The IMF highlights that the employment rate "It has already exceeded pre-pandemic levels" in Latin America

Three years after uncertainty gripped economies around the world due to COVID-19, the International Monetary Fund (IMF) sees reason for optimism, noting that employment levels in Latin America have already exceeded those expected they presented before the pandemic.

Gustavo Adler, Division Chief in the Western Hemisphere Department of the International Monetary Fund (IMF), explained to the voice of america that, during the pandemic, economies showed high unemployment rates. Currently, most economies are at “full employment” and the level of this “already exceeded pre-pandemic levels.”

That is to say, affirms Adler, “the economies are operating above what is considered the potential product, the total of what they can produce.” However, when demand grows very quickly, including employment, inflationary pressures are generated that affect the most vulnerable, those most affected by inflation.

In this case, says the head of the IMF Division, “controlling inflation is very important to balance the economy and restore price stability and, above all, important, to protect the most vulnerable. This is done by balancing demand with the offer basically.”

persistent inflation

The IMF predicts thatto persistent inflation in Latin America it will cause a slowdown in the region, as it is not falling fast enough and remains stubbornly high, up to 7% on average.

“We know that this high inflation disproportionately hurts low-income households, particularly because it has been concentrated in large increases in food prices. And because wages have not been able to keep up with these higher prices,” explained Nigel Chalk, deputy director of the IMF’s Western Hemisphere Department.

The good news, considers the agency, is that most of the region will avoid a recession. However, for Gustavo Adler, it is imperative to curb domestic demand in Latin American countries and this inevitably requires cooling down the labor market, which has now exceeded its limit.

“If consumption and investment accelerate well above the economy’s capacity to generate employment, that generates inflationary pressure. The only thing we are saying is that basically investment demand and consumption have to grow in line with the economy’s ability to produce more employment and generate this employment”, explains the IMF division chief.

Economist Marcelo Giugale, current professor at Georgetown University and former director of the World Bank, envisions another possible solution: “I don’t think they are openly proposing layoffs or cooling the labor market through layoffs. So I think it’s more on the side of cooling demand through public spending.”

the 2023

According to the International Monetary Fund, economic growth in the region will drop to 1.6% compared to 4% in 2022.

Seeing the slowdown in the economy, Adler says that monetary policy “has already done a lot” to combat inflation, but believes that central banks cannot fight alone and that governments should step up to avoid a recession and high interest rates.

“If fiscal policy helped with a slightly more restrictive policy, it would allow interest rates to be lowered earlier, and that would balance the use of the different policies a little more,” he adds.

In this sense, he explains, certain risks related to the increase in interest payments on public debt, companies and, of course, those on the financial system would be avoided.

Likewise, the IMF affirms that part of the solution against inflation is that the richest begin to pay their true quota of taxes.

[Con la colaboración de Karen Sánchez, periodista de la VOA, desde Bogotá]

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