As COVID-19 Ravages Latin America, Demands for Debt Relief Resurface

As COVID-19 Ravages Latin America, Demands for Debt Relief Resurface
A man wearing a face mask walks near a homeless person in Lima, Peru, July 14, 2020 (AP photo by Rodrigo Abd).

As the coronavirus pandemic takes a terrible toll across Latin America, with over 3.5 million cases and nearly 150,000 deaths, the region is increasingly facing a financial and humanitarian emergency. Across Latin America and the Caribbean, GDP is forecast to contract by 9.3 percent in 2020, according to the International Monetary Fund—the region’s largest economic contraction on record, and far worse than the outlook for African and Asian economies. The United Nations expects the value of South America’s exports to fall by nearly a fifth this year due to shrinking international demand and weaker commodity prices. Foreign investment has also declined massively, and U.N. agencies predict that a further 16 million Latin Americans will sink into extreme poverty in 2020, pushing the total to more than 70 million people in the region.

Lower tax receipts, currency depreciation, the costs of emergency funding for hard-hit hospitals, and the need to fund income-support and economic relief measures are all driving up fiscal deficits and indebtedness. Government debt across Latin America is skyrocketing, and may breach 100 percent of GDP this year in some countries, like Brazil.

Meanwhile, the existing economic and fiscal woes of countries like Ecuador, Venezuela and Argentina, which entered its ninth default since 1816 in May, will only worsen, raising fears in some quarters of a mass debt crisis akin to the “lost decade” of the 1980s. “Indebtedness implies fewer possibilities to increase spending in the future,” says Claudia Sanhueza, an economist at the Universidad Mayor in Chile. As such, she adds, it “causes problems in funding anti-poverty programs.”

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