Latin America suffers from many crises, whether economic or social, but in light of the Corona virus crisis, the debt crisis in the Latin continent has become a nightmare threatening countries, with the spread of many warnings about the continuing debt crisis.
Experts believe that government borrowing in the region has increased dramatically, which has worried investors. “Of course, this is an obvious issue like the sun, like an elephant in the room,” said Claudio Irigoyne, head of the Latin American research division at Bank of America, experts say. .
The trade-offs are much worse in Latin America than in other regions. There is a very backward health and sanitation system, which imposes strict lockdowns, but there is also a very high degree of informal work, which means that you cannot extend the closures in time, otherwise you risk social chaos. “
For example, the Argentine State Statistics Institute said that the Argentine economy contracted by 13.2% in the first five months of 2020 compared to the same period of the previous year, due to the Corona crisis.
The Argentine newspaper “Infobay” indicated that economic activity in Argentina grew by 10% in May, compared to April, but decreased by 20.6% compared to the same month in 2019.
The Secretary-General of the Organization for Economic Cooperation and Development, Jose Angel Gurria, said that the Latin continent has too many debts, and with closures and isolations due to the Corona crisis, both Argentina and Ecuador are already in the stage of defaulting on their external debts, and are negotiating about restructuring, as Argentina took A more confrontational stance, while Ecuador won praise for adopting a more consociational approach, and neither has yet agreed on a deal with all bondholders..
Brazil, the region’s largest economy, has seen its debt soar as unstable public finances were affected by a deep recession and sharply increased government spending. William Jackson of Capital Economics predicts that the debt-to-GDP ratio in Brazil may jump close to 100% this year, up from 76% last year. “It’s a time bomb,” he said, and Chile’s debt rose 30% year-on-year in the first quarter.
As for Mexico, it is the second largest economy in the region, and Mexican President Andres Manuel Lopez Obrador decided to go ahead with the austerity program, instead of an economic rescue, which deepens the recession in the country and impedes its recovery.
The International Monetary Fund expects Mexico’s GDP to decline 10.5% this year, which makes it the most affected emerging market in the world, and the decline in oil revenues and the impact of the virus mean that the country’s sovereign debt is likely to lose its investment-grade credit rating in 2022 unless Policy changes, according to Morgan Stanley.
As for Colombia, which is the fourth largest economy in the region, Morgan Stanley believes that it has more robust government policies, but it risks downgrading its credit rating in the first half of next year due to weak public finances.
Eric Barrado, chief economist at the Inter-American Development Bank, predicted that average debt levels across the region would rise from 57% before the pandemic to 71-76% by 2022.