Amid the current global inflation, the United Nations has called on international financial institutions to cancel the sovereign debt of several 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 this demand during the Economic Commission for Latin America and the Caribbean (ECLAC) in Buenos Aires, Argentina.
But how feasible is this demand, and how much debt do the region’s countries have?
“It is a legitimate and feasible demand. 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 in an interview with 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 gross domestic product (GDP).
In last place is Guatemala, with a debt of only 30.6 percent of the GDP.
To obtain these comparative parameters, 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 such as Argentina and Ecuador now have significant debts to the “IMF” and are among the economies that pay too high a fee for stretching payments,” Campa explains.
For this reason, some countries are now implementing much more frugal budgets, as Gabriel Boric has already done in Chile.
In addition, central bank interest rates are rising rapidly because of current inflation, as in Colombia, where even Gustavo Petro has complained about his country’s central bank policies.
“So there’s 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 of help.
Failure to restructure 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’s 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 needier 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 “facilitation mechanisms” proposed by Guterres, such as “debt swaps for climate adaptation projects,” the expert says it would be possible.
“The only thing that is missing is political will. But it has to be an even policy for all regions of the world and not just for some countries,” the economist stresses.
Above all, he says, “an institutional framework must be created so that every country willing to make this investment receives this type of treatment.
Even though 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 recording slight growth. The case of Mexico is a bit 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,” Campa says.
The countries in the region that most need help restructuring their debt or perhaps eliminating surcharges are Argentina and Ecuador, which also have inflation problems, according to the expert.
“In Venezuela, on the other hand, GDP has probably fallen, and therefore debt is much higher compared to this parameter,” Campa explains, adding that “the country is very dependent on U.S. sanctions.”
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