UN says Latin America will depend on exports and capital inflows

The state of the world economy in the midst of the pandemic offers clear indications that once the crisis is over, the same rules of the past will continue to apply, which in the case of Latin America means that it will continue to depend on commodity exports and private capital inflows.

This is what the UN points out in the update of its report on the state of the global economy published today, which identifies fiscal austerity and over-indebtedness as the main threats to global recovery once the worst of the health emergency is over.

In the US, analysts expect the expansion to continue thanks to the government's $1.9 trillion stimulus package, and that this will end up having a positive impact on its neighbours and the Latin American region in general.

Latin America is forecast to grow by 3.8 per cent in 2021, compared to a contraction of 7.4 per cent last year.

This explains why the United Nations Conference on Trade and Development (UNCTAD) projects that growth in Mexico in 2021 (4%) will not be far behind that expected in the United States (4.5%).

However, UNCTAD warns Mexico of the risk if the government opts for greater fiscal rigidity.

Argentina is one of the worst off of the Latin American economies, as it was in recession before the pandemic and this has exacerbated the economic difficulties of a country that has found it very difficult to renegotiate its debt.
 

Argentina's economy contracted by 10 per cent in 2020 and the report says it will be able to recover only half of the lost revenue this year, at a time when inflationary pressures are reducing the government's capacity to act.

"Without appropriate international assistance, there is a risk of a currency crisis. The International Monetary Fund can provide the necessary assistance if it transforms its pro-growth rhetoric into concrete action," the UNCTAD analysis notes of Argentina.

On the side of South America's largest economy, Brazil is said to have "done better than expected due to massive fiscal stimulus and monetary easing".

"As a proof that an expansionary fiscal policy works, the budget deficit and public debt grew less than thought, leaving room for further policy easing or reconstruction in 2021," the experts say.

However, the authorities seem unwilling to use this fiscal space and instead "preach in favour of a rapid return to austerity", they lament.

On the Andean economies, the report corroborates how severe the impact of the pandemic has been for them, particularly in the cases of Peru, Chile and Colombia.

However, the report's authors estimate that they could recover even faster than Mexico or Brazil, which will be helped by the high price of the commodities that make up their export basket, although this alone will not be enough to cope with the effects of the pandemic.

In the specific case of Chile, rapid vaccination and the lifting of restrictions are elements that may accelerate recovery.
As for indebtedness, Latin American countries could pay their commitments through economic growth and a progressive tax system that makes those who have more pay more, said Nelson Barbosa, professor at the University of Brasilia and UNCTAD collaborator.

He predicted that inequality could become even more pronounced in the region because the wealthier class will take advantage of the good performance of financial markets. "The natural way to address this is through taxation," he said.