Diálogo bids farewell to Alejandro Werner

(foto: IMF Photos)

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When Alejandro Werner joined the IMF in 2013 as Director of the IMF’s Western Hemisphere Department, he did an exclusive interview with Diálogo on the region’s outlook and prospects. Now that he is about to retire, we sat down with Alejandro for another ‘exclusive’ to discuss how the IMF’s relationship with the region has evolved over the years, and key highlights from his career at the IMF.

Diálogo: What are your views on the region’s prospects for growth and the biggest challenges facing Latin America and the Caribbean?

Werner: As we said during the Spring Meetings, Latin America began to recover from the significant downturn seen during the first quarter of the pandemic as early as the second half of 2020. And that recovery is expected to continue in 2021. However, the delay in the rollout of vaccination campaigns has generated less momentum than we anticipated in the first half of the year. We were expecting that the acceleration of vaccination campaigns, the strong economic recovery expected in the United States, the recovery of the Chinese economy and increases in the prices of raw materials, together with low interest rates at the international level, would help strengthen the recovery in Latin America in the second half of the year. In terms of growth, it would end up being a good year for Latin America, with growth of 4.5 to 5 percent. However, given the drop in 2020 was about 7 percent, growth is still going to be below the pre-pandemic level. Consequently, lags will accumulate, especially in terms of poverty and income distribution—which were already problematic in Latin America. The level of per capita income in 2025 is likely to be similar to what we saw in 2015.

So, what are the main challenges? Clearly, we must address the issue of growth. Without economic growth, it is difficult to establish a context in which these social indicators can improve significantly, and poverty can be addressed. This will require important fiscal and financial measures to strengthen public finances. We emerged from the pandemic with high levels of debt and deficits. As the economy normalizes, public finances will have to be normalized. In this sense, the challenge is to build the foundations for a more dynamic, inclusive growth process in Latin America, within the context of the social polarization that was escalating even before the pandemic. We remember the social movements of 2019— some countries are seeing resurgences in 2021, reflecting circumstances that need to be corrected in many Latin American countries. A very important issue is education. Latin America is one of the regions in the world that has lost the greatest number of in-person classroom days. In addition, access to remote education is quite unequal depending on socioeconomic levels. These interruptions in education often have permanent effects on the lives of the children and young people who are subject to these disruptions. Establishing corrective measures to compensate for the loss in education over the last 14 months will be very important in limiting the effects that these losses may have in the coming years, particularly in terms of economic growth, income distribution, poverty, etc.

Diálogo: You have headed the IMF's Western Hemisphere Department for almost 9 years. During this time, the Fund became much more active in the region, with many countries turning to the Fund for financial assistance. What are the factors that explain how the relationship between countries in the region and the IMF have changed?

Werner: I would say that this was an ongoing process that took at least two or three decades. In part, it has to do with phenomena that occurred in the region and partly with the evolution of our institution. On the regional side, the movement towards democratic systems has turned Latin American societies into ones where there is much greater transparency, much more debate on public policies and their implications. On the other hand, the Fund has shifted its thinking on macroeconomic stabilization. It is not sufficient to just stabilize financial variables; protecting and improving certain social indicators is also necessary, even during processes of macro-financial stability. In democratic societies in particular, it is very difficult to maintain macroeconomic stability to eventually reach a process of inclusive growth. This, from the IMF's point of view, has been reflected through the protection of social spending and infrastructure within macroeconomic stabilization programs. It is a broader concept that incorporates a set of policies beyond those that are strictly fiscal, financial, or monetary.

The Fund’s financial tools have also evolved, from having only corrective instruments to preventive instruments such as our Flexible Credit Line and Precautionary and Liquidity Line. This changes the dynamics in the relationship with our member countries—being part of a preventive risk management strategy as opposed to being the partner that comes in after a crisis. Our involvement is beginning to be linked to public policies that have positive long-term effects on stability; not just to correct macroeconomic imbalances that accumulated in the past.

When one assesses the 2013-2021 period, I would say there are three phases. The first phase is the last stage of the commodity boom, where Latin America was growing at significant rates and, both from a balance of payments and fiscal point of view, countries were in relatively comfortable positions. During this period, we worked on programs with some countries that had to resolve pre-existing problems and financial imbalances. With the decline in the terms of trade, there was a drop in economic growth and difficulties arose in adapting public policies to promote growth, development, sustainability, and poverty reduction within a context of fewer resources. In economies where these reserves were not built up and where the system was more rigid, balance of payments crises occurred. This was the second phase. The Fund supported programs aimed at adjusting to the new international reality generated by the change in the terms of trade in the region, and our level of activity in the region increased. Finally, we come to the pandemic—probably the most important negative economic shock we have seen in the global economy in almost a century, combined with a significant public health and social component. There was a very important phase of emergency support. 60 percent of that support was directed to Latin America through emergency lines, contingent lines, and the extension of some programs, including a new program for Ecuador that was approved after the restructuring of private debt. And now we are entering the recovery stage of the pandemic. Once the vaccination campaigns gather pace, and to the extent that countries develop policy packages to promote inclusive, sustained, and accelerated growth, we will be able to provide financial support for the implementation of these programs, probably in the context of volatility in international financial markets. There is great uncertainty as to how the global economy will recover from the COVID-19 crisis and how financial markets will continue to evolve. In that sense, the IMF's support, including in the design of domestic public policy programs, can provide an additional degree of security. Regardless of the movements of capital flows, countries have a backstop in the form of IMF financing.

Diálogo: Now that you are saying goodbye to the IMF, what memories have stood out to you the most—any program you want to highlight?

Werner: The program in Jamaica was important and paradigm-shifting for the Fund. Our teams worked very closely with the two major political parties. When there was a change of government in Jamaica, we worked very constructively with the new administration. The government created an economic program monitoring committee, with representation from labor unions, major business groups, government, and civil society, which met periodically to monitor the implementation of the program. The role of the private sector was also important in the creation of a social consensus around economic reform, which was later supported by the Fund’s financial program. I believe that this model of governance in the midst of a debt crisis and balance of payments crisis was very useful for the Jamaican economy. It really caught our attention.

Secondly, the interaction between our teams and the authorities in various countries. I knew the Fund a little from the other side—from having received staff in Mexico, both at the Central Bank and at the Ministry of Finance. Then I arrived in Washington and the first impression I got was of a very efficient, orderly institution, with very established processes. When you accompany the teams, you see the close relationships they forge in countries and how they effectively and dynamically try to solve problems presented to them by the authorities. They make every effort to put all their knowledge and information at the authorities’ disposal, drawing from an international perspective. “What are the similar experiences that were implemented in a group of countries at a similar level of development? What were the problems? What needed to be corrected?” It was fascinating to see this interaction between the authorities’ local knowledge and international experience on specific topics, together with the contribution of our own subject matter experts (for example, on tax, customs or banking regulation issues)—how they complemented each other to strengthen the policy framework at the local level. We sometimes do not pay enough attention to this ‘advisory’ dimension of the Fund’s work, especially in Latin America, where we are more accustomed to the Fund's large-scale programs. Technical assistance is having a major impact in Latin America.

This interview has been edited for clarity.