Interview with Liliana Rojas-Suarez on What's Next for the IMF in Latin America? Ask CGD
13 April 2007, 12:00 PM EDT
Read more about Liliana Rojas-Suarez
Transcript
Gloria:
Is it a problem for Latin America that the IMF may have no role there? Or is it in fact a sign of Latin America's success?
Liliana Rojas-Suarez:
Gloria: Your question reflects precisely the concern that many people in Latin America have today. Most Latin countries have repaid their debt to the IMF and the region enjoys macroeconomic stability and, therefore, there is no need for new IMF programs. However, this does not mean that Latin America does not need the IMF. In fact, one of the most important concerns of Ministers of Finance in the region is the probability that inflows to the region may reverse, leaving the countries with financing problmes. That is why countries are accumulating large amounts of international reserves. If an adverse shock from the international capital markets were to materialize and impact negatively on Latin America (even on the countries that have been following prudent macro policies, through contagion) who will be there to provide necessary liquidity? This is precisely the role of the IMF: not only to utilize its own funds, but to arrange and allow for international support coming from other industrial countries. Remember the US bilateral support to Mexico at the time of the Tequila crisis? Most likely the US wouldn't have done it if there were not an IMF program in place.
So, Latin America needs the IMF. The real problem is that the IMF is not preparing itself adequately to deal with a potential future crisis. As the Latin America Shadow Financial Regulatory Committee, that I Chair, stated yesterday: "The absence of fires doesn't mean that the Fire Department should close, it only gives an opportunity to conduct "fire drills" to improve its performance in the next tragedy"
So, Latin America needs the IMF. The real problem is that the IMF is not preparing itself adequately to deal with a potential future crisis. As the Latin America Shadow Financial Regulatory Committee, that I Chair, stated yesterday: "The absence of fires doesn't mean that the Fire Department should close, it only gives an opportunity to conduct "fire drills" to improve its performance in the next tragedy"
Dave:
Steve Pearlstein in the Washington Post talks about the IMF's hypocrisy and cowardice (http://www.washingtonpost.com/wp-dyn/content/article/2007/04/12/AR2007041202192.html).
Harsh words. Are they accurate? Don't they particularly apply to Latin America?
Harsh words. Are they accurate? Don't they particularly apply to Latin America?
Liliana Rojas-Suarez:
Dave:
I wouldn't call the IMF hypocrit and coward. Remember that the actions of the IMF are determined by the decisions of its Board, which is formed by the Governments of the world (but of course, dominated by the US, Europe and Japan). What I see is complacency and lack of vision from industrial countries regarding the risks that the international environment poses to many emerging markets, including Latin America. Good times, like the ones we are having now, are times for action, for planning and designing new policies and instruments that might help the region face an adverse shck, such as a hard landing in the US economy, a disorderly unwinding of the current US-China external imbalances. The IMF would lose even more relevance if its Management and Board don't take the leadership in improving their instruments for action if a crisis were to emerge.
I wouldn't call the IMF hypocrit and coward. Remember that the actions of the IMF are determined by the decisions of its Board, which is formed by the Governments of the world (but of course, dominated by the US, Europe and Japan). What I see is complacency and lack of vision from industrial countries regarding the risks that the international environment poses to many emerging markets, including Latin America. Good times, like the ones we are having now, are times for action, for planning and designing new policies and instruments that might help the region face an adverse shck, such as a hard landing in the US economy, a disorderly unwinding of the current US-China external imbalances. The IMF would lose even more relevance if its Management and Board don't take the leadership in improving their instruments for action if a crisis were to emerge.
Mike Gaffen:
The exploration and development of the extensive oil and gas resources will require substantial foreign direct investment in many countries in Latin America that can not be generated within the region. How will this constraint be satisfied?
Liliana Rojas-Suarez:
Mike:
Foreign direct investment is quite active in the region right now, but of course it varies significantly across countries. Enthusiasm for FDI is larger in Brazil and Peru, for example, than in Venezuela and Bolivia. However, the expected return from the oil and gas industry is so high that I believe that the countries will be able to reach agreements with foreign investors to satisfy their financing needs (especially if the price of oil continues to be as high as it currently is).
Foreign direct investment is quite active in the region right now, but of course it varies significantly across countries. Enthusiasm for FDI is larger in Brazil and Peru, for example, than in Venezuela and Bolivia. However, the expected return from the oil and gas industry is so high that I believe that the countries will be able to reach agreements with foreign investors to satisfy their financing needs (especially if the price of oil continues to be as high as it currently is).
Mike:
Are their emerging industries in Latin America that the IMF is targeting for loans and technical assistance?
Liliana Rojas-Suarez:
Mike:
The IMF has recently consolidated two operational departments: one in charge of assesing the evolution of international capital markets and another in charge of providing technical assistance for the development of domestic capital markets. I think that this move signals the IMF effort to increase its focus of technical assistance support tp financial issues, including the deepening of local bond and equity markets, the strenghtening of banking and securities supervisory offices, the improvement of payment systems and the like.
The IMF has recently consolidated two operational departments: one in charge of assesing the evolution of international capital markets and another in charge of providing technical assistance for the development of domestic capital markets. I think that this move signals the IMF effort to increase its focus of technical assistance support tp financial issues, including the deepening of local bond and equity markets, the strenghtening of banking and securities supervisory offices, the improvement of payment systems and the like.
Rafael Pastor:
Most of Latin American countries have managed to obtain certain macroeconomic stability, could you please comment on the IMF's stance regarding Latin American microeconomics. Is the IMF worried about the ability of Latin American States to actually foster and get the incentives right, in order to promote dynamic entrepreneurship, cheaper financial markets access for SME, labour flexibility, better employment and broader international connectivity?
Liliana Rojas-Suarez:
Rafael:
The answer to your question is yes and no. Yes, the IMF is trying to cooperate with the World Bank on the issues of better transparency, labor reforms, improved financial systems. No, the IMF is not involved (at least directly) on issues like cheaper financial market access for SMEs).
The IMF worries about structural reform issues, but the real question is the extent to which that should be the domain of the IMF. In my view, the IMF is stretching itself too thin by getting involved in too many issues and losing focus on its principal mandate: the design and implementation of policies and instruments for crisis prevention and management. For example, the creation of a new IMF line of credit for countries that might experience liquidity problems is on the table for discussion during the meetings that start tomorrow. This is a crucial issue for the IMF, but I have low expectations that an important decision will come from the discussions!
The answer to your question is yes and no. Yes, the IMF is trying to cooperate with the World Bank on the issues of better transparency, labor reforms, improved financial systems. No, the IMF is not involved (at least directly) on issues like cheaper financial market access for SMEs).
The IMF worries about structural reform issues, but the real question is the extent to which that should be the domain of the IMF. In my view, the IMF is stretching itself too thin by getting involved in too many issues and losing focus on its principal mandate: the design and implementation of policies and instruments for crisis prevention and management. For example, the creation of a new IMF line of credit for countries that might experience liquidity problems is on the table for discussion during the meetings that start tomorrow. This is a crucial issue for the IMF, but I have low expectations that an important decision will come from the discussions!
Dave:
It seems like a number of Latin American countries have recently elected more interventionist, less market-friendly governments. Does this make it more likely that the IMF's role will become more important in coming years?
Liliana Rojas-Suarez:
Dave:
You pose a difficult question. More interventionist governments might also refuse to deal with the IMF if a crisis were to materialize. On the other hand, it is also possible that public support for interventionist governments might decline in times of severe problems. In any event, if less market-friendly policies lead to the eruption of serious macro imbalances, it would be difficult to avoid an IMF-like stabilization program, with or without the direct involvment of the IMF
You pose a difficult question. More interventionist governments might also refuse to deal with the IMF if a crisis were to materialize. On the other hand, it is also possible that public support for interventionist governments might decline in times of severe problems. In any event, if less market-friendly policies lead to the eruption of serious macro imbalances, it would be difficult to avoid an IMF-like stabilization program, with or without the direct involvment of the IMF
Ask Liliana a question now.