Aurelia Butler

The risks add to a list that include rising inflation, including for food, which threatens to spark social unrest. “Higher global and domestic financing costs can accelerate capital outflows and represent a challenge for the region, given large public and external financing needs in some countries,” said the IMF in a blog post signed by the director of the Fund’s Western Hemisphere Department, Ilan Goldfajn, assistant director Jorge Roldos and senior economist for the region Santiago Acosta-Ormaechea.Russia’s invasion of Ukraine is impacting Latam through higher inflation, which hurts the poorest the most, the IMF officials wrote.”Policymakers are reacting to this challenge by tightening monetary policy and implementing measures to soften the blow on the most vulnerable and contain the risks of social unrest,” they said.”Governments should provide targeted and temporary support to low-income and vulnerable households while allowing domestic prices to adjust to international prices,” a move they say would contain the cost for the governments while revitalizing production.In an environment of rising interest rates in the developed world, meaning those economies could soon funnel investments that would otherwise flow towards emerging markets in search of higher returns, Latam and the Caribbean will need to ensure the sustainability of public finances to help preserve credibility.Growth however is expected to decelerate after the large increases brought by the activity rebound seen last year.”Growth is returning to its pre-pandemic trend rate as policies shift,” said the IMF, noting that “exports and investment are resuming their role as main growth drivers, but central banks have had to tighten monetary policy to combat an increase in inflation.” More

Latin America can help ease some of the food, metal and energy shortages created by Russia’s war in Ukraine, but the region will only benefit fully if it embraces reforms and promotes social inclusion, a top IMF official said.Russia and Ukraine are among the world’s top grain exporters. Russia is also a key supplier of oil, gas, metals and fertiliser. The war in Ukraine and the sanctions applied by western nations to punish Moscow have led to sharp jumps in global food and fuel prices and sent companies scurrying for alternative sources of supply.“You have a shock where you lack commodities, food commodities and energy and also metals, there is a food security issue and [Latin America] is seen as the one that will help us overcome the problems,” Ilan Goldfajn, director of the fund’s western hemisphere department, told the Financial Times in an interview this week. “You will export food, you do have water, you do have land. If you have fertilisers — and that’s something the countries are working on — then you can expand commodities [output].”Latin America, he added, was “seen by investors as sufficiently far from the centre so that it looks like . . . this region can actually be part of the solution”. This explained why the region’s currencies had been appreciating and stock markets rising this year despite the US starting to raise interest rates — something that would normally weigh on investor sentiment.However, if the region is to take full advantage of the opportunity to supply a greater share of the world’s commodities, its governments need to embrace long-delayed reforms to boost productivity, increase competition, improve education, create a fairer tax system and address deep-seated inequality, Goldfajn said.Low growth continues to blight Latin America. The region bounced back quickly from the coronavirus crisis last year, but its economies are now slowing sharply as central banks raise rates aggressively to contain inflation. Brazil’s central bank has been among the world’s most hawkish, pushing borrowing costs up to 11.75 per cent, nearly six times last year’s level.Despite the risk that higher interest rates will choke off the recovery, Goldfajn said central banks had little choice. “There are actually no options but . . . first and foremost, to take care of stability, which is a necessary condition for growth . . . not to allow inflation just to spiral,” he said, adding that central banks had been “quite successful” in convincing investors and the public they were serious about bringing prices under control. The additional pressure on inflation from Russia’s invasion of Ukraine meant that Latin America’s central banks were re-evaluating whether they needed to raise rates further. “They don’t have the luxury of just waiting and seeing . . . for this shock to go [away] by itself.”

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The region struggled with high inflation in the 1980s and early 1990s but the situation improved after central banks in most of the large economies were granted autonomy. The biggest exception is Argentina, which already had one of the world’s highest inflation rates before the latest shocks. Its latest data show prices are spiralling at 55 per cent a year, which could jeopardise a recent agreement with the IMF to refinance $44bn of loans.Goldfajn said the agreement with Buenos Aires, which was only finalised last month, was now under review to address the new challenges posed by the global shocks “and the objective is to prioritise policies in order to fulfil existing objectives and targets”.The fund is also continuing discussions with El Salvador about a possible loan agreement, but Goldfajn said the country’s adoption last year of bitcoin as legal tender was “an important issue” that “will need to be sorted out before next steps”. The IMF has called on El Salvador to abandon the use of bitcoin as legal tender because of the cryptocurrency’s volatility. The combination of accelerating inflation and higher interest rates means growth in Latin America is now forecast to be just 2.5 per cent this year and next, according to the IMF’s latest projections. This is below every other emerging market region except eastern Europe.The region is one of the world’s most unequal, and protests against inequality and exclusion have swept its countries in recent years. Goldfajn said governments needed to learn to combine effective action to target poverty and inequality with structural reforms. “We need to address social issues,” he said. “So social programmes need to be there to protect the vulnerable. You can do it without giving up on the reforms and increased productivity. I firmly believe that those things are not inconsistent, to be able to attend to the demands for social opportunity and social justice, gender equality, cleaner energy and at the same time address the reforms we are talking about.” More

The price of groceries in the UK has risen by 5.9 per cent in the past year, exacerbating a wider cost of living crisis for households reeling from soaring energy bills — and increasing the political pressure on Boris Johnson.Market researcher Kantar said on Tuesday that the rise in prices was equivalent to £271 a year for the average household, the biggest increase since December 2011.The group said customers were increasingly turning towards discounters such as Aldi and Lidl to try to make their budgets go further. “We are seeing a clear flight to value as shoppers watch their pennies,” said Fraser McKevitt, head of retail at Kantar.Johnson’s position as prime minister is already vulnerable because of the partygate scandal, which has seen him fined for attending an illegal party in Downing Street during a Covid-19 lockdown.But the cost of living crisis poses a potentially more serious challenge to his administration in the coming months, with no end in sight to the pressure on household finances.The price cap on most consumers’ energy bills rose by 54 per cent to nearly £2,000 in April and is expected to rise again in the autumn because Russia’s invasion of Ukraine has pushed wholesale gas prices even higher.Although Rishi Sunak, chancellor, has announced a £9bn package to help households with this month’s price rise, a large part of this involves loans rather than grants. Sunak has indicated that he may need to give further help in the summer, depending on market movements in the coming weeks.Johnson on Tuesday chaired a cabinet meeting in which ministers were ordered to come up with “innovative ways to ease pressure on household finances” without running up new costs to the Treasury.The ideas will be discussed at a meeting of the government’s “domestic and economic strategy committee” in a few weeks’ time, the government said. Among the measures will be a commitment to crack down on “unacceptable behaviour” by companies that are considered to be unfairly pushing up bills for households. “Private companies must play their part,” Number 10 said.Downing Street refused to give any examples of concrete measures discussed at Tuesday morning’s cabinet meeting. However, officials have confirmed a report in The Sun that ministers have proposed cutting tariffs on imports of food products and refined oil products.Sunak insisted at the meeting that the new measures could not fuel inflation and therefore had to be funded from existing departmental budgets. Meanwhile, Lisa Nandy, shadow levelling-up secretary, has told Labour leader Sir Keir Starmer at a meeting of the shadow cabinet that he should shift his political attacks more towards the cost of living and away from partygate. One party aide said: “That seems a bit unfair given that we’ve been banging on about rising prices for months on end.”Louise Haigh, shadow transport secretary, said: “It is possible for people to hold two thoughts in their head; the cost of living and anger about a lawbreaking prime minister.”Overall inflation in Britain hit 7 per cent in March, a 30-year high, and is expected to reach 9 per cent later this year.

Kantar said grocery sales had fallen 5.9 per cent by value in the 12 weeks to April 17 as people tightened their belts to deal with rising prices.Aldi has increased sales by 4.2 per cent year on year, with rival Lidl up 4 per cent.With shoppers turning towards discount chains, purchases fell at some of the main supermarket chains. Sales at Sainsbury’s, Asda and Morrisons were down 7.7 per cent, 10.3 per cent and 10.5 per cent respectively. More

TOKYO (Reuters) -Japan has prepared an emergency relief package worth $103 billion to cushion the economic blow from rising raw material costs, and plans further steps later this year to promote long-term reforms, Prime Minister Fumio Kishida said on Tuesday.Kishida is under pressure to ramp up fiscal spending ahead of an upper house election scheduled to take place in July, putting Japan out of sync with many Western economies that are gradually phasing out crisis-mode stimulus measures.The 13.2-trillion-yen ($103 billion) relief package, to be funded mostly by reserves set aside under the current fiscal year’s budget, will consist of steps to deal with the immediate hit from rising prices such as subsidies to gasoline wholesalers and cash payouts to low-income households with children.Of the total, direct government spending will amount to 6.2 trillion yen. The rest consists of non-direct spending measures such as private-sector lending.The government will compile an extra budget and pass it through the current parliament session to replenish reserves and secure funds to deal with any resurgence in COVID-19 infections or prolonged rises in fuel costs, Kishida said.”We must prevent rising fuel and raw material costs from disrupting a recovery in economic and social activity from the pandemic,” Kishida told a news conference.Aside from the relief package, the government will lay out after the upper house election a “comprehensive” package of measures to spear-head change in Japan’s society, Kishida said.The package will include steps to help Japan achieve a carbon-neutral society and measures to promote the administration’s economic policy focusing on wealth re-distribution, Kishida said, without providing details.”We need to act pre-emptively looking at the medium- to long-term horizon,” he said.Analysts expect the government to compile a second extra budget later this year to fund additional spending measures, which could well exceed the size of spending for the relief package announced on Tuesday.”The government will likely compile a second extra budget in autumn or later this year,” said Chotaro Morita, chief bond strategist at SMBC Nikko Securities.Given the ruling Liberal Democratic Party’s (LDP) coalition ally, the Komeito party, has demanded an extra budget of up to 20 trillion yen, the second round of spending could be a little short of 20 trillion yen involving additional debt, he said.That could further strain Japan’s borrowings, the industrial world’s heaviest public debt, at more than twice the size of its $5 trillion economy.($1 = 127.8900 yen) More

Companies on the list released by the interior ministry include the energy giant Gazprom (MCX:GAZP) and the chemicals and fertiliser manufacturer Akron, as well as the coal trading companies SUEK Polska and KTK Polska. Gazprom has a minority stake in EuRoPol Gaz, an entity that owns the Polish section of the Yamal pipeline that carries Russian gas to Europe. Individuals on the list include billionaire Mikhail Fridman, co-founder and largest shareholder of Alfa Bank; aluminium tycoon Oleg Deripaska; and Eugene Kaspersky, founder of Russian cybersecurity company Kaspersky.”This is the first sanctions list … it has 50 items. There are oligarchs and companies that do real business (in Poland),” Interior Minister Mariusz Kaminski told a news conference. “It is likely, almost certain, that this list will be widened.” The sanctions include the freezing of assets and, for the individuals named, a ban on entering Poland. Poland has consistently argued for tougher sanctions against Russia and has previously said it stop importing Russian coal by May and stop using Russian oil by the end of 2022.Russia calls its actions in Ukraine a “special operation” to disarm Ukraine and protect it from fascists. Ukraine and the West says this a false pretext for an unprovoked war of aggression by President Vladimir Putin. More