinath and Kristalina Georgieva yesterday.  I wanted to know if, in your view, has the Argentine government gained enough credibility, you know, with the fiscal front and with the ongoing economic recovery to come to the Fund and ask for an increase in the exposition with a new program?  Thanks.  

MS. ZIEGLER: Okay.  Let’s go online.

QUESTIONER: So, question for Mr. Cubeddu.  My question is to know what was discussed in the meeting yesterday between Ms. Georgieva and Minister Caputo.  And also, if you could — well, if the IMF is concerned about the lack of reserve accumulation in the central bank in recent months, if is there the possibility of grant a waiver maybe in the Tenth Review?  Thank you.

MS. ZIEGLER: Great, thanks.  Let’s take one more and we’ll pause after that.  The woman here in the red shirt, please.  

QUESTIONER: Hello, good morning. I would like to know if — how important is for the Fund for Argentina to release its capital controls and if you are discussing new money to help that within a new program.  

MS. ZIEGLER: Okay, let us pause, or maybe one.  I saw someone behind you had one more question, and then perhaps we can — yes, go ahead.  And then we will move on. 

QUESTIONER: The IMF pointed out in its last — in its latest staff report that it was necessary to eliminate the exchange rate for exporters and move forward with the removal of exchange controls.  What is your opinion on what has been done so far?  And is it possible, as the — government claims to achieve growth without — with — capital controls?  

MS. ZIEGLER: Okay.  

MR. VALDES: Okay, thank you for the several questions in Argentina.  Let me start from one.  There were a couple of questions, that I just want to say that, as a matter of policy, we do not disclose the conversations between authorities and management.  No, this is not our job.  Second point I want to mention is that the teams have been interacting very actively and constructively for several weeks already.  Ana has mentioned, the authorities are here, and that engagement has continued.  

And finally, I have delegated the Argentina case to Luis Cubeddu, as you know.  And really, I do not have anything else to add on this.  

MR. CUBEDDU: Very good.  And to address a few questions on Argentina and perhaps maybe also to first mention, thank Rodrigo for the deep trust in this complex and important case.  This is obviously a team effort, and it involves the technical team in Western Hemisphere as well as other departments.  

Maybe to stress from yesterday’s conversation, our management, both Kristalina and Gita, as well as us, staff, met with the Argentine authorities, with Minister Caputo and Central Bank President Bausili.  I think in our conversations we stressed and underscored the important progress that has been made, particularly in reducing inflation and establishing a very strong fiscal anchor.  We now have nine months of primary surpluses and overall balances under our belt.  I think we also underscored that this has also allowed an improvement in the central bank balance sheet as well as a strengthening of international reserves from extremely low levels. 

In those conversations, we also emphasize that challenges remain and that sustaining the gains that we have seen so far will require that policies evolve and that appropriately balance domestic as well as external considerations and external objectives.  In this regard, — we discussed the need — to gradually unwind some of the existing ethics restrictions and controls.  But obviously, this should be done in a carefully calibrated way to ensure that the process is an orderly one.  

With regards to moving forward and the questions related to the program.  I think our teams continue to work closely — with the Argentine authorities.  The — discussions — have deepened in an effort to better understand and fully understand their plans in the period ahead.  The engagement in which we are in is taking place within the context of the current EFF.  Although the authorities are also exploring the options whether to move to a new program.  Our hope is that we will be in a position to provide a bit more information on this in terms of the strategy of engagement over the coming weeks.  

So, I think with this I tried to summarize some of your questions and, although happy to answer as needed.  Thank you.  

MS. ZIEGLER: Okay, that is good.  Please go ahead.  

QUESTIONER: So, there is a law of fair taxation that is awaiting approval in my country, Honduras.  How does the IMF evaluate the fiscal policies implemented by the Honduran government and their impact on the country macroeconomic stability?

MS. ZIEGLER: Why do not you take that, and I will — I think we have a couple people online for Chile that will get queued up while you answer that question.  

MR. VALDES: Anything else on Honduras?   No?  Okay.  

QUESTIONER: The last week Honduras has been successful, passed [inaudible].  The program is technical.  An agreement, that has been reached.  My question is whether advantage or benefit will there be for the country with IMF — another multilateral organization?  Thank you.  

MS. ZIEGLER: Okay.  

MR. VALDES: Okay.  Do you want to go to Chile too?  

MS. ZIEGLER: Sure.  We’re — getting near the end, so let’s take a couple of people online.   

QUESTIONER: Hi, Julie.  

MS. ZIEGLER: Hi.  

QUESTIONER: This is a question for Mr. Valdes.   There’s two questions actually.   The first is there is some doubt here in Chile about the fiscal revenue for next year.  Now we are in the process of the law for the next year.  So specifically for the new tax compliance law, if it is going to get the fixed revenue that the government expects, how do you see that?  And you see there is a risk there?  And the second question is about the growth because the Central Bank of Chile expect the long-term GDP growth for Chile going to be nowhere in the next years, 10 years, to 1.8.  Little lower than the report that you report that you had foreseen.  Do you see some sign signal from the government for to actually increase the long-term growth?  Because you talk — in the report about streamline the process for investment permit, the [inaudible], I would say here, and the strength security.   I know you can talk a little longer about that.  That’s the question.  Thank you.   

MS. ZIEGLER: Okay, I have one more to add on Chile: in the case of Chile, do you think there are any measures that are not on the government’s agenda that are relevant for growth?  And then what is your view of Chile’s fiscal accounts?  Just mentioning the S&P highlighted the country’s fiscal consolidation, and Fitch warned that Chile is unlikely to meet its fiscal deficit target for 2024.  So — let us take those, and I think those will be the last questions of the briefing.  

MR. VALDES: Okay, thank you, Julie.  Well, let me start with — Honduras.  Honduras has a Fund-supported program.  It took some time to reach Staff-Level Agreement for the First and Second Reviews combined, but we managed to have Staff-Level Agreement a few days ago.  And we are now working to bring the program to the review to the Board.  

What I can say is that this program it is very important to safeguard macroeconomic stability.  We are — we agree on the policies needed for that, and the commitment of the authorities is very important to do their part in terms of fiscal monetary policy and effects policies such that we safeguard the macroeconomic stability.  The review is also very important because it will facilitate the disbursement of different credits for from other partners.  So, for example, the IDB and the World Bank.  So overall, this review is important because we are agreeing on policies that are needed.

In terms of the Ley de Justicia Tributaria, which is in Congress, first, let me say that this law, we understand that this proposal incorporates many suggestions from the position in the private sector, and we value enormously the dialogue that countries can have with the different partners on this, and we salute that.  

Second, more to the content.  There are about 15 corporate income tax special regimes — in Honduras, and by any metric that is too high.  So, it is very important the effort that they are doing to consolidate and hopefully end into three regimes.  And also, it is important to say that Honduras has tax exemptions of around 7 percent of GDP.  That is way above also of what we observe in other places.  And it is also important to discuss whether those regimes, those exemptions, are worth having or not.  And this law exactly proposes some discipline, if you want, on this.  We estimate that it would yield about 1 percent of GDP in revenues in the medium run.  

In terms of Chile, well, you know, I am a Chilean.  So, I will — and we have some rules at the Fund that we should not speak about our countries too much.  So, I will defer the questions to the Mission Chief Andrea, who is available for this.  Although I can say a couple of more broad issues.  I do not want to enter into the fiscal reform law or other things.  

But let me just say that there are important measures taken in Chile align with this call that we have about potential output growth.  They are making efforts to make more predictable and to shorten also the process of permits for the different investments, and that’s — we value that enormously.  Also, there are initiatives to facilitate labor force participation for women.  And that is also something that the Fund for a long time has been advocating.  Of course, this is a marathon.  And in a marathon, you have to — you do not have one silver bullet until you get to the end of the marathon with a couple of measures.  It takes much more in Chile and all countries.  What to do is very country specific.  But as I mentioned before, around rule of law, around security, around predictability, around the labor market, are many other ideas that could be advanced.  Thank you.  

MS. ZIEGLER: Take one more. I know you wanted to ask your questions.  

QUESTIONER: Thank you for taking my question.  What are the IMF’s recommendations for Brazil given the worsening forecasts for public debt?  And the government is working on new measures to cut spending.  What is the importance of these measures?  And additionally, how will fiscal policies, you know, these new measures and higher interest rates, impact future growth?  Thanks.

MS. ZIEGLER: Thanks.  And that is the last question.  

MR. VALDES: Okay, so let me just react to — the question in the following sense.  Brazil has, as other countries, this challenge of how to implement a level of consolidation that is very important to stabilize debt and has a challenge that’s probably not everywhere.  And it is a difficult challenge.  Many of the expenditures are very rigid.  So politically speaking, it is more difficult.  You have to work in the taxation mechanisms that are there.  We understand that they are doing that.  We have recommended that for some time, and that should facilitate this.  

Importantly, in this tango between the central bank and fiscal, we should not look only to the fiscal side.  We should also do it together with monetary policy.  So the growth effects of a consolidation should not be really bad.  First, it could be positive by itself by lowering risk premia, and second, opens up the possibility of — lower rates, and that is important.  

Ana was the Mission Chief for Brazil and now is the reviewer of Brazil, so she may want to add something.  

MS. CORBACHO: Yeah, I just want to say that in our baseline forecast, we do expect an improvement in the fiscal position of Brazil.  But what we have been emphasizing is that this improvement needs to be tackled and underpinned by very concrete revenue and spending measures.  Rodrigo mentioned the challenge of making the budget more flexible.  This will help Brazil have more space to respond to new spending priorities as well as shocks, unforeseen shocks.  It requires deep structural reforms in the big items of spending categories, in wages, in pensions, floors for certain items of the budget, and many more spending rigidities that are very particular to Brazil.  There’s also an agenda to foster revenue mobilization, particularly by reducing inefficient tax expenditures.  And after the groundbreaking VAT Reform, considering also reforms of personal income tax and corporate income tax.  Thank you.  

MR. VALDES: If I just may add as a closing, that we will have the Regional Economic Outlook launch in Paraguay on November 4th.   The report has a couple of accompanying papers on fiscal and labor force participation, labor markets, that are pretty interesting, very detailed.  I hope useful.  Thank you.   

MS. ZIEGLER: Thank you, Rodrigo.  Thank you, Ana.  Thank you, Luis.  This concludes the press briefing.  

SPEAKER: Question on Colombia.

MS. ZIEGLER: Okay.  We can take, if you agree, Colombia.   

MR. VALDES: Yeah, but you should say it before.   Okay, go ahead.  

QUESTIONER: You can do it in Spanish if it is easier for you.  And please, if you can answer in Spanish.   Dr. Rodrigo, for 11 years you have spoken about reforms, but I see that the reforms are really complicated.  Even today, Colombia has not been able to bring about a tax reform in order to collect $3 billion, a little billion dollars, which is just a minor amount at an international level.  What is truly recommended by the IMF so that the reforms will move forward and will not have to face the hurdles and the respective congresses, so that countries can improve their flow of investment and for the trade to truly be dynamic?  You know the history of Colombia.  We grew at 4 percent and now not even at 2 percent.  Thank you.  

MR. VALDES: Thank you for the question.  I will answer in Spanish.  What you are showing is the difficulty in developing reforms.  And when we say, let us develop reforms, we do not do it in a vacuum without understanding that the policy is difficult and not because we face difficulties that would stop us from doing it.  It is key for the region to continue expediting, accelerating the development of reforms and hopefully for the benefit of growth and not only for other things.  And specifically, it is important to do it because of what you were saying, because the potential growth, even in the countries that grew faster 5 or 10 years ago, such as the Pacific Partnership or the Pacific Alliance, has reached an average again.  And we are worried that with that very low average, lower than emerging Europe and much lower than that of emerging Asia, obviously the social needs, the fiscal needs, will not be solved.  And therefore, the appeal is to double effort.  There’s no way of skipping the political effort.  

MS. ZIEGLER: Okay.  If you — have any other questions, please feel free to reach out to us via email at media@imf.org.  Thank you all for attending.  

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