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Ilan Goldfajn: “The world is getting more adverse”

2022-07-27T15:02:14.955Z


More than half of the resources granted by the International Monetary Fund since the beginning of the pandemic went to Latin America, indicates the person in charge of the organization's region


Increasingly expensive debt.

Cheaper raw materials.

Inflation that does not stop rising.

When Ilan Goldfajn (Haifa, 1966) talks about the complicated economic panorama of Latin America, he does not soften his words.

The head of the International Monetary Fund (IMF) for the region confesses that he is concerned about the global forces that the region will go through in the remainder of the year and in 2023. This "is a positive moment for the exit of the pandemic," he says in video call with EL PAÍS from his office in Washington, "but we believe that the winds are going to change."

Since Goldfajn took office in January, replacing the Argentine Alejandro Werner, he has closed a new agreement with the Argentine government that he hopes will be fulfilled today.

Former governor of the central bank of Brazil, Goldfajn also talks about the change in the monetary policy of the countries of the region, as well as the risks that El Salvador took when making bitcoin legal currency.

Ask.

What is Latin America experiencing in economic matters and what is coming?

Response.

Growth has been strong coming out of the pandemic and continued strong in the first quarter of this year.

This moment is good because the countries that depended on tourism are better off, those that depend on exporting raw materials too, and I think it is a positive moment for the pandemic to come out of it.

But we believe that the winds are going to change because we see that the world is getting a little more adverse and international financial conditions are going to get tougher.

Not only because the Federal Reserve is going to raise rates, but all over the world we are going to have higher rates.

That means that from now on, in the second half and in 2023, we are going to have an economic slowdown.

We are already seeing that raw materials begin to fall in price, something that was supporting the region.

What you saw in the projections is growth this year that went up to 3% and next year it went down to 2%.

This is the change of winds and one concern is that three factors are coming together: tighter financial conditions, lower growth and cheaper raw materials.

Q.

Paying private debt, subject to credit ratings and denominated in dollars, has become more difficult for Latin America.

Leaders have called for greater access to debt from multilaterals like the Fund.

What do you think about this?

R.

It is always a cycle and the part of the cycle that we are experiencing now is one of a strong dollar and lower capital inflows to the region.

This means that the financing of international institutions such as the Fund obviously has a much greater weight.

There are companies and there are some countries to which the market was closed or they no longer issue so much, nor do they sign bank loans.

So many countries use the availability of a financial adviser like the Fund who is there to help.

We had the pandemic, then the

shock

of Russia invading Ukraine and now we have rising interest rates.

There are three phenomena that, in general, take countries out of the markets and reduce financing.

Since March 2020, when the pandemic began, we have approved 181,000 million in resources for Latin America.

One part was distributed as part of the rapid emergency mechanism, another part in the flexible lines of credit, as well as in the extended facilities program, which allocated most of these resources.

And so you can see how the region had a much greater weight in the world: the total resources were 277,000 million, of which 181,000 went to the region.

This has to do with your question since, when you don't have as much access to the markets, the International Monetary Fund plays its role.

The Fund's is a complementary role, that is,

it enters the countries, makes the programs, but wants private financing to come later.

You enter when no one wants to come so that everyone can come once the program is running.

Q.

The Fund used to impose very strong austerity requirements.

Not long ago the mere idea that the Fund would enter Argentina again, for example, was unthinkable and today they celebrate a new agreement.

What changed?

R.

Everything evolves and you have to adapt to a reality where what you want is not only economic sustainability, but also social and climate sustainability.

Today we see it as something more complete, because at the same time you are concerned with debts and fiscal consolidation, which continues to be something very important, they must think about doing it in a way that is socially sustainable.

When we talk to the authorities in our countries, they clearly have to make decisions in economic matters, but also socially, because they have demands for services that are fair and that the government is socially responsible with poverty, with inequality.

There are agendas, such as gender, for example, that are new for Latin America.

And also climate change.

that entered the issues of the Fund because you want to be sustainable.

The Fund is thinking of today in a way

macro critical

, as a set of issues that need to be addressed together.

Latin America has many countries with fiscal and debt problems, and many countries have had protests and changes of government due to social issues.

It is clear that you need inclusive fiscal consolidation, so that you protect the most vulnerable and take into account the demands of the people and have sustainable debt.

Q.

On Monday you met with the Argentine Economy Minister, Silvina Batakis.

What came out of the meeting?

And what will be different between this agreement and the previous ones?

R.

The Fund is always available to help countries to implement the programs that they believe are important to achieve economic and social sustainability.

Now we are at the point where we think we have to focus on implementing the program.

What does this mean?

You reached an agreement and now you have to implement the goals.

You have to make an effort to reach the agreed objectives.

And I think that what we heard, not only in this meeting, but in general from the new minister, is that she is willing and wants to fulfill the agreement.

She wants to meet the goals because she knows that this is the most direct way to be successful, to achieve economic and social stability.

They were productive meetings, both the managing director [of the Fund, Kristalina Georgieva] and us,

Q.

And is it a realistic program?

R.

We think that the objectives of the program have to be implemented and can be implemented, but it is necessary, obviously, to have decisive policies to implement it very quickly.

Q.

El Salvador's decision to make bitcoin legal currency has limited financing with the IMF.

What possibilities does the country have at the moment?

A.

The objectives are the same as those that were documented in Article IV at the beginning of last year.

There, the need to restore fiscal sustainability became very clear.

You can always protect the most vulnerable, but you need to consolidate.

In the case of El Salvador, other risks are considered, such as the one you point out, the adoption of bitcoin.

This can lead to more financial risks and you have to think about how to mitigate these risks.

That is something that the Fund thinks has to be resolved.

And there are also risks related to governance, that's what the Fund also thinks.

We see these three types of risks: fiscal consolidation, those related to bitcoin as legal currency and more governance and political things.

Q.

As a former governor of a central bank, what do you think of the rate hikes that central banks in Latin America have been carrying out since last year?

R.

I think we already had an institutional framework in place for the central banks that acted to contain inflation and they all reacted as they should.

I say this in the sense that, when they saw inflation rising, they didn't take their time, they didn't have the luxury of waiting to see if this was a supply shock that could eventually dissipate.

They know that we have a risk that this inflation could enter the indexation or

pass-through process.

.

Central banks reacted quickly and that reaffirmed their credibility.

Despite the fact that inflation is high and we are still not very sure when it is going to start to go down, we have a feeling that the banks are doing their part and that if inflation continues to rise they are going to be vigilant and adjust monetary policy.

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Source: elparis

All news articles on 2022-07-27

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