Amid current global inflation, the United Nations has called on international financial institutions to cancel the sovereign debt of some Latin American and Caribbean countries and create more favorable financing conditions to bring about a “massive recovery” in these economies.
UN Secretary General António Guterres made the request during the Economic Commission for Latin America and the Caribbean (ECLAC) in Buenos Aires, Argentina.
But how feasible is this request and how much debt do the countries of the region have?
“It is a legitimate and feasible request. Guterres has certainly taken into account that with the current budget, countries will not be able to pay their debts if we want to fight poverty and inequality in the region and if we urgently need climate policies,” explained Mexican economist and political analyst Mario Campa .an interview for DW.
According to the latest figures from the “IMF” (International Monetary Fund), Venezuela is the most indebted country in the region, with 307 percent of the gross domestic product (GDP).
In the last place is Guatemala, with a debt of only 30.6 percent of GDP.
To get these benchmarks, Campa explains, public debt, also known as government debt, is divided by the size of the economy.
GDP is generally used for this purpose.
During the pandemic, many Latin American economies increased their fiscal spending to increase social spending.
Three stand out: “Colombia, Chile and Brazil spent more than they took in, even though they are quite large economies. “On the other hand, countries like Argentina and Ecuador now have significant debts to the IMF and are among the economies that pay a very high rate of increase in payments,” explains Campa.
For this reason, some countries are now implementing much more frugal budgets, as Gabriel Boric has already done in Chile.
Furthermore, central bank interest rates are rising rapidly due to current inflation, as in Colombia, where even Gustavo Petro has complained about his country’s central bank policies.
“So there is a combination of tighter fiscal spending and, in many cases, already restrictive monetary policy. This leads to lower growth rates across the region. Hence the call from Guterres”, says the Mexican expert.
But two weeks before Guterres’ call, a report by the UN Development Program (UNDP) warned that 54 countries, home to more than half of the world’s poorest people, including 10 Latin American countries, are in urgent need for help.
Failure to restructure the debt, the agency says, will significantly increase poverty and result in a lack of essential investments to protect against climate change.
Countries in the region on the list include Argentina, Venezuela, Cuba, Ecuador, El Salvador and Haiti.
“It is a call for the IMF, the World Bank or the IDB first of all to expand their project portfolio or make lending more flexible, redirect funds to the most needy countries and also take into account the needs of climate change ,” said Campa, an economist. .
Asked if countries in the region would be able to apply the “facilitating mechanisms” proposed by Guterres, such as “debt swaps for climate adaptation projects”, the expert says it would be possible.
“The only thing missing is the political will. But it should be an equal policy for all regions of the world and not just for some countries”, emphasizes the economist.
Above all, he says, “an institutional framework must be created so that any country willing to make this investment receives this type of treatment.
Although in Latin America, many economies have returned to a pre-pandemic situation, the expert advises Campa to be cautious, as developed countries such as the United States or the United Kingdom are experiencing a decline in GDP growth.
“In our region, Brazil, surprisingly, is showing slight growth. The case of Mexico is a little strange because it is distancing itself from the United States, but this has to do with tourism, which is recovering, as is happening in Italy and France. Chile, like Peru, has the advantage of being a country with very low debt for a long time,” says Campa.
The countries in the region most in need of help restructuring their debt or perhaps eliminating surcharges are Argentina and Ecuador, which also have problems with inflation, according to the expert.
“In Venezuela, on the other hand, the GDP has probably fallen, and therefore the debt is much higher compared to this parameter,” explains Campa, adding that “the country is very dependent on US sanctions.”
