Globe, Latin America, Politics, Uncategorized, United Kingdom

Latin America and its perilous debt

The next few months, experts believe, will be decisive for the efforts of Latin American and Caribbean countries to save their economies from the fateful default on public debt.

 

José Bodes Gómez

 

Globally, and for the first time in history, in 2020 the amount of debts almost equalled the total value of goods and services accumulated in that period.

In Latin America and the Caribbean, issuance of government and corporate debt bonds exceeded $150 billion in international markets.

At the end of last year, regional debt exceeded USD 3.3 trillion, while gross domestic product (GDP) reached USD 4.2 trillion, a positive sign in the midst of the major economic crisis caused by Covid-19.

Governments around the world, experts explain, have gone into debt to pay for the huge fiscal spending to avoid the bankruptcy of many companies, the rise in unemployment and the cessation of vital public benefits.

The G-20 initiative

Faced with the seriousness of the global financial situation, the G-20 agreed to launch the “Debt Service Suspension Initiative” programme.

Initially approved for a six-month period from May to October 2020, it had to be extended until the middle of this year, as aid to the low-income nations for which it is intended only reached 44 of them.

In the region, 72 per cent of the total public debt corresponds to South American states, led by Brazil, with 930 million dollars in the red, and Argentina, which accumulates an amount of 336 million dollars.

The latter case is extremely complex, as its previous president, Mauricio Macri (2015-2019), tried to solve the lack of liquidity in a controversial agreement with the International Monetary Fund (IMF), which turned out to be the largest (57 billion dollars) in the history of that organisation and whose negotiation is currently being investigated by the new authorities in Buenos Aires.

The agreement has been heavily criticised by workers’ unions and other popular sectors, as it was approved by the financiers meeting in Washington under a commitment by Chile that the fiscal deficit would be reduced to zero by 2019, a condition that implied the elimination of social provisions that benefit poor and middle-income families.

A late recovery

Both ECLAC and IMF forecasts for this year estimate GDP growth at 3.7% and 4.1%, respectively, with both organisations agreeing that it will take two or three more years for the region’s economy to recover to its pre-COVID-19 level.

Among the major problems facing Latin American and Caribbean nations in their progress, and especially in tackling external debt, are low tax revenues and the high rate of informal employment.

Tax revenue in the area is barely 23% of GDP, while the average for the high standard of living and emerging countries that make up the Organisation for Economic Co-operation and Development (OECD) is 34%.

In terms of employment, reports from social organisations indicate that around half of those in employment are self-employed and lack insurance to protect their living conditions.

A crisis on the doorstep

The OECD Development Centre’s head for Latin America and the Caribbean, Sebastián Nieto, argues that in order to counter the danger of some states in the region falling into a sovereign debt crisis in 2021, it is necessary to implement an inclusive dialogue, involving public and private creditors as well as multilateral banks.

Inequality, low coverage and insufficient access to social protection for its inhabitants, as well as limited fiscal space, are among the structural weaknesses that have hampered the region’s development for many decades.

These problems are compounded by low yields in many areas of production in general, which, as seen in 2020, aggravate the effects of the health contingency on Latin American and Caribbean economies.

Furthermore, the aforementioned structural gaps make it difficult to implement policies to lessen the impact of the new disease and to undertake a reactivation that meets the requirements of being sustainable and inclusive.

Nieto, like other analysts, believes that the dynamics of the area’s economic growth in 2021 depend on a series of factors that cannot be accurately predicted, such as the risk of Covid-19 outbreaks, the agility in the production and distribution of vaccines, as well as the capacity to maintain fiscal and monetary stimuli to support productive centres and satisfy the increase in demand. (PL)

(Translated by Rene Phelvin) – Fotos: Pixabay

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