Notes from the IMF-meetings

From October 17-18, we attended a series of meetings and conferences at and around the IMF meetings. These notes reflect our findings not only from the meetings and conferences but also from informal discussions with attendees and policy-makers. Argentina Arturo Porzecanski’s October 17th FT article, which condemned the IMF for its handling of Argentina’s financial situation, casted a shadow over the two days of meetings. The IMF lent Argentina too much money and did so on an accelerated schedule. These two factors, together, seem to imply partiality toward the Macri administration. One of the most interesting tidbits which circulated at the conference, was the possibility of the IMF team consolidating the gross debt into net debt. This would reveal the private sector’s real exposure by excluding public sector entities’ debt ownership. Brazil In our view, Campos Neto is unafraid of further BRL depreciation. While Mr. Campos was clear about signaling further rate cuts, he was unspecific on the pace of cuts. The collection of: low inflation, the urgent political need to jumpstart economic growth, the BCB’s decreasing concern for a depreciating BRL, the recent approval of the pension reform and China’s economic deceleration—pushed us to now expect a terminal Selic’s value of 4.00% rather than 4.75%. Chile Marcel said the BCCh was not engage in ‘activists’ rate cuts that would soon need to be reversed. We view this comment as a signal that the BCCh would be more cautious about further rate cuts after already decreasing the policy rate by 100 bps. Marcel added that additional rate cuts would most likely come if the global outlook were to deteriorate. However, our views changed after the social unrest. Colombia With respect to the financing law that the constitutional court struck down (due to procedural errors) last week, Arias (director of public debt) said the government will resend the exact same proposal submitted previously and that congress would have until December 31st to approve it. Initially, we were concerned about the possibility that congress would again reject it. However, we believe the probability that congress approves it is high, because congress had input in the drafting of the piece the first time around. Mexico Our main takeaway from the meetings and discussions is that Banxico will continue to cut at a 25 bp pace in the coming policy rate decisions. Indeed, the overwhelming question in the air was over the preconditions necessary for Banxico to accelerate the pace of cutting to 50 bps per meeting. It seems that the government is preparing a fiscal reform that would generate additional fiscal revenues of 2.0% of GDP by raising VAT and income taxes. The proposal will likely be approved following the 2021 midterm elections.