Transcript

Transcript of the Western Hemisphere Department Press Briefing

October 10, 2014

SPEAKERS:
Alejandro Werner, Director, Western Hemisphere Dept.
Nigel Chalk, Deputy Director, Western Hemisphere Dept.
Adrienne Cheasty, Deputy Director, Western Hemisphere Dept.
Robert Rennhack, Deputy Director, Western Hemisphere Dept.
Krishna Srinivasan, Deputy Director, Western Hemisphere Dept.
Charles Kramer, Assistant Director, Western Hemisphere Dept.
Raphael Anspach, Communications Officer, Communications Dept.

Webcast of the press briefing

MR. ANSPACH: Hello. Buenos Dias. Bom dia Good morning everyone. Welcome to this press conference of the Western Hemisphere Department at the IMF on the latest outlook for Latin America and the Caribbean. With us to present our analysis are the members of our Western Hemisphere Department. To my immediate left is Mr. Alejandro Werner, the Director of the Western Hemisphere Department. To his left, Mr. Nigel Chalk, Deputy Director of the Western Hemisphere Department. To his left is Ms. Adrienne Cheasty, also Deputy Director of the same department. To her left is Mr. Robert Rennhack, also a Deputy Director in the same department, and to his left, Mr. Krishna Srinivasan, also Deputy Director in that same department. We are live and on the record. This is also being webcasted. We are going to take your questions here and also online. And before we do that, I would ask Mr. Werner to give us opening remarks.

MR. WERNER: Good morning. As you know from the World Economic Outlook, the global recovery has continued but remains relatively slow paced and uneven. On the bright side, growth in the U.S. economy is becoming more firmly entrenched. The Euro area however is still way down by crisis legacies and the recovery in Japan has been slower than expected. China continues to grow above seven percent, but it's facing headwinds from a volatile real estate sector. I mean it's, as you know and we have discussed a lot of times before, I mean there's a part of Latin America, especially Mexico and Central America that is more tightly linked to the U.S. and this is good news. And then South America is more tightly linked to China commodity prices and therefore the slowdown in China, and the stagnation and declining commodity prices is a negative factor for them. Growth in Latin America and the Caribbean has lowered more than anticipated, driven by weak dynamics in South America. Regional output in Latin America and the Caribbean is projected to expand by 1.3 percent in 2014, more than one percentage point below the rate we anticipated in April 2014. The growth projections for 2015 have also been revised downwards by about 3/4s of a percentage point to 2.2 percent. Behind this sizeable downwards revision, there is a combination of external and domestic factors. On the external side, the weaker out-looking global commodity markets are an important drag on the region's commodity exporters. Clearly, a sense of leaner times has set in, causing the private sector to curb spending. Domestic policy uncertainties have reinforced the strength in several countries, by weighing on confidence and creating a wait and see attitude among investors. The largest downward revisions to the forecast are those for Argentina, Brazil, Chile, Peru and Venezuela.

Let me provide some further details. Brazil entered a technical recession in the first half of this year, as private sector confidence continued to weaken. Growth is projected at 0.3 percent for 2014 and 1.4 percent for 2015. Economic activity has also decelerated in Chile and Peru. A recovery is projected over the period ahead, but the weaker tone of global commodity prices will continue to make it felt in these two economies. Columbia has been defined in this slowdown in the southern cone. The outlook remains solid with strong domestic demand and some expected peak up in exports.

The Mexican economy has recently gathered pace, supported by stronger demand from the U.S. and implementation of the broad reform agenda will also boost potential growth in the medium run. Argentina's economy is showing the strength from policy distortions and microeconomic imbalances as manifest in weak growth, high inflation and a widening gap between the official and informal exchange rates.

Venezuela output is expected also to contract sharply this year, and decline further in 2015, against a backdrop of highly disruptive policy interventions, severe microeconomic imbalances and very high inflation. Growth in Central America is projected to remain steady, as positive spillovers from the U.S. are balanced by adverse effects from the coffee roya disease, low rainfall and other country specific factors. Meanwhile, economic activity in the Caribbean, particularly in tourism based economies remains weak, due to long lasting competitiveness issues and high microeconomic financial vulnerabilities.

Even around the subdued outlook for the region, downside risks dominate. A sharper slowdown in China remains a key issue for commodity exporters in Latin America. The outlook could also be undermined by renewed volatility in financial markets, for instance, due to geopolitical tensions, or a faster than expected rise in U.S. interest rates. On the up side, Mexico, Central America and parts of the Caribbean would benefit from a stronger U.S. recovery.

Policy challenges -- what are the policy implications of the economic outlook we have just discussed? Despite the marked slowdown in the region, spare capacity's still limited. After so many years of high growth, the economies in Latin America, almost all of them are operating near full capacity. Labor markets have started to soften, but they remain fairly tight, as suggested by historically low unemployment rate. Inflation is above targets in many of the economies of the region and persistent current account deficits provide further evidence of limited economic slack.

Thus the monetary policies need to be used with caution and in a lot of cases there's neither rationale nor space to do it. Monetary policy remains the right tool to deal with economic fluctuations in economies where inflation expectations are well anchored. Flexible exchange rates, we provide also an important instrument to adjust to these lower growth economic conditions. By contrast, fiscal stimulus should be avoided almost everywhere, where economic slack is limited or public finances are weak. I mean, after the counter-cyclical efforts that were undertaken after the 2008, 2009 crisis, a lot of these economies did not revert these efforts as the economies went back to full -- to potential GDP or even a positive output gap and they have used a lot of the fiscal space they have.

The other important thing is that many of the financial shocks are not transitory. Interest rates in the U.S. will be going back from low, from abnormally low rates to normal rates. And commodity prices will be stabilizing to what is expected to be the new high level of commodity prices but they are not expected to go back to an increasing trend in the next few years. Policy makers will also need to keep a close eye on financial vulnerabilities. Lower growth and potentially volatile financial markets could put pressure on corporate borrowers after a period of strong bond issuance, also after a decade in which some countries had a very important increase in the size of their financial sectors.

Meanwhile supply side reforms are crucial to where there is a current combination of slower growth and still tight capacity. During the boom years, many of the region's longstanding weaknesses were less salient. But they are now re-emerging as a break on growth, in the form of low savings, low investment and low productivity growth. To tackle these issues, countries need to focus on upgrading physical infrastructure, improving the business environment and enhancing the performance of the education systems.

In sum, following an extended period of strong growth, our region is now facing challenging times. The key to averting the current challenges is a clear focus on reforms to boost productivity, an important effort to boost investment while preserving credible policy frameworks and sufficient buffers. Our regional economic update has just been posted on our web page and my colleagues and I are now happy to discuss any questions and comments that you might have.

MR. ANSPACH: All right, thank you very much Alejandro. We don’t have much time, so I would ask you to keep your questions to one question per person and then we'll try to serve everybody. Okay, so I'll start on the left hand side. If you could just state your name and affiliation.

QUESTIONER: In April, during the meetings, there was a good climate towards Argentina and in this context it was said that Argentina had solved its debt issue with the Paris Club and that the data issue was progressing, and that Argentina had reduced some of the subsidies in place. But since then the situation has changed. And what do you think of this new economic environment in Argentina? And the Argentinian government said that it was not in agreement with the most recent growth projections for Argentina for the year ahead. The Fund is saying that Argentina will be in recession but the government disagrees. What is your opinion?

MR. WERNER: If I could start with the end, and then Nigel will be able to comment on the issues related to the macroeconomic framework and the change in the outlook that you mentioned. We presented our estimates on the day that the World Economic Outlook was released. Because of the nature of the exercise of economic forecasts that we do for all countries, there are deadlines for submission, and the numbers we used for the Argentina projections were figures prior to the publication of the second quarter growth data. The numbers we had is a contraction of 1.7% for this year and we expect negative growth for the year ahead, and this reflects a situation of lack of access to international capital markets and excessive aggregate demand growth, important restrictions on the supply side, high inflation. Clearly a context in which private investment is not going to grow and private demand is also contracting. So, in this sense, this is our diagnosis and the framework in which we made our negative projections for 2014 and 2015.

With regards to the specific projection number and the fact that we made these estimates, before the GDP for the second quarter - which was better than various analysts expected- was published; but when you look at the general context of the indicators published in recent weeks, I believe that our forecast holds in terms of qualitative analysis. We will continue to follow the situation in Argentina. With regards to the discussion about some decimal points of difference, I think that that's not really significant. Indeed, given the context in which industrial production fell 2.9 percent, including a reduction of almost 14 percent in August [month on month] in auto production. Retail sales have declined 9.3 percent in August [year on year] and 7.6 percent [year on year] in the year to date compared with 2013, and imports contracted 20 percent in August year on year, and 10 percent year on year in the year to date Exports fell by 11.7 percent [in August year on year] and 10.2 percent for this year. So, there is a very clear recessive context. And in this context the discussion over a few decimals more or less should be seen in the margin of errors for the growth outlook we do for all member countries. But we think that the outlook and the qualitative analysis is quite clear.

MR. CHALK: Just to add to that the recent data's been universally negative, but even the quarter 2 data, you still saw a contraction in consumption, contraction in investment and the reason you were seeing growth was because imports have been compressed so much, that it was creating some growth. So even the details of the numbers that came in for quarter 2, were still suggesting an economy that continues to struggle with macroeconomic and policy imbalances, high inflation, and deteriorating terms of trade. So I think the idea of Argentina remaining in negative growth this year and next is still a view we have.

Questioner: My question was to once again, feeling the Caribbean issues are a footnote to these reports. You don't ever get a real sense of the situation in the Caribbean. But specifically, I'm going to ask about the Venezuela issue. The bank of Nova Scotia just prepared a report on the possible impact of the Petrocaribe situation. That has tremendous consequences for a lot of the countries in the Caribbean. What's the fund position in the face of that?

MR. WERNER: Before I turn to Adrienne, I don't know what the Bank of Nova Scotia did and hopefully my colleagues will know or tell me and we'll discuss it, but I don't know if you recall in our regional economic outlook for April 2014, we put out a study exactly of the vulnerabilities that the region faces, vis a vis the financing's getting from Petrocaribe. And we had some relative exposures of the different countries et cetera so what we have been doing is first documenting this, putting together all the data, discussing with authorities the risks that they might be facing of a drying out of the financing coming from Petrocaribe and the microeconomic implications that this could have, and how to deal with them in case these phenomena appears. So we coincide with what you say, that there is an important vulnerability for the region and we have been working with the countries first to have the right numbers and secondly to develop contingency plans in case this contingency materializes.

MS. CHEASTY: Now, Alejandro said it all. We advise countries to build up buffers and where possible, not to spend all of the Petrocaribe resources. Some of them have responded quite well, but all of them are still vulnerable.

QUESTIONER: Thank you Mr. Werner. With regard to Colombia, could you say a little bit more about Colombia’s growth outlook and could you elaborate on the impact that the tax and pension reform could have on growth rates?

MR. RENNHACK: The view we have on Colombia is quite positive. We expect growth to be 4.8 percent this year; the first quarter and second quarter are very good. And then next year would come down to about four and a half. The tax reform I think is something that's quite important. As you know, Columbia has a fiscal rule, and they want to adhere to that to keep debt on a downward path. And that the tax reform I think would be important to generate the resources so they could sustain spending and help support public investment which would help keep growth going. The pension reform is something that would also help put the public finances on a sustainable footing and improves the equity of the system as well. I mean, Columbia's undergone a lot of pension reforms in the last 12 years. This is yet another minor reform, but I think it's important just to keep the pension system on a sustainable footing.

QUESTIONER: It's on Mexico, the question. The question is basically, what does the IMF see in Mexico for the next year to make you guys think that the growth will be more favorable than this year? You state in your analysis that part of the optimism is based on that you expect a pick-up in construction, so I don't know if that's going to be the only element. And also, something that caught my attention is that you put Mexico among those countries with projections, the lowest unemployment rate among Latin American countries for the next year. So the question in that regard is, if you feel like it is going to continue, that could contribute also to reduce further the immigration from Mexico to the United States, which at least this year, according to the U.S. official figures, it's almost zero.

MR. RENNHACK: On the growth outlook, we're projecting growth of 2.4 percent this year and then rising to three and a half percent next year. A big factor in the recovery this year is the recovery of the U.S. economy. We would expect that to continue in 2015. Exports are doing quite well. Manufactured exports and exports of autos are leading the way. And also, the recent data do show that the collapse in construction that took place is bottoming out and there are some signs of recovery, so we think that that will also no longer be a drag on the economy. And also, the secondary legislation for the structural reforms has been approved for all the reforms. Now they're in the process of doing the regulations but the government can move pretty quickly on that, and so we think that we'll begin to see some of the effects of the structural reforms in the economy next year. You can see a pick-up investment in the telecommunications sector and in the hydrocarbon sector. Starting slowly, but you know, they'll do the round one next year and that could begin to kick off some FDI and some domestic investment as well. So I think that the effect of the structural forums is recovery in construction and the continued growth in the United States which will help exports. I think it supports the recovery in growth that we're foreseeing for next year.

On the unemployment, you know one trend we're seeing is that there is a shift towards the informal sector to the formal sector. There may be a lot of reasons for that. It might be a bit soon to say definitely what's causing it, but it could be that some elements of the tax reform are contributing. And yes, I would agree that the migration flows seem to have changed quite a bit. That could be because of the policy in the U.S. but it also could be that there are better opportunities in Mexico.

QUESTIONER: Good morning; in the context of the slowdown in China, how it will affect products, commodities, and the situation in Latin America. But for now we have not seen a break in growth in Paraguay. So, for how long can this situation remain and be sustained; can we resist it? Or is it time to start thinking of some way of rethinking the economic model? What is your view on this?

MR. WERNER: Well, I think that if you look at the way the Paraguayan economy has evolved over the last three, four, five years, it has been showing a very good performance; growth has been very high. Obviously, also taking due consideration of the cycles in the agricultural cycle, that is so important for this economy. But economic management including the fiscal and monetary policies, has been good. Financial system is well-capitalized, and it’s becoming a source for significant growth aggregate demand with the expansion of financing at healthy rates of interest.

But obviously, Paraguay cannot escape a situation where the terms of trade and the price of its exports are falling, and where the main neighbors are also going through a period of growth, which we think is going to be negative for Argentina; Brazil, very low. But, obviously, the Paraguayan economy has significant margins in the coming years to offset the negative effects of their neighbors, which are not that big either.

I would actually highlight the changes in the terms of trade, as the bigger challenge. But I believe that in the end Paraguay has a lot of space to offset this negative effect with the positive effects from the stability in the financial system and promote growth.

Obviously, it’s going to be slower, more moderate, modest growth in Paraguay. But the country can count with an efficient macroeconomic framework, the regulatory system, promoting investment, and it does not become a break on the investment process, as you see in other countries, well, I think the challenge for Paraguay in this area is to continue improving its regulatory framework, to progress as fast as possible in the infrastructure area, in implementing, say, projects which are, under the new law of private public partnerships.

And I think, quite the contrary it’s not time to change the model; it’s the time to reaffirm certainty to continue a trajectory which has been very good for Paraguay, and give more certainty to the country and that despite this complicated regional situation Paraguay continues to grow at the rhythm.

QUESTIONER: I don’t really understand the technical explanation regarding the GDP growth projection in Argentina. You said in April growth for 2014 was going to be 0.5 percent and now you’re saying it’s going to be a contraction of 1.7 percent. So how do you go from that to that without giving more explanation on the general growth numbers? Beyond a possible technical error, I wonder what will be the policies that Argentina should or could adopt to overcome this situation and improve it.

MR. WERNER: Well, I think the outlook and the reasoning behind the logic of our growth projections has already been discussed before, but I could repeat the data. But if you look at the context like Brazil, if you look at what happened to private sector demand, consumption, the data would hardly be very different from the one we just reviewed. The level of economic uncertainty associated with a context of high inflation, import and foreign exchange restrictions is a source of that will have considerable impact on aggregate demand in the future, and that is the analysis behind our projections.

And, obviously, it is an important change vis a vis what we were forecasting six months ago, because it seems that the policy direction has changed with regard to what we have seen at the start of year and what we had heard was going to happen. Having had a dialogue like the ones we have with authorities in other countries, would have perhaps allowed us to know what is the policies program that is being considered to be implemented in the next months. , and if these programs would involve a change in the trends we see then we would include them in our projections.

But since we don’t have this dialogue work on what we have, and given what we have seen in the media wedo not see a change in the policies trend and this explains, our outlook for the coming year.

Questioner:

I saw Honduras’s President commented that the country had reached a deal with the IMF. So, I was wondering if you could confirm that, and what amount is it for, and any other details you could give on that.

MR. RENNHACK: Yeah, I think all we can say at this stage is that we’ve reached an agreement at staff level in our department with the authorities in a program. We have to undergo the process of internal review, but we’ve made a lot of progress. And I don’t want to go into details yet until we’ve had the final approval, but it certainly will involve a strong fiscal adjustment. And, you know, the authorities are fully onboard with the need to get the fiscal house in order. So, I mean, everything’s been pretty positive so far.

Questioner: Do you have a rough range of how much money it would be.

MR. RENNHACK: I think once -- we can only go into that once it’s been approved. So, I think right now, we’re still in the stage of getting approval, but we’ve reached a lot of agreement in many, many areas.

MR. ANSPACH: Okay. Thank you, Robert.

I have a question online which I would like to take.

The question is, would fiscal stimulus in the 2015 offset the slowdown in the Chilean economy? Minister Arenas said that the Fund did not consider the stimulus in its projections for 2 percent growth.

MR. WERNER: Well, we are projecting for next year recovery of 3.3 percent. So, I think the question refers more to growth for 2015, rather than 2014. I think there’s a consensus that, in 2014, it’s going to be two percent, which we have and is very close to what the main analysts foresee. For the coming year, and compared to what the Chilean authorities incorporated in their budget, there is a difference of half a percentage point. Again, the budget was presented after this was presented after we closed our projections included in the WEO.

But what needs to be highlighted is the trend and the forecast of a rebound that is being anticipated for the coming year, –on one side considering the adjustment in investment in Chile, over last year, which we hope to return next year.

Secondly, the fiscal stimulus which is being commented on now may have an additional impact. But I think we should stress that the uncertainty that might have affected investment associated with many of the reforms, that we believe will have significant impact over the medium term, but may impact uncertainty in the short time, is already behind us. And that will lead to a rebound in investment. And that would explain the recovery that we are anticipating for next year, at 3.3 percent.

Obviously, for the next projections we will need to continue examining inputs for our analysis. Again I would highlight the change in the growth trend, which are very significant. We had growth 4.2 percent last year and it is projected to go down to 2 percent this year, and a recovery next year -- obviously the use of fiscal policy as a leverage for the coming year might help growth to be a little higher than what we projected. And finally, the exchange rate depreciation will help -- also help stimulate the Chilean economy.

QUESTIONER: If you look at the reports released this week, all the notes are -- not all but most of them about Latin America were negative. And in the WEO, the IMF recommends that the priority for most of the region is to preserve macroeconomic instability. Is macroeconomic instability at risk or threatened in Latin America? And specifically about Brazil, you recommend gradual adjustment in the macroeconomic framework. Why gradual? What is this time table? How much time does Brazil have to adjust? What should be the priorities? And is it a risk if the adjustment is made too fast, that Brazil gets into a recession, for instance, because it’s growing like almost zero right now?

MR. WERNER: Let me quickly get the Latin America question, and then Krishna can address the Brazilian issues.

I mean, both Latin America -- it’s a very heterogenous region -- and macroeconomic stability is also a very wide concept. So, it is -- I would say that, in general, Latin America has gone through a period in which it was blessed with very good external circumstances, but, also, it did its job on the macroeconomic front much better than in the best.

So, in that sense, the region as a whole -- it’s entering this phase of low growth and negative external environment in which the terms of trade will be going down, interest rates in the U.S. will be going up, et cetera -- in a position that it’s much better than what it has had in the past, to confront scenarios of negative terms of trade shock, increases in international interest rates, et cetera.

So, in that sense, you look at the public debt to GDP ratios, you look at the capitalization levels of the banking system, you look at the balance sheets of the corporates, et cetera, you might find problems. But in general, in the region, I would say that the region is healthier than it has been in the past.

I mean, obviously, recent bad times were when policy mistakes are done in which the equilibrium between political tensions and microeconomic stability -- it’s more delicate, and, therefore, it is important for authorities to be really on top of maintaining these achievements that they have acquired in good times, even these more stressful periods.

And after that, I mean, going to the heterogeneity part of Latin America -- I mean, within this average comment that I have done, we still have the country with the highest inflation in the world. We have some countries with (inaudible) exchange rate regimes, a lot of restrictions, et cetera, et cetera -- in which macroeconomic imbalances are already showing up.

So, obviously, there are some cases in which these leaner times might generate problems much, much sooner, and, therefore, macroeconomic instability -- it’s a pressing concern now. But for the region as a whole -- I think the region is well-placed, and they should focus a lot in maintaining these strengths.

MR. SRINIVASAN: Right. On Brazil itself -- Brazil’s in a tough place. You know, growth is coming down quite sharply; inflation’s high. If you look at the base indicators, there’s not much slack there. So, our emphasis is on improving the credibility of frameworks and on structural reforms.

Again, when you talk about the speed of adjustment, in terms of improving frameworks, you know, the faster the better. But the faster -- it means that you shouldn’t compromise the quality of improvement. So, the priority for Brazil is to improve the credibility of framework and the structure reforms, and that, we’ve elaborated in the report.

QUESTIONER: I’d like to ask you about Venezuela. Could you comment on the outlook for the coming year? Do you think Venezuela will be able to meet its commitments for sovereign debt this year? I think this year’s okay, but next year is important. What about private debt? Can you estimate the amount? And if they can’t pay, what would be the deadline?

MR. RENNHACK: I think we all know that Venezuela’s in a pretty difficult spot. We’re forecasting a decline in output of three percent this year and a decline of one percent next year. And, you know, the information aren’t perfect, but it’s clear that, you know, there’s a very wide fiscal deficit that is creating a lot of economic imbalances.

There is a supply of foreign exchange coming into the country through the oil exports -- about $70 billion a year or so. So, that helps them finance the imports, and it gives them a steady stream of dollars, which they can use to service debt.

So, what we’ve seen in October of this year -- that, you know, they’ve been servicing the bond payments that are falling due. Next year, there is a schedule of debt service payments for the public sector. We don’t have excellent data on the private sector. I’m not quite sure how much it would be.

But I do think that, you know, so far, the government has shown the willingness to pay, and they’re allocating the foreign exchange in a way that the country continues to be able to service its debt. But that means that there’s less foreign exchange to finance real sector activities. So, they’re in a very difficult spot. So, they’ll make a choice between servicing debt and, you know, probably tightening import controls.

So, it’s very hard to predict debt servicing capacity in the next year, but the evidence so far is that they would continue to service the debt. But it’s a very difficult economic situation, and it’s very hard to forecast.

QUESTIONER: In the Fund report, the growth rate of Bolivia is the highest in Latin American, but with the unfavorable headwinds in the world and the situation in China, what would be the impact on Bolivia, and what precautions should we take -- or is everything fine?

MR. SRINIVASAN: Right. In Bolivia, we project a growth rate of 5.2 percent, which is among the fastest in South America. We see a big impulse coming from public investment, and that anchors the projection going forward.

Now the question is -- they have buffers. They have good policy space, and they have a reserve. So, that should help them protect against any downside risk coming from China.

QUESTIONER: Alejandro, you said that we can change the economic model in Paraguay, but you also said in your analysis there was high volatility of growth in this model. So, would you recommend to follow this primary production model or find some other growth models based on other sectors? So, if that’s the case, what sectors should be given preference, and how?

MR. WERNER: Obviously, when we talk about such a broad concept like changing the production model, it can be approached in various ways. That doesn’t mean to say that there aren’t things to be changed and improved in Paraguay. but I think that Paraguay is still I a phase where the benefits that can be generated from agriculture and livestock are very large. And the focus should be on exploiting this benefits to the fullest extent, including maximizing the benefits of high commodity prices, which will remain high. So, you should try to capitalize on these advantages to improve better capabilities

So, to the extent that you can maximize profits from commodities, use this windfall to strengthen social development, to improve education, health, and infrastructure. And in the context of a regulatory environment and tax framework that promotes investment, that will help develop over time in other sectors -- services, for example; energy’s another one for the medium term in Paraguay, given that it is in energy surplus.

And the surplus in energy could also be, in South America, a lever for significant development. And this context is giving Paraguay a context where it could benefit from the revenue from developing its agriculture and livestock sector, and pass on the benefits to other sectors, which, in the medium run, could lead to more balanced growth.

QUESTIONER:

A question -- just on Brazil, not so much the macroeconomic situation, but the economic model, which seems to be an interesting debate in the elections there -- you know, on public banks, for example -- you know, the IMF this week -- the GFSR presentation was sort of commenting on the inability of private banks -- 40 percent of private banks actually finance the economic recovery 70 percent in Europe.

In Brazil at the moment, there seems to be an onslaught of criticisms coming from institutions like the IMF on the use of public banks (BNDES). Could you maybe just explain a little what you think the role of public banks in Brazil -- how it could help recovery? Whether the rates -- you know, the opposition candidate at the moment is calling for its lending to be significantly downsized.

I wonder if you’d just comment on that.

MR. SRINIVASAN: I think there are two questions. One is on the model itself, you said. I think there, clearly, emphasis should be placed on kickstarting higher investment in Brazil. That’s very important. And one of the impediments to investment is infrastructure.

And if you look at, you know, lending through these public banks, again, there’s an issue of there are some corporates which seem to be accessing financing through these banks, which can access financing through markets.

So, the question is, even within the current envelope, you could think of where public banks lend more for infrastructure projects, which could kickstart -- which could help capitalize investment.

At the same time, perhaps some of these corporates, like Petrobras reduce their reliance on lending through the public banks. So, I think there’s an issue there. Even within the (inaudible) envelope, you could do things. But, again, more broadly, I think there’s -- we would recommend reducing policy lending, because that’s an important element of the fiscal framework, which, again, needs to be strengthened . Policy lending is subsidized lending through banks.

QUESTIONER: You are talking about an inflationary situation in Argentina. And I wanted to ask about the statistics -- Argentinian statistics. Are you still working on that?

And you also mentioned a change over the last six months. And I want to ask whether you could see where the errors lie and how to correct them.

MR. CHALK: Yes, we’re still working with the Argentine authorities on the statistical issues. As I think was previously announced, our next scheduled reporting to the Executive Board will be in mid November. So, you know, we’ve been having considerable back and forth with the -- in-depth with the Ministry of Economy, discussing various issues.

In terms of inflation -- I mean, I think the bottom line is, we see inflation still very high in Argentina. We see that reflected in not only the price level statistics but we also see that reflected in the wage statistics, which, you know, corroborates that idea that this is an economy facing relatively high inflation.

We see that a product of the underlying macro-policy, balance of payments, and balances that are in the economy, and we project -- we don’t have formal projections for inflation, but we still see this system continuing to show declining growth, high inflation, and those imbalances being maintained.

MR. WERNER: And maybe before we leave -- I mean, again, thank you for coming. And as you have noticed the poster that’s behind me, we are happy to announce that the IMF and the Ministry of Finance of Chile are organizing a high-level conference in Santiago, on December 5 and 6. The Managing Director of the IMF and President of Chile, Michelle Bachelet, will open the conference.

From our side, also, our Economic Counselor and the Financial Counselor, Jose Vinals and Olivier Blanchard, will be there. And we’re expecting a wide array of public sector officials from the Regional Center -- bankers, opinion leaders and we hope you will join us, either there or through our webcast.