OREANDA-NEWS. October 09, 2015.

Speakers:
MAURICE OBSTFELD, IMF Economic Counsellor and Director of Research Department
GIAN MARIA MILESI-FERRETTI, Deputy Director, Research Department, IMF
THOMAS HELBLING, Division Chief, Research Department, IMF
ANGELA GAVIRIA, Deputy Division Chief, Communications Department, IMF

Ms. GAVIRIA: Good morning, ladies and gentlemen. Welcome to this meeting. I am Angela Gaviria, Deputy Division Chief in the Communications Department of the IMF. Welcome to this first conference on the World Economic Outlook. Let me introduce our speakers today.

At the center is Maury Obstfeld, Economic Counsellor and Director of the Research Department at the IMF. To his right is Gian Maria Milesi-Ferretti, Deputy Director in the Research Department. To my right is Thomas Helbling, Chief of the World Economic Studies Division also in the Research Department. Maury will start with some opening remarks and then they will be happy to take your questions.

Mr. OBSTFELD: Good morning. I have the great pleasure to be here in Lima to present the October 2015 WEO forecasts and analysis. This forecast comes as the world economy is at the intersection of three very powerful economic forces. These forces have a particular impact in emerging markets and low-income economies. Peru will certainly be feeling these forces.

First of all, there is China’s transformation. The economy is rebalancing from exports and public investment to consumption, from manufacturing to services. This is both healthy and necessary in the longer term, but in the near term there are implications for China’s growth and for its trading relationships with foreign countries.

The second major current in the world economy is the fall in commodity prices, which, of course, is not unrelated to China’s growth experience. After years of high demand resulting in high prices for commodities and high investment in commodity-producing sectors, China’s slowing starting earlier in this decade has led to a trend decline, a trend decline that has accelerated in recent weeks.

The third major current, of course, is the impending normalization of US monetary policy. This is also a healthy and a necessary development; it is healthy in light of the relatively favorable growth in the US. But there will be global repercussions, indeed have already been global repercussions, especially for the emerging and low-income countries.

So, amid these very important developments, near-term growth remains moderate and uneven. We see higher downside risks than we saw at the time of our last July update of our forecasts. The Holy Grail of robust and synchronized global expansion remains elusive.

Let me turn to our projections which I want to emphasize are what we view as the most likely outcomes, but there are also downside risks and risks seem more tilted to the downside than they did just a few months ago.

For the world, growth was 3.4 percent last year. We are projecting 3.1 percent for 2015, 3.6 percent for 2016. Both the 2015 and 2016 projections are down by 0.2 percentage points compared to what we thought in July.

These aggregate numbers for the world reflect disparate fortunes between advanced economies and the emerging and low-income group. For the advanced economies, overall growth was 1.8 percent in 2014. Our projections for 2015 and 2016 are 2.0 and 2.2 percent, respectively, and also downgraded from what we believed would be the case in July. We see a pickup this year in the US and in the euro area. Japan had a very strong Q1 showing, but it is beginning to look a little wobbly.

Within the advanced economies, of course, there is also heterogeneity. Some of the advanced economies are commodity exporters. So, Canada, but also Norway, Australia are facing headwinds both from terms of trade effects and also from important effects on their investment sectors, something we have also seen in the US energy sector.

What about emerging and low-income economies? Commodity price falls are having their most intense effects there, and these countries, of course, are more than half of world GDP and the lion’s share of world GDP growth.

2015 is projected to be the fifth straight year in which emerging and low-income growth declines. Growth was 4.6 percent in 2014. We are projecting 4.0 percent this year and for next year 4.5 percent. Both of these numbers are down 0.2 percentage points compared to our July forecast.

Now, commodities are an important, perhaps the most important part of the story, but they are not everything. Again, different countries face different risks. In some, political instability is a dominant factor; there are overhangs of debt and overinvestment in commodity sectors and, in some countries, a loss of fiscal credibility. Of course, the countries with multiple challenges are facing the lowest growth and the most turbulent.

Why do we think there will be a growth rebound in emerging markets next year? Well, a number of large emerging markets are having an especially difficult time this year. If we look at Brazil, we are projecting -3 percent for this year, -1 percent for next year. That is negative growth next year but is still a substantial improvement, and these bring up the aggregate numbers. Also, investment effects due to commodity price declines are likely to abate as commodity prices stabilize.

Now, as I said, we view these numbers as the most likely outcomes, but there are certainly risks to the outlook and these risks seem to have rotated toward the emerging markets and the low-income economies.

Emerging markets have built resilience, of course, over recent years with greater exchange rate flexibility, higher levels of international reserves, more FDI and domestic currency external borrowing, and generally stronger policy frameworks. But that being said, in the face of the downside risks that exist, there is more limited policy space than was available some years ago.

My colleagues, Jose Vi?als and Vitor Gaspar, will go into those risks in more detail tomorrow, but there are some obvious examples. There is the risk of a decompression of term premia in advanced economies that is quickly transmitted to the rest of the world. Currency depreciations in the presence of balance sheet effects can be a potential problem, although we have not seen big problems in this year yet. Of course, a sharper-than-expected slowdown in China is a risk as well.

All of these risks point to the need for a policy upgrade that will increase resilience in the world economy. These policy upgrades are needed not only in the emerging world but in the advanced economies as well.

In the emerging world, countries have to get ready for the Fed to move on interest rates. They can do so by improved surveillance of the financial sector; more discouragement of foreign exchange-denominated borrowing, and Peru has made important advances in this area; greater encouragement of equity inflows, which is not unrelated to the governance environment, and finally, smart fiscal frameworks that maintain sustainable fiscal accounts and credibility while preserving growth and at the same time protecting the most vulnerable in society.

In advanced economies, deflation very much remains a threat, and we also see it in some parts of Asia. Therefore, monetary accommodation, where appropriate, remains advisable, as does fiscal expansion where there is fiscal space. Crisis legacies such as nonperforming loans in a number of countries, the need to strengthen the banking union in the euro area, these remain imperative to build a more resilient system.

There are some measures from which all economies in the world can profit and some of these support global aggregate demand, which remains insufficient. It should be attractive at historically low global interest rates. Targeted structural reforms in labor markets, product markets, reforms that improve the business climate, can be profitably carried out in many countries.

There are many cooperative efforts that need to be pursued in order to raise the resilience of the international financial system: regulatory cooperation; work on the global safety net, including IMF quota reform, an important piece of unfinished business from five years ago.

The WEO underlines that all countries face challenges in the current environment and it raises the question of how to finally find the Holy Grail of robust and synchronized growth. The right policy upgrades are challenging to implement, but they will benefit not only each country individually but the resilience of the international system. With that, we invite your questions.

QUESTIONER: Welcome, Mr. Obstfeld. If I am not mistaken, I do not believe the Holy Grail has yet been found, but more broadly, on China, you have not revised your growth estimates there down at all. What confidence do you have that those numbers are accurate, particularly since you are relying largely on Beijing to provide that data? Secondly, what is the risk of a global recession, as some of your colleagues—not at the IMF—have warned about?

Mr. OBSTFELD: On the second question, I would say that the global recession is certainly not our baseline scenario. Nonetheless, the policy upgrades that the Fund has recommended and that I have outlined remain advisable. On China, our point forecast is the middle of the range of 6.5 to 7.0, and we remain quite comfortable with that range. I think it is fair to say we were ahead of most of the private sector forecasters when we originally made that call. Even the events over the last few weeks have not led us to seriously question it partly because the Chinese authorities have rolled out fiscal measures, expanded infrastructure spending, which we think will lead to a 2015 growth rate that remains in that range. Our range for next year is lower in line with the structural transformation that is ongoing. It is 6.0 t0 6.5, with a midpoint of 6.3.

Now, on the data, many countries had difficulty in measuring their aggregate economies with accuracy and are constantly making improvements to their frameworks. That is what the Chinese authorities have also been doing. Matters are particularly difficult in a very large complex economy like China that is undergoing ongoing structural transform. In particular, the shift toward services from manufacturing makes activity much harder to measure. While we do see evidence that manufacturing is contracting, services seemed to be booming in China. That being said, we do not see a reason to feel the statistics are seriously biased and we are comfortable staying where we are.

QUESTIONER: You talked a lot about the problem of China and the emerging markets. How is it that those problems at the moment are not affecting the two economies which you cite as the fastest-growing, the United Kingdom and the United States? Do you think it could affect the growth rates in those two fast-growing economies?

Mr. OBSTFELD: What happens in China has repercussions for the entire world economy. These repercussions are greater in countries that trade with China or that depend on exports which China consumes very intensively. Think about commodity exporters. China’s consumption of base metals is roughly 50 percent on average of global consumption, 60 percent for iron ore. So, for those commodity exporters, the effects of China shifting from manufacturing to services, the reduction in construction activity are really immense. We would not expect to such big effects on the US or the UK.

That being said, the U.S., even though it is relatively closed, is subject to the influence of slowing global growth. We just saw some trade numbers released today which indicate a sharply higher deficit. So, the US and UK are not totally immune, but given their trade patterns and their geographical location, they are going to be much less affected than either China’s regional neighbor or big commodity exporters.

QUESTIONER: You lowered India’s growth forecast marginally. What is the reason for this? Given that India is a net commodity importer, what kind of an impact do you see on India?

Mr. MILESI-FERRETTI: India remains one of the fastest growing economies in the world. We have, as Maury has just emphasized, a more difficult external environment in general, with a slowdown in growth relative to last year. Even though India is not as open as China, it is still an open economy. Hence, when external demand weakens, Indian exports tend to suffer. That is the negative force that pushes down our growth forecast for India. Of course, on the positive side, some of the external developments have been more favorable. In particular, as you rightly emphasized, the decline in commodity prices is good for commodity-importing countries like India. It also helps bring down inflation.

So, the domestic demand component of growth in India looks resilient and strong, but because of the decline in external demand, the export outlook is a bit less rosy than we would have liked and that we were forecasting a few minutes ago. That is the reason.

QUESTIONER: You are very upbeat about Spain and the Eurozone, and very pessimistic about growth prospects for Latin America, particularly Brazil. Given the extensive investment by Spanish corporates, investment in Latin America, particularly Brazil, I just wanted to ask you whether there is any danger that you are being overoptimistic about Spain, given the negative outlook for Latin America.

Mr. HELBLING: Under our baseline, we think what will dominate in Spain is the momentum in domestic demand which we have seen playing out in 2014, so far also in the first half of this year. While we have not revised the forecast really for Spain, there is a slight change in the composition in the sense that the contribution from domestic demand is a bit stronger than expected earlier this year while the contribution from external demand is a bit weaker than expected earlier this year, so Brazil would fit into this picture. Overall, I think the euro area, the momentum has improved and conditions to continue are there under the baseline.

QUESTIONER: I want to ask you a question about Latin America, because it is one of the two regions around the world that will contract this year. So, I want you to talk a little bit about that.

Mr. OBSTFELD: There is no one-size-fits-all story for Latin America. There are common shocks that are affecting almost all countries in different ways, if we look at Argentine exports of soya beans to China, Colombian oil exports. The general fall in commodity prices is affecting everyone, but specific countries have their own stories.

If we look at Brazil and Venezuela, we have two very large countries that are actually contracting, Venezuela at a very high rate this year into next year. This is certainly going to drive down [inaudible]. On the other hand, there are countries with strong policy frameworks which have built up fiscal buffers in previous years and which, notwithstanding the fall in commodity prices, continue to have fairly reasonable prospects. Look at Colombia; look at Peru; look at Chile.

So, averaging out, we get a very bleak picture for Latin America, but it is largely due to the common shocks and also the particularly difficult circumstances of a couple of very large countries.

QUESTIONER: In your forward, you mentioned the impact of the migrant crisis in Europe. I was wondering if you elaborate on that. Do you think there could be a drag on the growth and the budget, especially in an already fragile state? If I may, on the U.S, do you still think it would be wiser for the Fed to wait for the first semester of 2016 to increase its interest rate?

Mr. OBSTFELD: The refugee crisis is, of course, a huge humanitarian tragedy and it is a crisis in which really all countries have to cooperate to reach a solution. There has been a lot of focus on the European aspect of the problem, but there are countries in the Middle East, such as Jordan, which are facing immense pressure and which the Fund has been trying to help by easing fiscal targets and in other ways.

Accommodating inflows of refugees will definitely strain fiscal budgets in some countries. In Germany, for example, 13 percent of the population already is foreign-born. Then have a good record of taking in immigrants and they are doing a lot to assimilate them. In all countries, there is going to be the challenge of integrating new arrivals into the labor force. That will take time but eventually will be positive for growth in Europe. Unfortunately, it is tragic for the countries, such as Syria, that are losing large fractions of their populations.

On the Fed, markets are predicting a most likely easing by the Fed, a liftoff by the Fed in 2016. The Fed is going to raise interest rates when it feels growth in the US economy is sufficiently strong. They are making a data-dependent decision which the Fund totally supports. This could be in 2015; it could be in 2016. When it occurs, we are confident that it will reflect strong US growth which will be a good thing for the US economy.

QUESTIONER: While our economies are considered as low-income developing countries, I am wondering here and I am getting the feeling, are we being ignored? What is happening with the Caribbean? I am not hearing anything about us. This leads to my next question. Your IMF intervention in many of our economies has brought about some measure of discipline, improved fiscal discipline, but then it leads to high unemployment. My country, for instance, it is rising 35 percent and up. Our governments are outsourcing our jobs. Private sector creation of jobs is dwindling.

So, the question is, is there another way of achieving that fiscal discipline because, to us, it is not really working. Then the IMF and the World Bank, let us say, in spite of your changing attitude toward many of our economies, there is a school of thought that believes that you are remaining inflexible. What is your response to that?

Mr. MILESI-FERRETTI: I will start with the first question. These have been challenging years for the Caribbean. They have been particularly challenging years up to last year for Caribbean commodity importers. They have been buffeted by severe weather shocks that have taken a heavy toll on capital in a number of countries. The latest tragic case has been the hurricane that devastated Dominica last month. So, clearly those have extracted a very heavy toll on the region.

The growth outlook has improved for Caribbean commodity importers that rely mostly on tourism, on account of two reasons. The first reason is the fact that the US economy has strengthened and that has helped tourism. A second factor which is also very important is the large decline in oil prices and other commodity prices, particularly oil prices. They are enormously important in many Caribbean countries because they have to import all their energy and they imply a much needed strengthening of the current account.

Yet, these countries still face growth challenges. They still have, with low growth, fiscal situations that are extremely precarious. Unfortunately, with extremely precarious fiscal situations, the scope for fiscal policy to support growth is very limited. At that point, the choice has to be what is the best way to achieve a standard of fiscal consolidation that does not rely on cutting social expenditure and support for the poor and that is as pro-growth as possible. That is what our direct involvement in the region has always tried to achieve.

It is a difficult endeavor, because, again, with low growth and high debt, these are not problems that can be solved very rapidly. As I say, I think that improvement in the terms of trade, thanks to the decline in oil prices, is going to help.

For other countries, of course, for the commodity exporters in the region that had done better, the decline in commodity prices is more of a drag, but I would say in the aggregate for the region, it is a positive development to see faster US growth and lower commodity prices.

I know the Fund has been actively involved in a number of countries. You just mentioned, for instance, the program in Jamaica has been ongoing for a number years and that had initially been given short shrift by many people and instead is still ongoing and still on track.

So, I think progress has been made, progress is being made, but the situation overall remains a difficult one. It is a growth outlook that is modest for the region, for the Caribbean as a whole. We have a growth rate of 3.8 this year and 3.4 next year. We wish it were higher, and we hope that with the right policies adopted, this will happen going forward.

QUESTIONER: [THROUGH INTERPRETER] I would like to know whether you have analyzed the Peruvian economy as regards the future given the recent past, given that the drop in growth rates in China has hit us, and we have seen that in commodity prices. What are the potential growth rates that you have projected for Peru?

Mr. MILESI-FERRETTI: [THROUGH INTERPRETER] Let me try to answer you in Spanish and let me apologize in advance for any grammatical mistakes.

The prospects we have for growth in Peru for this year are 2.4 percent. That is the same growth rate as was projected for last year, 2.4 percent. As we have mentioned, the growth for the region as a whole is much worse than for Peru, in particular, but we understand that this country has had a growth performance that has been very, very good over the last 40 years, over 5 percent in fact.

We understand that for a country that is accustomed now to grow at that rate, 2.4 percent may seem modest, indeed. However, the shocks, the external shocks that Peru has had to absorb have been serious and have been significant. As we have mentioned, the fall in commodity prices is not least among those important shocks.

Our optimism, the increase for growth that we project for next year, which we believe will be more sustained in the comings years, flows from the fact that this is a country that has benefited from solid macroeconomic policies with relatively low public debt, about 20 percent. It is a country that faces harder times, with the possibility of marshalling monetary and fiscal policies that will stand Peru in good stead vis-a-vis growth. Inflation is relatively low, remains so. What I believe is important in terms of improving growth estimates will be the degree to which the implementation of growth plans and public investment, in particular, will in fact be sustained.

As my Director has just explained, it will be very important to keep investing in public investment. This will shore up potential growth, particularly in a country we know that will have to look for other sources of growth in times, which, as we know, mining and commodity prices at this point offer perhaps less sanguine growth rates compared to the past.

QUESTIONNER: The Fund has consistently advocated easing monetary policy from the European Central Bank. Now the ECB has said that they consider changing or expanding the scope, the dimension, the duration of their QE. Do you think it is advisable that they do it sooner rather than later, and would you advise them also to do something on the deposit rate, lowering further the negative deposit rate at the same time, instead of these heightened purchases of debt?

Mr. HELBLING: On Europe, I think the easing of monetary policy, in particular further easing on the QE early this year, has been successful. Notwithstanding the very robust recovery we have seen in Europe, inflation remains substantially below target. I think it is a more difficult global economic environment. One-off factors from commodity prices, also other lower tradable prices, will weigh on inflation. Given that overall, in the euro area overall, output gaps are still negative. In some countries, unemployment is very high. Fiscal policy options are limited. It is important to keep the monetary policy option open and adjust as we go forward. The inflation outlook, I think, over the past few months has weakened relatively in the sense of weaker initial conditions, so it is important to consider.

As far as policies themselves are concerned, I think at the zero low bound, the ECB needs to use all options for policies to be effective, so both concerning asset purchases as well as deposit rates. Concerning the latter, one has to be cognizant that they are already negative and so turning them yet more negative may be of limited effectiveness at this point.

QUESTIONNER: [THROUGH INTERPRETER] I wanted to ask about prospects for Central American countries, which are very different from the rest of Latin America. For instance, we have seen our growth reduced. I would like to hear what you think about the prospects for Central America, given the situation in the US, and we depend quite a lot on the US economy and commodities.

Mr. MILESI-FERRETTI: [THROUGH INTERPRETER] With regard to growth prospects for Central America, we expect growth to be about 4 percent this year, 4.2 for next year. But if we look at how the Central American economies are affected by what is happening more globally, as you said, the Central American economies have benefited from high commodity prices, in particular oil prices. But the importers, in fact they did not benefit from those high prices; it was a problem for them.

They are exporters to the US and there are many workers from the region that live in the US. If their salaries increase in the US, then they will be able to send higher remittances home. So, if the US has good news in terms of its performance, it is also good news for Central America.

The Central American economies are facing macroeconomic difficulties that are related to the general crisis. They have also fiscal problems as well. So, the prospect is not very, very bright. There are a lot of challenges that they face, but the external environment is a bit more favorable for Central America.

The situation in the US could have some effect on capital flows to the region. Central America has limited financial integration into the global economy compared to the South American economies, but there may be some impact, nonetheless. Some countries have issued US-denominated bonds. As conditions have changed, this may make things a little bit more difficult at this point in time than it was a few years back. So, there will be some negative impact in terms of the financial conditions, making them a bit more difficult. But, as I have said, we expect growth prospects to be at around 4 percent.

QUESTIONER: Given Brazil’s economy is in recession and you expect a lower recession next year, why is the IMF expecting lower growth in Uruguay and Argentina, the main partners of Brazil?

Mr. MILESI-FERRETTI: For Argentina, part of the effect comes from the fact that we have strong fiscal support to growth this year which we expect to be unwound the next year. For that reason, the fiscal support is helping growth in 2015 but is going to hurt growth in 2016. With regard to Uruguay, I will get back to you with more details, but the decline in growth in 2016 is relatively modest; we are talking a difference in growth between 2.5 and 2.2 percent.

Let me also emphasize that while the situation in Brazil in terms of the growth rate is improving, it remains a challenging one. We have also to think that if you focus on the trade side, that we have had a massive depreciation of the Brazilian real over the past year and this year, in particular. Those effects are going to importantly help Brazilian exports but will hurt the countries that are exporting to Brazil, such as Argentina and Uruguay. So, we see that as some of the drag that will come next year.

ONLINE QUESTIONER: What is the update on Greece? Is the Greek economy returning to growth any time soon? Do you believe that Greece remains a potential risk for the Eurozone economy?

Mr. HELBLING: On the forecast for Greece, as you all noticed, we have downgraded growth both for this year and next year, but it is important to look through the annual growth rates and look at the quarterly growth paths in an economic like Greece. We expect that with the situation in the summer, the imposition of capital controls in July, there will be a strong contraction in output in the third quarter of this year and then growth will rebound.

Now, the rebound initially is not quite as strong but will improve over 2016. The dynamics is such that with growth declining midyear, it will affect both the annual growth outcomes of 2015 and 2016. The basic message from the forecast, though, is that growth is rebounding.

As far as risks are concerned, Greece has a new program with the ESM, so program risks clearly reduced. Then as far as risks for the Eurozone, there is a safety net in the Eurozone. As developments over the summer have shown, despite the uncertainty about the continuation of the program, contagion to the rest of the euro area has been very limited, if not absent.

QUESTIONER: This question is for Mr. Obstfeld. Will you please point out the most relevant IMF recommendations to overcome the weak points of the global economy?

Mr. OBSTFELD: I described some of these in my opening remarks. I think there are a large number of areas where cooperation among countries is needed to reach solutions; for example, the global safety net, IMF quota reform, cooperation in the regulatory sphere, all of which would enhance resilience. But there are also a large number of areas where countries have to get their own houses in order which will benefit them and also generate favorable spillovers for other countries in the world economy; stronger policy frameworks, structural reforms.

One notable feature of the world economy is that our estimates of potential growth seemed to have fallen globally. Investment is low globally, private investment as well as investment in infrastructure. So, policies such as structural policies, greater infrastructure investment that address these problems can benefit the global economy as a whole.

QUESTIONER: It is just a question about currencies. The question is why in this movement searching to secure the refugees, and there is an impact so spread in emerging market currencies. Is this depreciation that begins last year going through the year and next? Which kind of impacts do you present in the World Economic Outlook of this depreciation on debt, cooperate debt and sovereign debt of the emerging markets? Why is there no differentiation between countries, as Mexico, who has links to the US and the US is going up?

Mr. OBSTFELD: It is a natural progression of things for the currencies of slowing economies to depreciate relative to those economies that grow more quickly. We see this process going on now for the US dollar. The process is also being driven by the prospect of the Fed increasing interest rates and normalizing monetary policy, which is something that is affecting all of the emerging markets. I would not say that markets are not discriminating at the moment between different emerging economies. There are common shocks, but also if you look at a number of metrics, you can see a lot of differentiation. If you look at sovereign risk premia, for example, sovereign spreads, these have risen much more sharply recently for countries that are very intensive commodity exporters.

So, I think there is differentiation going on, but the depreciation of currencies when export prices fall and terms of trade fall is a natural outcome and it actually shields these economies in various ways. It helps promote exports; it helps to raise the domestic currency prices of commodities whose dollar prices are falling in the world market. So, all in all, it is a healthy development.

Now, there can be problems that arise when countries or their corporates have extensive dollar-denominated debt. This is one of the risks that we certainly mentioned in the WEO that is discussed in the Global Financial Stability Report. We have not seen big problems in this area yet despite very substantial depreciations.

QUESTIONER: My question will be about the Middle East. What is the real situation there, especially after the end of the embargo in Iran, the war against ISIS, and especially the situation with the refugees that 5 percent only chose to go to Europe but the rest is still in the region, especially Lebanon, Turkey and Jordan, and the refugees Libyan and Tunisia, too?

Mr. HELBLING: I think overall the situation in the Middle East is difficult. There are a number of forces acting together. In terms of the big picture, we have to start with the oil prices. Certainly, the lower oil prices will require adjustment in the region. I think there we have to see, though, that the major oil producers have large buffers so they can id sequence the adjustment. We do not see any major immediate slowdown in growth in the major oil exporters. Then we also see that the situation in Egypt has begun to stabilize to a large oil importing economy, net oil importing economy, so that should also help the region.

In terms of Iran, prospects for the ending of the sanctions if the agreement with the P5+1 is implemented clearly has prospects for a rebound in growth which we have incorporated in our baseline forecast. Growth in Iran is increasing up to 4 percent over the next few years, assuming the end of sanctions, and that surely will have positive spillovers on the region.

Then you mentioned the refugees. I think at the moment they impose an especially heavy burden on Jordan and on Lebanon, where clearly help from the international community is needed. Jordan has a program with the International Monetary Fund. In that program envelope, as Maury mentioned earlier, fiscal constraints have been eased to accommodate the additional burden. Clearly, we hope also that Lebanon will manage the difficult situation with the refugees, where the refugees account for one fourth of the population or even a bit more, and impose a heavy burden. So far, Lebanon has been resilient, but clearly it will be a challenge going forward.

So, going forward, there are a number of forces interacting. On the one hand, I think the European recovery has been strengthening that will help the region in terms of exports. I think the stabilization in a number of economies, including Egypt but also Tunisia, over the past several years will help to strengthen confidence and improve the investment environment, and, if combined with structural reforms as advocated by the IMF, should bode well and then hopefully in the end there could be a strong impetus also from stronger growth in Iran, which is another large economy in the region.

QUESTIONER: I know that in the last ten years you have not been talking with Venezuela. Right now it is almost bankrupt. I am wondering if you have fear about the spillovers of the situation in Venezuela for other countries in the region.

Mr. MILESI-FERRETTI: Clearly Venezuela was already facing severe macroeconomic imbalances and that these have been exacerbated by the very sharp decline in oil prices. Oil is crucial for the Venezuelan economy both in terms of fiscal revenues and exports.

I think the degree of integration of the Venezuelan economy financially with the rest of the region has declined in recent years. Still, the size of the Venezuelan economy and, for example, its connection through the PetroCaribe program with Caribbean countries do imply some financial links.

So, I would see two types of effects of the situation in Venezuela. As I say, one would be through PetroCaribe financing. It is an effect that is going to be tempered by the fact that oil prices have fallen, tempered for the recipient countries of PetroCaribe funds. In terms of direct trade linkages, Colombia is the country with the strongest trade links to Venezuela, but also these trade links have weakened in recent years.

So, overall, the size of spillovers from Venezuela is relatively small, considering the size of the economy. Venezuela is a sizable economy. We worry about the impact on Venezuela of the current situation. We have dire forecasts for this year and the next, again predicated on very limited information that we have. Very few data have been released for this year. So, there is not a systemic impact in the region but an important one, given the size of the Venezuelan economy in terms of really population.

Ms. GAVIRIA: With this, we end the Press Conference. Thank you all for participating, and thank you to the speakers.