Mexico, Argentina, and Brazil: the countries that will pay for the West’s imprudent policy

The constant hikes in interest rates are an “imprudent” policy that will take its toll, mainly on developing countries.

According to an official document from the UN Conference on Trade and Development (UNCTAD), raising interest rates is an imprudent policy that will not achieve the goal of controlling inflation without leading to a recession.

“Excessive monetary tightening could result in a period of stagnation and economic instability for many developing and some developed countries,” the Trade and Development 2022 report reads.

UNCTAD added that projections indicate that this year’s interest rate hike in the U.S. will reduce about US$360 billion in future revenues for developing countries and perceive the move as a sign of more trouble.

“All regions will be affected, with a worse effect on developing countries, many of which are close to defaulting on debt,” he said.

According to Moritz Alberto Cruz, a researcher at the National Autonomous University of Mexico, the figure mentioned by the UN in its report can be translated into possible capital outflows and lack of investment in Latin American countries.

“This means that when capital leaves, when resources leave, you are not investing them here and generating growth, production, employment, consumption, and all the cycles that are generated,” he explained, in addition to the increase in macroeconomic debts incurred by the countries.

In the specific case of Mexico, the expert pointed out that the three consecutive increases in the country’s central bank interest rate are due to the increases registered in the United States, the Latin American country’s leading trading partner.

“It has to follow the U.S. policy because otherwise, we will run out of capital,” he added. “Every increase in the U.S. interest rate forces us, more than to control inflation, to avoid capital flight.”

The report adds that some 90 developing economies have devalued their currencies against the dollar this year, and their foreign exchange reserves are falling while bond yield spreads are widening, resulting in a rise in the cost of their debt and a worrying increase in the risk of a global debt crisis.

In the case of Latin America, the outlook is gray, UNCTAD said, as the region will register a pronounced slowdown from 6.6% in 2021 to 2.6% this year and just 1.1% in 2023.

Argentina, Brazil, and Mexico, the region’s economic engines, will slow down after the 2021 rebound that followed the pandemic-generated contraction.

Brazil and Mexico, the largest economies, will grow by 1.8%, with Mexico unable to reach its 2019 level.

“For most Latin American economies, deteriorating global financial conditions and policy changes in advanced countries will affect growth, increasing exposure to external shocks,” the study notes.

A DISTANT WINTER THAT WILL HIT HARD IN LATIN AMERICA

According to specialists, the European winter will also be felt in Mexico and Brazil due to the economic sanctions imposed by the European Union on Russia.

In an interview with Sputnik, Jose Ignacio Martinez Cortes, coordinator of the Laboratory of Analysis in Commerce, Economy and Business (LACEN) of the UNAM, pointed out that the winter season in Europe, specifically in Germany, will translate into fewer jobs for Brazil and Mexico, where German companies have a strong presence.

The academic added that the shortage of assembly material could create a new manufacturing labor poverty in the region.

With information from Sputnik

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