IMF: investors see Latin America as solution to war shortages

RIO DE JANEIRO, BRAZIL – International investors are beginning to see Latin America as part of the solution to the shortage of raw materials caused by the war in Ukraine, said Tuesday in an interview with Efe the director for the Western Hemisphere of the International Monetary Fund (IMF), Ilan Goldfajn.

Within the region, specifically South America, where almost all countries are exporters of some raw material, be it grain, meat, oil or metals, has before it a good opportunity to gain trade share.

“Investors are beginning to see the countries of the region as part of the solution to the problem. The world lacks food, there is food insecurity, and it is necessary to find more sources of energy,” said Goldfajn, who believes that Latin American countries are well positioned to cover part of these needs.

Russia and Ukraine are two of the largest exporters of wheat and corn to the rest of the world; Russia is a tremendously valuable source of oil and natural gas for Europe and, together with Belarus, one of the largest producers of fertilizers.

All of these markets have been deeply affected by the war between Russia and Ukraine, as well as by trade sanctions imposed by the U.S., Europe and other countries on Russia and Belarus.

The gap created by the conflict is one that can be filled by Latin American countries, which are perceived by investors as more peaceful and further removed from the Ukrainian conflict than some of their competitors, according to Goldfajn.

After 2021 growth of 6.8% in Latin America and the Caribbean, the IMF last week raised its forecast for 2022 by one-tenth to 2.5% from last January’s forecast; and lowered its 2023 prediction by one-tenth to 2.5%.

In the two main regional economies, the IMF projects a growth of 2% this year and 2.5% in 2023 for Mexico (8 tenths and 2 tenths less than what it said in January); and a growth of 0.8% in 2022 and 1.4% in 2023 for Brazil (5 tenths more and 2 tenths less than what was projected in January).

In his interview with Efe, the IMF regional director admitted that, although the direct impact on Latin American and Caribbean trade of the war in Ukraine is very small due to its low exposure to Russia and Ukraine, the area where the consequences of the conflict are most noticeable is in the very high inflation.

“All countries in the region are suffering an inflationary impact (from the conflict), even those that are exporters. And this is happening on inflation levels that were already high before the war,” Goldfajn explained.

Regardless of the situation in Ukraine, the IMF recommended that Latin American and Caribbean countries guarantee the sustainability of their public finances in order to maintain their credibility in the markets and rebuild fiscal space, but always protecting the most vulnerable populations.

In this sense, Goldfajn explained that there are many public expenditures that are not directed to the most vulnerable layers of the population, and that this is where the countries’ fiscal adjustments should be focused.

Current expenditures and generalized subsidies, as well as indirect taxes, for example, are areas in which these countries can move towards fiscal consolidation without touching key social programs, health, education and public investments, said the IMF regional director.

“The high inflation currently being experienced, which in the case of energy and food prices particularly affects vulnerable people, must be combated in the short term with transfers to the poorest,” Goldfajn reiterated.