Transcript

Transcript of Western Hemisphere Department Press Briefing

April 15, 2016

Webcast of the press briefing

P R O C E E D I N G S

MR. ANSPACH: Good afternoon, everybody. Welcome to this press conference of the IMF’s Western Hemisphere on the outlook for Latin America and the Caribbean. We are live and on the record both here in the room as well as online for our colleagues following us through the webcast. Before we start let me shortly introduce you to the speakers of today. We have Mr. Alejandro Werner, who is the director of the IMF’s Western Hemisphere Department in the middle of the table. And then to his left we have Mr. Nigel Chalk, who is the deputy director of the same department. To his left Ms. Adrienne Cheasty, also a deputy director. To her immediate left, Mr. Charles Enoch, also a deputy director in that department. And then coming back to this side of the table we have Mr. Krishna Srinivasan, who is a deputy director in the Western Hemisphere Department as well as Mr. Robert Rennack, also a deputy director in the Western Hemisphere Department.

Alejandro will have some introductory remarks and then we will be happy to take your questions. Before we do that, let me just remind you that we do have interpretation into English, Spanish, and Portuguese, but I would like to ask you not to block the view of our friends and colleague’s interpreters in the back so that they can do their job. With that, Alejandro you have the floor. Thank you.

MR. WERNER: Okay, thank you Raphael and thank you for coming. You have our blog that was put out I guess a little while ago, so let me just mention some things that were said in the blog. As you’ve been hearing in the last few days as a global economy still struggling many countries in Latin America and the Caribbean are facing a harsher world than they did a few years ago. Therefore, the growth outlook is weaker in advanced and emerging economies alike. While the gradual slowdown and rebalances of economic activity in China is likely to keep commodity prices lower for longer. The favorable external financial conditions of the past several years have become more volatile and risks of a sudden tightening are on the rise.

Against this backdrop economic activity in Latin America and the Caribbean has been revised downward compared with our January update and is likely to contract for a second year in a row in 2016. Basically, we are projecting an average rate of growth of minus 0.5 percent for this year. But the growth outlook varies substantially within the region. We have in South America where the, let’s say, the deeper slow down and the recession countries are concentrated in Central America and the Caribbean and Mexico where we have most of the countries benefitting from the declining price of oil and therefore economic activity in this sub-region of Latin America and the Caribbean is accelerating a bit.

As I said, therefore, the news isn’t all that bad because we have these sub-regions that are exhibiting some acceleration and an important reduction in the current account deficits and a strengthening of their fiscal balances.

If we turn to South America where the deceleration is concentrated I think it’s important to mention that most economies in South America are managing the transition to lower commodity prices in an orderly manner. We’re seeing an orderly slowdown. However, we have some countries where the harsher conditions are concentrated. I think among these countries the situation in Brazil stands out lately. Brazil is experiencing one of the deepest recession in its history driven by the combination of policy missteps, macro-economic fragilities, and political uncertainty. The deteriorating fiscal position and public debt dynamics have played an important role in the collapse of consumer and business sentiment. And within the outlook we only start to look more promising when these uncertainties have been resolved and fiscal concerns have been addressed.

I think other countries in which we have seen a significant change in the policy framework is Argentina, where the new government has embarked on an ambitious much needed transition to remove domestic imbalances and distortions and correct relative prices. Foreign exchange controls were scaled back. Several constraints on international trade have been removed. Export taxes on agricultural products have been eliminated or reduced. Utilities, tariffs have been raised and an agreement has been reached with holdout creditors. These measures have improved growth prospects in the medium run, although activities projected to slowdown in 2016, and an important recovery is expected in that country for 2017.

The situation in Venezuela and the main macro-economic diagnosis continues to be very similar to what we discussed the last time we met. Conditions have deteriorated with policy distortions and fiscal imbalances remaining unaddressed. Economic activity is expected to contract by 8 percent in 2016 and inflation to exceed 700 percent this year.

For the region as a whole we see risks on the downside. From this I think the most important one would be a slower than expected recovery in China, and as a consequence of this or an independent move in commodity prices even to lower levels starting another round of adjustment in the region. Several of our [IMF Flagships] have also highlighted that the corporate sector in Latin America has increased its leverage ratios and that’s a matter for concern. And we have been monitoring this situation closely and it’s advisable for countries to continue to monitor the situation of the corporate sector and possible fallout from corporates and some contamination into the financial system, although we do think that countries have the tools to manage whatever fallout might come from this corporate over-leverage vulnerabilities.

In terms of policies, I would say that the most important challenge for the region is how to set up the foundations for a growth model that depends much less on a favorable external environment. A lot of people have talked about the need to diversify their productive capacity and to move away from a commodity induced export sector. And for this I think we have recommended for many years the focus on infrastructure and education at the same time that macroeconomic strength is maintained. For that we think in the current conjuncture the most challenge is the fiscal challenge, as growth has slowed down, as commodity prices have affected public sector income as well. We think that every country in the region has to embark to some degree in fiscal consolidation towards the primary surplus that will stabilize the debt to GDP ratios. And let’s say the discussion of fiscal space in this case is associated to the speed at which countries should consolidate. Those countries that have lower debt levels and much more credibility in their fiscal framework have sufficient space to do every gradual convergence to these debt-stabilizing primary surplus. Those countries in which fiscal credibility is a little bit lower or the credibility is very low should frontload much more their fiscal adjustment.

And let me, as I’ve said before, just reinforce the message that the countries in the region need to turn their attention towards structural reforms that will increase the savings rate, the investment rate, total factor productivity, growth, and with this to reignite a growth process based on a domestic productivity that will gradually increase the potential rate of their economies to a higher level that we are estimating today.

So with that let me open it up to the questions and answers sessions where me and my colleagues are available to answer any questions you have. Thanks.

MR. ANSPACH: Thank you very much, Alejandro.

MR. WERNER: I think it’s important to mention today that a few minutes ago the authorities from Suriname announced that they have reached a staff level agreement with our team for an IMF program. Obviously this has to go to the board and be approved by the board but we have a staff level agreement with them.

MR. ANSPACH: Thank you, Alejandro. You have seen that the press release is also available now.

So with that I’ll start with the questions. I know that there is a lot of questions so we’ll start alphabetically with Argentina first and then we’ll move on.

QUESTIONER: Hello, how are you. I have two questions. One is if you could please comment about the decision of the Court of Appeals in New York that allows Argentina to issue bonds and pay off its creditors. And the second one is if you had any chance to have meetings with the Argentinian authorities about the Article IV issue, and if you could give some details about the visit that the IMF is going to be doing in September in Argentina about the Article IV. Thank you.

MR. WERNER: I’ll let Nigel answer all the details about this. We’ve met with the authorities within the last week. I think we’ll have another meeting tomorrow. I think we obviously welcome the legal news that Argentina has got and basically reopened the opportunity to go back to the international capital markets. I think the Argentinian government has moved extremely fast in closing this chapter and, therefore, to start the normalization of the relations with the international capital market. Minister Prat-Guy has said that they’re expecting an Article IV to be undertaken in the second half of this year. I think he mentioned September but I think the details are still to be worked out. But we welcome the full reengagement of the Argentinian authorities with the Fund.

MR. CHALK: I don’t have much to add to that. We’re still planning but it looks like we’ll go for two weeks in September. It’s a very normal process as we do with every other country. We’ll go with a small team led by Mr. Roberto Cardarelli who will travel there. We’ll discuss with the central bank, the government, and also with civil society with the private sector to get a picture of what’s going on. At the end of that we’ll produce a report to our executive board and I would guess we’ll go to the executive board to discuss that sometime in the fall, probably after our annual meetings. So right now we’re still planning the logistics but that’s kind of where we’re at.

MR. ANSPACH: So we’ll take one more question on Argentina then we’ll move on.

QUESTIONER: Thanks. I have two questions. The first one is regarding the inflation rate. The Argentine government foresees an inflation of 25 percent for this year and then a target of 15 to 17 percent next year. I wanted to know first what is your inflation target for 2016 and if you think that it’s feasible to go to an inflation level of one percent monthly as the Argentine government foresees by the end of this year, if that is feasible. The second question I would like to ask if what is your view on the fiscal adjustment that the Argentine government has implemented so far.

They are taking a gradual approach to close the fiscal deficit and I was wondering if in the context of this need to embark in some degree a fiscal consolidation that you stated for the region, if you think the Argentine government is doing enough of an effort to close the fiscal gap? Thanks.

MR. CHALK: So obviously Argentina is coming out of position when this government inherited a significant amount of distortions. A pretty sizeable fiscal problem, very high inflation, distorted exchange rates -- so getting out of that process I think is very uncertain, coupled with the fact that we don’t have good data so any forecast we make is obviously in that context.

On the inflation, I mean we forecast in our weo (world economic outlook) an inflation of 25%, which is the government’s target. Getting to an inflation rate of around one percent by the end of this year we think is feasible. I think the increased inflation we have seen which is a level effect from the utility is perhaps larger than we perhaps had built in originally, but certainly it’s pretty clear this government is committed to a process of disinflation or bringing inflation down on that kind of trajectory.

As I said, the bands of uncertainty around the trajectory are very large simply because you are trying to simultaneously disinflate and unwind these relative price distortions.

On the fiscal adjustment, again, I think with the fiscal adjustment, you have to bear in mind is from a starting point where if you look to the fiscal balance at the exchange rate -- the exchange rate, they started in December. The fiscal position was actually considerably worse at the market exchange rate in the sense that the size of subsidy, some of the expenditure items at the market clearing exchange was actually much larger so I think we see a very significant fiscal effort by this government to try and make that adjustment including through realigning tariffs while protecting the lower income part of the lower part of the income distribution. And it’s going to be several years to do that process of fiscal adjustment and I think what we have seen so far is good steps in that direction.

MR. ANSPACH: Thank you, so we are going to move on.

QUESTIONER: Thank you. I have a question on Mexico and I would like to make my question going through some of the things that you say in your blog, Alejandro. You say, in one part, talking about Mexico, you say that if the oil price continues to be lower, that will put more pressure on the Mexican authorities to achieve the fiscal consolidation. I have two questions in that regard. The first on is can you expand on the consequences on the effect if this scenario came true and most of the things tend to point that this is going to be the scenario. (inaudible) say that they foresee that the oil prices will continue to be low for a period of time.

And the second one, what do you think that Mexico should do in order to be prepared for a scenario like this?

MR. WERNER: I will just turn it to Robert to get into the details but I think what we have seen from the Mexican authorities is that they have maintained their fiscal target regardless of the move in the price of oil and they have been very committed to achieving this target so in a sense, I would say that in a scenario in which the price of oil ended up being below what it is implicit in their document of the precreiterios etc. I think their reaction that they eventually will deepen the adjustment and I think the consequences of that might be slightly lower acceleration of growth to the medium term growth that we have. That’s a little bit of what we have been doing lately as the price of oil has been going down as the authorities have been committed to the same targets and therefore having a stronger fiscal adjustment, the pickup in growth that we have projected for the future has been a little bit slow.

MR. RENNHACK: Just to add to that. The effect of oil on Mexico’s fiscal accounts is important but it’s much less significant today than it was say five years ago and that’s because net oil exports from Mexico are now much less and also they have taken a number of steps to mitigate the effects. One is they did a hedging operation in 2015. They have done another hedging operation for this year and also they have changed the way that domestic gasoline is priced so the subsidy now has been eliminated and that there is sort of an excised tax build into there so as they moved towards the process of liberalizing the domestic gasoline market, that insulates that portion of revenue from swings in world oil prices and then the 2013 income reform, you raising revenues has done a very good job of raising non-oil tax revenue and so that’s a nice shock absorber.

And then the government has committed to certain fiscal targets through 2018. They are undertaking the expenditure measures they need to reach those targets and last year, they complied with the target and this year it looks like the probably reached that target as well so they are prepared to take the adjustment they need to meet the target and they have announced a major restructuring of Pemex as well. So I think they are capable of doing it and probably because the oil price effect is less than it used to be and also there is prepared safety adjustment as needed.

QUESTIONER: Do you foresee a big impact in Panama from the Panama Papers. Panama is supposed to be growing at 6 percent and now it’s going to be -- will you see a big impact in the rest of the year?

MR. WERNER: No, we see the drivers of growth in Panama remaining the way they were.

I mean obviously as the MD has said, we do see this issue as just another reminder of the important loopholes in the international financial system and therefore I think to redial the call for all the international efforts to keep on fighting these spaces for tax avoidance, for non-transparent schemes that allow tax shifting and obviously also the transfer of resources from non-transparent activities. I think this phenomenon that was reflected in the leak of these 11 million files really strengthens the point that these efforts are taken by the international community are very important and to strengthen the international taxation system and to make it more equitable and to significantly reduce the opportunities for tax evasion through these types of schemes.

QUESTIONER: As a follow up, do you don’t foresee any outflows from Panama to another economy?

MR. WERNER: I think it is very premature to answer that question in the sense that we do not know exactly what the full information that is there, where are those resources located? I mean they are just a company, some of them, that are not even established in Panama.

MR. ANSPACH: We are going to switch language now.

(Speaking Spanish)

QUESTIONER: South America is going through a deep deceleration, especially in Argentina and Brazil and in that connection I wanted to ask you a bit, Paraguay is a small economy and it is growing at about three percent and since it depends a lot on its neighbors, could we say that Paraguay would be an example to other small economies? We are a country that is resilient -- or what else could small economies learn from Paraguay in terms of what the IMF believes?

MR. WERNER: This is something that we have said before in this press conference. Macroeconomic management in Paraguay has been very good and we see that reflected -- and yes, there has been a slowdown of its economy, but as I said, Paraguay’s slowdown is normal coming down from very high growth rates and the rates are currently very good and that’s because of the phase of the cycle that the country is in. It is suffering the effect of drops in agricultural products, commodity prices.

Also, the situation in neighboring countries is affecting it but it is a healthy and robust economy so this is a slowdown and we expect Paraguay’s economy to continue to show a very favorable dynamic. It went to the international capital markets just a few weeks ago at a very good rate, showing that this opinion is generalized and the governments in Paraguay have been good fiscally in terms of monetary policy and also they have been very active in promoting investment in the country.

QUESTIONER: Good afternoon. What are the IMF’s recommendations for small open commodity producers that have suffered in terms of trade shocks?

MR. WERNER: Obviously it’s a case by case issue and we do not like to generalize our policy recommendations because for example, the degree of buffers that might have been built up by different countries are differences, the flexibility associated to their currency regimes might be different, the strength of their financial sectors can be different so we have cases, for example, let’s say the case of Colombia or the case of Chile, which I mean these are countries that have very flexible exchange rate regimes, very well established inflation targeting regimes, et cetera which obviously the recommendation is to let the exchange rate move as the market would determine.

On the fiscal accounts to have a meeting in term, fiscal framework that will allow them to converge to the new expected medium term scenario in let’s say three, four, five years and then it is the more structural recommendation on how to start working on the fundamentals of growth in economies that will not have the pull from a commodity boom as they had before.

In the case of Trinidad and Tobago, or other countries in the Caribbean or Suriname, I think these are countries that started with currency regimes that are more rigid than the ones we saw in South America. There are also countries that in many cases are expected to have an important increase in income in the next few years from positive supply shocks and I think there the recommendation is to achieve some gradual flexiblization of the exchange rate to accommodate the external shock and I think the most important anchor in these cases would be to really set the foundations for the fiscal policy to be in line with a new reality. I mean some of these countries the decline in terms of trading applies a significant reduction in public sector income. Therefore, in these cases and in the case of Trinidad and Tobago these are countries where the debt levels are not very, very large, so they do have time to do these adjustments so they can do them gradually, minimizing any impact, protecting social expenditures, so in a sense I think they have to lay down a very good strategy of adjusting their public finances through time to reflect this new reality and I think that’s the basis of the conversation we have had with the authorities. A team was in Trinidad a few weeks ago and obviously we will be putting out our report after it has been approved by the board.

QUESTIONER: We are seeing Difficult moment in Brazil right now. We don’t know who is going to be our President by Monday. What I’d like to know from you is we don’t know what should be the result of this impeachment process, but what should be for Brazil after this very intense political process in terms of our economy. What we should do, what our government can do after this very difficult political process.

MR. SRINIVASAN: So I won’t comment on the domestic political process, but in terms of what needs to be done what we’ve said in the past is political uncertainty has had an adverse effect on economic policy leaking which in turn has had an adverse effect on the economic prospects. And the priorities remain pretty much the same in terms of putting together a credible medium term fiscal consolidation plan which is well specified not just in terms of targets but in terms of measures. Dealing with some structural rigidities in the fiscal on the expenditure side. These are important elements which we have emphasized in our article IV report last year and they remain the same. Going beyond that I think is important to emphasize structural reforms again both on the fiscal side and more generally with things like infrastructure, improving productivity and so on to increase long term potential, but these priorities haven’t changed since we published our last article IV report. One hopes that with political uncertainty declining things would catch -- recovery would get pace.

MR. ANSPACH: Thank you, Krishna. Before I come back to the room I have a couple questions online, so let me read them out for you. The question is the Minister of Finance Rodrigo Valdez on Wednesday said that the IMF projections were prepared several weeks ago and that had they seen the figures for February the estimate for the country probably would not have been so low. What can you say in that regard? Thank you.

MR. WERNER: Obviously we have a cutoff date for all of the forecasts for the 188 countries that belong to the IMF and based on the information that we had at hand on that date those forecasts were made. Now one thing that I can say is that one piece of data would not have a large effect on our forecast. If that information was positive there would have been a marginal movement in the forecast perhaps but in this I don’t think that we would need to enter into depth in the discussion of what the minister said. What we should say is that the early year forecasts are always uncertain and the range of uncertainty for all economic forecasts for emerging economies are necessarily uncertain and at the end of the day the agreement of the range with official forecasts and our forecasts basically they will tend to agree later on, but yes we are a bit more pessimistic in terms of the speed of the recovery of Chile’s economy. Because over the last 18 months Chile’s economy has surprised us on the downside and we think that there are certain factors that we had not included in our models and they are holding back confidence, especially confidence on the part of producers and this is delaying the recovery of investment in non-mining sectors. That investment is not as dynamic as we had foreseen. It’s also true that the world’s economy is growing at a slower rate than what we had predicted and these are the factors that are behind our marginally greater pessimism regarding the forecast so we just hope that they minister is right.

QUESTIONER: If I didn’t misunderstand or did I misunderstand or did I not understand you are saying that the expected growth rate for Mexico has been delayed so I would like to ask you what are those factors? Are those factors only external that effected what the IMF had expected in terms of growth and then next why the reforms in Mexico? And next why were the reforms that are already underway, why were they insufficient to offset the impact of external shocks?

MR. RENNHACK: I think our growth projection for Mexico has come down certainly since October of last year and there are several factors. One is that oil production is much lower. It keeps getting marked down quarter after quarter and so the news coming out of Pemex tends to be more pessimistic over time. And so when you look at the growth numbers for Mexico, the mining sector is a significant drag on growth and that’s largely coming from oil. U.S. growth is not as robust as we’d expected and that’s an important source of Mexico’s manufactured exports so that’s another drag on growth as well. So we are expecting growth to be about 2.4 percent this year and rising to 2.6 percent next year. And on the structural reforms and the effect on growth certainly growth is lower now than we had expected it to be. I think though there are underlying factors which are bringing it down. But that I still think that the reforms and moving in a positive direction, we are seeing signs of investment in certain sectors that were benefiting from the reforms, telecom’s doing well. There is an expansion in the gas pipeline and the distribution network in the country. Electricity prices have come down. So there are some benefits and as we’ve always said it takes time, these are long acting reforms. You are not going to see the effects right away. All the reforms go in the right direction and over time I think you will see positive effects from them. It just takes a while to get going. And then you are running against the headwinds of the global economy.

QUESTIONER: One question for Mexico and one for Latin America or for the United States, especially. What do you think about recent measure taken this week especially, the use of the Bank of Mexico [profits] to reduce debt and to consolidate financial and a budget in advance of what -- do you think it could advance the target for 2017 as the minister said? And the other one is if it is possible that this reduction of that could amplify a margin of maneuver for Pemex. What do you think about these measures taken on Pemex to fortify its capital and especially the circulating (inaudible) capital because the market is so worried that the spreads goes very bad today. And for the United States especially, what is dragging the manufacturing sector. Is it something structural? Is it something that leans to the fortified dollars. This relationship between dollars is strong -- peso low has become some kind of difficulty for the relationship for the national flows between the two countries.

SPEAKER: On Mexico I think the actions they took with the Banxico profits is consistent with a law that was passed last year. Part of the profits were used to help boost the capital of the central bank, part of it would go to the oil stabilization fund and those funds can only be spent under certain regulate rules. I mean the rest would go to retire debt. I think these are all very good uses of central bank profits. I think they go in the direction of strengthening the public sector finances, so it’s good to make sure to have a clearly defined use of the central bank profits particularly when they are exceptional coming from the valuation gains of the depreciations. On Pemex, I think the moves the governments are taking are good. They are in the right direction. Part of the liquidities for the recapitalization is to help clear the supplier’s credits, which is very important so they can begin to make the service contracts operational in every contract and that clearly with the fall in the oil price Pemex has to undergo a very profound restructuring. All oil companies throughout the world are scaling back spending quite a bit and Pemex is no different, so the government work closely with Pemex to develop clear spending reductions that were needed and I think these things are very important. Implement the plan and I think in the end it will have a positive effect on the perception of Mexico in debt markets.

MR. CHALK: A couple things are happening in the U.S.. One is we’ve seen a temporary lull in growth in the past few months. Last few months of 2015 and the first few months of 2016 and we view as that as a temporary phenomenon and our forecasts reflect that the U.S. economy will recover from that slight slowdown and we will be growing at two and a half percent rate for the year as a whole. Coupled with that as you pointed to this, there is also another characteristic that has been happening is this divergence between what’s happening in the manufacturing sector in the U.S. and what’s happening the service sector. So service sector is doing reasonably well, it’s being supported by rising household income, a good labor market, low unemployment. Manufacturing on the other hand looks much weaker and we’d expect that. That was kind of built into our forecast and I think the divergence you are seeing is due to two principle factors. One is the strong dollar. The strong dollar is appropriate for the cyclical position in the U.S. economy and the fact that the federal reserve is starting to normalize its policy rates and the U.S. economy is doing better than some others in the world, so that’s a natural reaction. As part of that then manufacturing will be weaker and service will be stronger but the economy will still grow at a reasonable rate. And the second thing is a weakness in global demand more generally. I think that’s also eating into U.S. manufacturing, so the combined effect of the dollar and a weaker than we had expected global economy are both having an impact on the manufacturing sector. Thanks.

QUESTIONER: I would like for you to tell us a bit about the forecast for Central America’s economies and that ties in with a question that was already asked about economic growth. To what extent is it due to external factors or is it because the region is doing things right and if we are not doing everything right where would we need to improve in terms of economic reforms and also in the fiscal arena. You talked about fiscal consolidation and for example in last year’s meeting they asked countries like El Salvador to have credible plans not only for El Salvador but for all of Central America. What specific actions or what road map would you suggest to implement those fiscal consolidations? Thank you.

MR. WERNER: Very quickly and then I’ll let Nigel address El Salvador. On Central America what we are seeing in general is that there is an acceleration as I said in my initial comments. For example, in the case of Belize we are seeing that rate of growth is 1.5 to 2.5, Costa Rica from 3.7 to 4.2 and El Salvador it grew from 3.1 in 2014 to 3.6 or 3.7 last year and this year. So in general we’re seeing a pick up, this has to do with the external factor, the change in oil prices and also the acceleration of remittance is important in some cases like Honduras. Obviously, we’ve seen the implementation of a policy program designed by the country’s government and this is consolidated public finance. In the case of Costa Rica for example in Congress they are discussing a fiscal reform, a very important tax reform. And obviously recommendations vary from one country to the next. In the case of Guatemala a lot of hard work is going on. We’re working with the tax administration and also customs management, et cetera so as to put them on an important up swing route and also to assure great effectiveness in tax collection. In the case of El Salvador Nigel can tell you more about that.

MR. CHALK: We had an article IV last year so I won’t go into the particular fiscal measures, but I think we see a need over the next few years to do an adjustment in the order of three percent GDP. That’s primarily driven by the debt dynamics and we think that there is a need to bring -- to stop the increment in public debt and to bring the public debt lower. In the article four we had a menu of options I think El Salvador was fortunate enough that there is actually quite a few things that they can do to achieve that adjustment. So I won't go into the particular fiscal measures, but I think we see a need over the next few years to do an adjustment in the order of 3 percent of GDP. That's primarily driven by the debt dynamics that we think there is a need to bring to stop the increment in the public debt and to bring public debt lower.

In the Article IV, we had a menu of options. I think El Salvador is fortunate enough that there are actually quite a few things that they can do to achieve that adjustment, so that is like a near term fiscal adjustment to restore sustainable fiscal finances.

And then beyond that, I think there is significant need to take hold of pension reform. That's a large unfunded liability of the government that will start to eat into the fiscal position over the medium term, and I think there is a real need to look at the fiscal framework in El Salvador with a fiscal responsibility law that will try and move the government towards a more steady, coherent, and predictable approach to fiscal policy.

MS. CHEASTY: [For Guatemala], I think the goals are the same, although Guatemala's fiscal position is better.

MR. ANSPACH: Thank you. The question is analysts say the projections of the IMF for Uruguay are too optimistic, what is your view on that, and also how do you view the challenges that the Uruguay economy faces?

MR. WERNER: Well, our view is that we are balanced and not too optimistic, not too pessimistic, but in some countries, we are judged to be too pessimistic and in others the contrary. It's a tough situation and at the end you end up obviously missing something, right, on some other cases. I mean the Uruguayan economy has been withstanding also this external shock environment and also the slow down in Argentina and in Brazil.

However, in Uruguay, we have seen a sharper reduction in growth than what we saw in the case of Paraguay, but it is an economy that is maintaining I would say a very healthy functioning of its economy.

Again, another of the cases in which it's like a normal business cycle associated with the external shocks that they are receiving, a very healthy financial sector, relatively good fiscal policy. The challenges for Uruguay obviously are containing inflation. Inflation has been hovering between 8 and 10 percent for quite some time, and I think it's an important challenge to bring it down.

And also following the announced fiscal plan that the government did, fulfilling its constitutional obligation to present a five year program in the initial year of the government, the gradual fiscal consolidation that was announced, it is very similar to the recommendations that have been made in the article IVs.

So, I think basically gradual fiscal consolidation, very cautious monetary policy, and I would say the biggest challenge is to bring inflation back down to more normal levels.

MR. ANSPACH: So, with that, we will conclude the press conference, but I think Alejandro has another announcement.

MR. WERNER: Just to announce that we will be launching our Regional Economic Outlook on April 27, both from Mexico and Guatemala, and the macro projections will be the ones we have discussed here, but we will have much more detail in terms of the analytical work that is being undertaken on the challenges that monetary policy faces, vulnerabilities coming from the corporate sector, and we have a chapter on infrastructure in Latin America that I think will be very interesting for you all. Thanks.

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