The economies of Argentina and Venezuela are the least well-off in the region due to pressures on inflation, the balance of payments, and foreign exchange markets that developed last year, the International Monetary Fund warned.
“These pressures are weighing on confidence and aggregate supply,” IMF Western Hemisphere Director Alejandro Werner said. When he was asked about the Argentine peso devaluation, Werner refused to go into details but said that as a general rule price agreements only work as part of broader measures.
Price agreements “can never be sustained in the medium term, although it can help contains the expectations temporarily,” Werner said adding that the impact of currency depreciation on inflation is smaller in the region than it was 20 years ago.
The statements came at a time when relations between Argentina and the IMF appeared to be improving as the government of President Cristina Fernandez prepares to debut a new consumer price index after it was censured by the international organization last year.
Although Argentina’s “economy has seen high growth in domestic demand over the past few years,” the country has experienced “big problems” in the balance of payments leading to an increasing inflation and a drop in the international reserves of the Central Bank.
The IMF and Argentina have had a strained relationship for years, with the Kirchnerite administration long refusing to allow the international entity to examine its books as it does with all its member countries.
Werner avoided going into details on what is going on in Argentina, saying the IMF has not analyzed the country’s balance sheet for years and said that “without a specified detailed analysis of the financial system’s structure and the actual architecture of the market for goods and services it would be difficult” to carry out a full economic evaluation.
Werner’s statements on Argentina’s economy came as a surprise after relations with the IMF had appeared to be less-tense over the last few months.
Criticism of the IMF over the government’s statistics led the Economy Ministry to implement a new national price index with a changed methodology, which will be released on February with data collected from December to January. This could open a door for a better relationship between the organism and the government.
Werner praised several countries in the region that had applied moderate fiscal and monetary policies, before going on to explain that for commodity exporters in the region Argentina and Venezuela, the picture was less favorable.
Werner said that smaller economies like Uruguay and Paraguay, although more vulnerable, are better prepared than in the past to avoid contagion from Argentina.
‘These economies are more susceptible to contamination, but these economies have also diversified their foreign trade,‘ he said.
‘We believe that they are solid (economies) ... in a better position to face any eventual regional contagion,‘ he said, adding that the IMF is monitoring developments in Argentina as closely as possible.
An expanding US economy will mostly help the nearby economies of Mexico and Central America this year, Werner said. Brazil and the rest of South America, on the other hand, would see less immediate benefits from the recovery of developed nations.
In the case of Brazil, Werner indicated the government needs to improve its fiscal policy to grow more in the medium term. He also stressed that low investment levels continue to be one of the main weaknesses of Latin America’s top economy.