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LatAm in Focus: Alejandro Werner on Bright Spots in 2017

January 31, 2017

The IMF projects Latin America will grow just 1.2% in 2017—but two big economies are back in the black.
Why did the IMF lower its Latin America projection in 2017? Increased uncertainty for Mexico, in part.

In its first World Economic Outlook report of the year, the International Monetary Fund lowered its 2017 growth projection for Latin America and the Caribbean from 1.6 percent to 1.2 percent, well below the 3.4 percent global growth. The downgrade, says the report, is due to slower than expected recoveries in Argentina and Brazil, further collapse in Venezuela, and “increased headwinds from U.S.-related uncertainty in Mexico.”

One of the biggest question marks is on the North American Free Trade Agreement, which came squarely into focus in the first week of Donald Trump’s administration. And, says IMF Western Hemisphere Director Alejandro Werner, there are indeed several items to take a second look at in the 23-year-old agreement: rules of origin, dispute resolution, ecommerce, and labor standards. Granted, he says, there have been “a lot of fireworks” as the countries talk about pulling out of the deal, but in his estimation, that’s part of the usual “posturing” in negotiations, and, with 80 percent of Mexican exports going to the United States, and millions of U.S. jobs dependent on trade with Mexico, it’s in the best interests of both economies to strengthen integration.

“I would read [it as] a lot of negotiation posturing on both sides more than a serious intent of really thinking about living outside of NAFTA.” 

Moving south, while Argentina and Brazil are recovering more slowly than expected, the two Southern Cone countries are nonetheless set to move from negative to positive growth this year. Werner credits Brazil’s Temer administration with stabilizing financial markets, though important structural reforms remain pending. He also points to the work of Argentine President Mauricio Macri to modernize the economy and stimulate exports, but warns there’s still a fair amount of work ahead to untangle the “substantial” distortions that built up in recent years.

Beyond the big players, which smaller economies are implementing smart or innovative fiscal policies? Panama tops Werner’s list for its work over the last decade to improve logistics infrastructure. Looking to Central America, he gives Guatemala high marks for maintaining economic stability in the midst of significant government changes and anti-corruption movements, as well as to Honduras for implementing fiscal reform and boosting growth rates, employment, and investment over the last three years. In the case of the Caribbean, he highlighted the growth of the Dominican Republic’s tourism sector, while in Jamaica he underscored the concerted effort among political parties to bring down high levels of debt and open the economy.