The person in charge of the fund in the Americas sees the light at the end of the tunnel in Venezuela «if the next government lets the aid flow and restructures the economy»
The name of Alejandro Werner, head of the International Monetary Fund (IMF) for the Americas, sounds strongly every time a high-level position in Mexico becomes vacant. The last time was just over a year ago, with the departure of Agustin Carstens of the central bank, when many placed his name among the favorites. The pools, however, were born truncated from the beginning: the law prevents that someone not born in Mexico, no matter how much he has a national passport, is governor of the issuing institute. Werner, one of the most respected economists in the United States, responds to EL PAÍS in writing the newspaper in Mexico City days after presenting the new forecast for Latin America.
Question. The region will grow in 2019 less than expected. Why?
Answer. There is no exclusive factor that explains the downward revision. Maybe we were optimistic, hoping for an acceleration, but the important thing is that Brazil’s recovery continues after the crisis of 2015 and 2016, with a good reception of the economic agenda of [Jair] Bolsonaro. And that Argentina will grow again from March. The outlook is favorable for most countries, but the downside risks to global growth are significant and China, a key country for Latin America, has suffered a very strong slowdown. There may be a risk there.
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Q. The IMF has once again sinned as an optimist.
R. The beginning of 2018 was very good, but the synchronization of global growth was breaking with phenomena that we did not expect: the Chinese slowdown, political issues in Europe or commercial tensions. When economies grow, it is thought that the speed of that recovery will continue to be the same for the future. As our forecasts are made with models that take two decades of economic data, they implicitly assume, for example, that commercial tensions will dissipate.
Q. Do you expect the commercial storm clouds to clear up in the coming months?
A. Both the United States and China are interested in this process not having a big impact. It does not suit anyone, let alone the United States, which will soon enter an electoral period. There will be times of tension, but, as in the negotiation of the North American Free Trade Agreement (formerly FTA, today T-MEC), we believe that a balance will be reached.
Q. How does nervousness in Latin America affect the commercial relationship between Washington and Beijing?
A. On the one hand, it is favorable: to the extent that tensions in the agricultural sector intensify, the region – and, above all, South America – will be able to sell more to the US as well as to China. And the same in manufacturing, with Mexico and Brazil as the main beneficiaries. But these effects are relatively small and if the global economy is hurt, that more than counteracts the positive side. Latin America is less fragile than other regions, such as Southeast Asia, but its vulnerability is also important. No regional official wants to intensify trade tensions between the US and China.
P. Latin America continues to grow less than the rest of the emerging countries. Why?
A. It has two major problems: low investment and low productivity. Behind them there is a salad of factors that goes from the legal uncertainty, the insecurity or the structures that discourage the growth of the companies until the education. Educational coverage has increased a lot, but in quality it is still far away from Southeast Asia or Eastern Europe. And for what is coming in the next 20 years – automation, artificial intelligence … – a more prepared and more agile workforce is going to be required. We are very behind.
Q. Has the public policy debate in Latin America evolved?
R. Just. It continues to revolve around issues of the eighties: pension reforms, education … Partly because, unfortunately, they are unresolved problems. But the emerging vanguard countries are talking about how to stimulate technology adoption, how to adapt labor and fiscal regulation to new work modalities or how to link university and business. They are issues that have to be on the agenda; otherwise, Latin America will be at a total disadvantage.
Q. Do not cite inequality as one of the factors that slows growth. Why?
R. It is an important issue. A better distribution of income leads to having a better educated workforce, to making public policies sustainable and
ptables for society, to have more powerful internal markets. Latin America is not in the situation in which, according to some theories, countries have to tolerate a worsening of inequality in certain periods of growth. It is a subject that, by itself, has to be incorporated as one of the priority objectives of public policy. Pursuing simultaneously the goal of growth and the goal of decreasing inequality is not contradictory: on the contrary, both are fed back.
Q. Do you lack a more social outlook on the part of the Latin American economic elites, especially in the fiscal aspect?
A. There has to be a consensus around the idea that the State should have greater coverage and that it is necessary to rearrange the tax system towards a fairer scheme, especially in countries with low tax burdens. But not everything must go for the fiscal side: we must also solve the problem of market power and the absence of competition. Oligopolies inhibit innovation and investment and are a burden for the whole society, which has to pay very high prices.
Q. What is your opinion of the economic direction of the new Mexican government?
R. We have seen an application of economic policy very much in line with previous years, but the delay or the brake on structural reforms that we [the IMF] consider appropriate and that opened the door to investment generates concern. On the macroeconomic side, they have sent a signal of good fiscal and monetary management that reassures the markets. The focus is now on energy, education and infrastructure policy. It will be important for the government to communicate its policies appropriately.
Q. What awaits Argentina in 2019 after falling back into recession?
R. His gradualist strategy to correct macroeconomic balances needed a very high level of financing and, as conditions on international markets began to harden, in the first half of 2018, Argentina suffered. Now it has to accelerate the passage in the fiscal and in the monetary thing. We will start to see growth from the second quarter and a decrease in inflation, but it is a long and difficult road.
Q. Is the light visible at the end of the Venezuelan tunnel?
A. The day when there is a government in Venezuela that focuses on correcting one of the most tragic global economic debacles in the last 50 years, there will clearly be light at the end of the tunnel. What we have seen is a total lack of control in the design of public policies and a focus only on getting to the next month with enough foreign currency to buy basic consumer products. The economy has contracted more than 50% without [a war or a natural disaster]. It is a humanitarian rather than an economic crisis and, although it is complex, it has a solution if the next government allows humanitarian aid to flow and makes changes that allow restructuring the economy. It is a very big challenge, but, as we have seen in other countries, it is feasible.