Transcript Crisis Averted—What`s Next?

Crisis Averted—What’s Next?
Rodrigo Valdés
Western Hemisphere Department
International Monetary Fund
22 October 2009
Agenda
I.
External Shocks
II.
Policy Reactions and Outlook
III.
Short-term challenges ― Zooming in
IV.
Preparedness, vulnerabilities, and medium-term
challenges ― Zooming out
V.
Conclusions
2
I.
External Shocks
II.
Policy Reactions and Outlook
III.
Short-term challenges ― Zooming in
IV.
Preparedness, vulnerabilities, and medium-term
challenges ― Zooming out
V.
Conclusions
3
WEO Baseline scenario for the world economy: slow
recovery with downside risks
Real GDP Growth in LA6 and the World 1/
(Four quarter percent change, seasonally adjusted)
9
9
LA6
6
6
5.0
4.1
World
3
3
0
0
-3
-3
Advanced Economies
-6
-6
2000
2002
2004
Source: IMF staff estimates.
1/ For LA6, PPP-GDP weighted average.
2006
2008
2010
2012
2014
4
Commodity prices are recovering as Asia rebounds
Commodity Prices
(Index 2002=100 of prices in U.S. dollars)
500
500
Oil, gas, and coal
400
400
Metals
300
300
200
200
Food and beverage
100
0
1995
100
0
97
99
01
03
05
Sources: Bloomberg, L.P.; and IMF staff calculations.
07
09
5
Financial market turmoil has receded…
Latin American Financial Markets: Heat Map
Local currency
money market yields
Local currency
sovereign bond yields
Equity
Corporate external
bond spreads
Sovereign credit
spreads
Currency
Lehman collapse
Q1
Q2
2008
Low Dev.
Low-Moderate Dev.
Q3
Q4
Q1
2009
Sources: Bloomberg, L.P.; and IMF staff calculations.
Q2
Q3
High-Moderate Dev.
Extreme Dev.
6
Other external shocks to ease...
…at different paces
Remittances, Tourism, and External Demand 1/
(percent change, y/y)
25
6
20
Global Demand
(right axis)
4
15
10
2
Remittances (left
axis)
5
0
0
-5
US Tourists to the
Caribbean (left axis)
-2
-10
-15
-4
-20
-25
-6
2006
Source: IMF staff estimates.
2008
1/ Remittances and Tourism are 4-qtr moving averages.
2010
7
I.
External Shocks
II.
Policy Reactions and Outlook
III.
Short-term challenges ― Zooming in
IV.
Preparedness, vulnerabilities, and medium-term
challenges ― Zooming out
V.
Conclusions
8
Commodity exporting and financially integrated countries
Other Commodity Exporters
Tourism intensive commodity importers
Other commodity importers
9
In contrast with the past, a number of countries
implemented countercyclical fiscal policies…
Change in primary deficits excluding commodity-related revenues
(Percent of GDP 1/)
4
4
Commodity Exporting Financially
Integrated Countries
3
3
Automatic Stabilizers
Other Commodity
Importing Countries
2
Other Commodity
Exporting Countries
2
Commodity Importing,
Tourism Intensive
Countries
1
1
0
0
Source: IMF staff estimates.
1/ Simple averages of changes in primary balances
10
…and some countries also implemented
expansionary monetary policies…
Interest Rate Changes
(Differences between September 2008 and the most recent data)
2
2
Bank Lending Rate
1
0
Commodity Exporting
Financially Integrated
Countries
Commodity Importing
Tourism Incentive
Countries
Other Commodity
Exporting Countries
1
0
Other Commodity
Importing Countries
-1
-1
-2
-2
-3
-3
Money Market Rate
-4
-4
-5
-5
-6
-6
Source: IMF staff estimates.
11
Exchange rate adjustment buffered the shocks in
countries with ER Flexibility
Nominal effective exchange rate 1/
(Index 2008=100)
115
115
Other commodity exporting
countries
110
110
105
105
Other commodity importing
countries
100
95
100
Commodity importing, tourism intensive
countries
Commodity exporting, financial integrated
countries
95
90
90
85
85
2008
abr
jul
oct
2009
abr
jul
Source: IMF staff estimates.
1/ Index constructed using the simple average of monthly growth rates within each group. An increase (decrease) denotes an appreciation (depreciation).
2/ Excludes Jamaica.
12
Activity has started to pick-up in several countries
Regional “green shoots”
Commodity exporting, financially
integrated countries
sep
Brazil
Chile 2/
Colombia
Mexico
Peru
oct
nov
2009
jan
dec
feb
mar
apr
may
jun
jul
aug
5
6
1
1
1
2
2
6
4
4
4
4
6
1
1
2
6
1
1
1
6
4
4
5
5
6
1
1
2
2
6
4
4
4
4
-99
1
1
1
1
1
1
1
2
2
2
6
-99
5
5
5
6
1
2
2
2
1
2
6
4
1
2
1
2
2
1
2
6
4
4
4
-99
5
5
5
6
1
1
1
2
2
2
6
-99
2
2
6
5
6
1
1
2
2
6
-99
-99
6
2
6
5
6
1
1
2
2
2
-99
-99
1
1
1
1
1
2
2
2
6
4
4
6
1
1
2
2
1
1
1
2
2
6
1
-99
5
5
5
5
6
1
1
2
6
5
-99
-99
5
5
5
5
6
1
1
2
2
6
1
-99
5
5
5
5
6
1
1
2
2
6
5
5
2
2
1
1
1
1
1
2
2
6
-99
-99
5
5
5
5
6
1
1
2
2
2
-99
-99
Other commodity exporting countries
Argentina 2/
Ecuador
Paraguay
Venezuela
Other commodity importing countries
Costa Rica
Nicaragua
Panama
El Salvador
Uruguay
Commodity importing, tourism intensive
countries
Jamaica
Barbados
Source: IMF staff estimates.
Expanding and above or equal to trend (average)
Expanding and below trend (average)
Moving sideways
Contracting at a moderate rate
Contracting at a fast rate
Data not available
13
Yet the path of recovery underscores regional
heterogeneity
GDP growth in Latin America and the Caribbean
(percentage change; weighted average by GDP-PPP within groups)
8
8
4
4
0
0
Other commodity exporting countries
Commodity exporting, financially integrated countries
Other commodity importing countries
Commodity importing, tourism intensive countries
-4
-4
2005
2006
Source: IMF staff estimates.
2007
2008
2009
2010
14
I.
External Shocks
II.
Policy Reactions and Outlook
III.
Short-term challenges ― Zooming in
IV.
Preparedness, vulnerabilities, and medium-term
challenges ― Zooming out
V.
Conclusions
15
Challenges for commodity exporting and financially
integrated countries
Timing and sequencing:
• Start unwinding special financial facilities;
• Pace fiscal withdrawal depending on
strength of recovery;
• Monetary policy normalization should
follow fiscal.
And, confront a likely scenario of capital
inflows in search for yield:
• FX flexibility to avoid one-sided bets;
• If inflows scale is large and problematic,
step-up financial regulation/supervision;
• Revisit the fiscal stance.
16
Challenges for other commodity exporters
Avoid procyclical fiscal policies:
• Take advantage of firmer
commodity prices, implement
clearer policies to limit
procyclicality.
17
Challenges for other net commodity importers
Preserve fiscal resources:
• Avoid procyclicality, but…
• Preserve some stimulus for worsecase scenario.
18
Challenges for commodity importing tourism
intensive countries
Stay in crisis mode:
• Prioritize spending.
• Focus on macroeconomic stability.
• Policy space limited by debt levels.
19
I.
External Shocks
II.
Policy Reactions and Outlook
III.
Short-term challenges ― Zooming in
IV.
Preparedness, vulnerabilities, and medium-term
challenges ― Zooming out
V.
Conclusions
20
Preparedness paid off – historical perspective
A comparison of GDP in 2009 and in past crises
(GDP index, 100 = year before the crisis)
104
Commodity exporting and
financially integrated countries
104
102
102
100
100
98
98
96
96
94
94
92
Other commodity exporters
Average 1982,
1998, 2001
2009
92
-1
0
1
2
3
-1
Other commodity importers
104
104
102
102
100
100
98
98
96
96
94
94
92
0
1
2
3
Commodity importers, tourism
intensive countries
92
-1
0
1
2
Source: IMF staff estimates.
3
-1
0
1
2
3
21
Estimating the impact of the crisis suggests that…
Growth in LAC-5 Real GDP 1/
(simple average, year on year percentage changes)
10
10
Predicted path
in the absence
of shocks
8
8
6
6
4
4
Observed Path
2
2
0
-2
0
-2
Sample Period used for counterfactual estimates
-4
1994Q4
-4
1996Q4
1998Q4
2000Q4
2002Q4
2004Q4
Source: IMF staff estimates.
1/ Growth in Brazil, Chile, Colombia, Mexico and Peru; simple average of annual growth.
2006Q4
2008Q4
Latin American countries saved 4 percent of GDP
during the current crisis
Growth in LAC-5 Real GDP 1/
(simple average, year on year percentage changes)
6
6
4
4
2
2
Observed Growth
0
0
-2
-2
Counterfactual
Estimates with
Actual Shocks
-4
-4
4 percent
-6
-6
-8
-8
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2009Q2
Source: IMF staff estimates.
1/ Growth in Brazil, Chile, Colombia, Mexico and Peru; simple average of annual growth.
2009Q3
Relative performance of emerging economies
Changes in expected growth for 2009
(Percentage points of revision in growth forecasts, before and after crisis)
What explains the differences?
Bolivia
Uruguay
Brasil
• Pre-crisis credit boom
Colombia
Peru
Panama
Avg. Latin
America
• Bank leverage
Chile
Ecuador
Paraguay
Costa
Rica
Argentina
• Inflexible exchange rates
• Lack of fiscal restraint
Macro policies
during the boom
& financial
regulation and
supervision
Avg. Rest of
World
• Greater trade links
Mexico
• International reserves are not found to
have explanatory power
-20
-15
-10
-5
Source: IMF staff estimates.
0
24
The cost of reserves is not trivial… possibility for
cooperative solutions
IMF Credit and Reserves in percent of GDP
(2008)
14
IMF credit in
percent of
GDP
12
10
8
Reserves, in
percent of
GDP
6
4
2
0
Costa Rica
El Salvador
Source: IMF staff estimates.
Guatemala
Colombia
Mexico
25
The IMF in Latin America and the Caribbean
IMF Lending, 2008-09
(Committed resources, millions of SDR)
45,000
40,000
PRGF/ESF 1/
Flexible credit lines
35,000
Stand-by Arrangements
30,000
25,000
20,000
15,000
10,000
5,000
0
Latin America and Rest of the World
the Caribbean
Latin America and Rest of the World
the Caribbean
June 30, 2008
June 30, 2009
Source: IMF staff estimates.
26
It is now necessary to rebuild fiscal space…
Fiscal Adjustment
(percent of GDP)
Solid colors:
Structural Adjustment to
2009 (F) Headline PB to
keep debt constant.
Commodity
exporting and
financially integrated
countries
Debt/GDP: 36%
Stripes: Automatic
(Cyclical) Adjustment
Other Commodity
Exporters
Dots: Extra Adjustment
if Trend Growth is
Lower (by 0.35%) and
Interest Rates Higher
(by 90bps)
Debt/GDP: 36%
Tourism intensive
commodity importers
Debt/GDP: 91%
Other commodity
importers
Debt/GDP: 47%
0.0
Source: IMF staff estimates.
1.0
2.0
3.0
4.0
5.0
27
It is now necessary to rebuild fiscal space…
Fiscal Adjustment
(percent of GDP)
Solid colors:
Structural Adjustment to
2009 (F) Headline PB to
keep debt constant.
Commodity
exporting and
financially integrated
countries
Debt/GDP: 36%
Stripes: Automatic
(Cyclical) Adjustment
Other Commodity
Exporters
Dots: Extra Adjustment
if Trend Growth is
Lower (by 0.35%) and
Interest Rates Higher
(by 90bps)
Debt/GDP: 36%
Tourism intensive
commodity importers
Debt/GDP: 91%
Other commodity
importers
Debt/GDP: 47%
0.0
Source: IMF staff estimates.
1.0
2.0
3.0
4.0
5.0
28
Concluding remarks – Limiting
vulnerabilities and replenishing buffers
• Fiscal policy should get better prepared. Aim at lower debt levels,
larger automatic stabilizers, and systematic calculation of structural
positions.
• Financial regulation agenda should keep up with new learning.
Examples: Consider capital charges for systemic risk contribution,
clearer mandates for financial stability and enlargement of perimeter
of regulation, and limiting procyclicality (eg, dynamic provisioning)
• If consistent with FX regime, adopt more exchange rate flexibility.
• Strike a balance on FX liquidity buffers. While apparently useful,
they are costly.
29