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The state of the world economy in the midst of a pandemic offers clear indications that after the crisis, the same rules of the past will continue to govern, which in the case of Latin America implies that it will continue to depend on exports of basic products and the entry of private capital.
This is stated by the UN in the update of its report on the situation of the global economy that is published this Thursday, and which identifies fiscal austerity and over-indebtedness as the main threats to the global recovery once the worst part is overcome of the health emergency.
“The global recovery that began in the third quarter of 2020 is expected to continue in 2021, albeit with a good portion of inequalities and unpredictability, reflecting epidemiological, political and coordination uncertainties”, states the report of the United Nations Conference on Trade and Development (Unctad), 22 pages long and entitled with the English expression ‘from the frying pan, to the fire?’. The text calls the cost of the crisis caused by the COVID-19 pandemic “exorbitant” and warns against a “wrong return to austerity.”
Latin America: growth, but limited
The UN forecasts that Latin America will grow 3.8% in 2021, compared to the 7.4% contraction it experienced last year and the 4.7% growth of the global economy that it contemplates (improving 4.3% from global growth forecast so far). From the United States, analysts expect the expansion to continue thanks to the stimulus package of 1.9 trillion dollars approved by the Government, and that this will end up having a positive impact on its neighbors and on the Latin American region in general.
This explains why Unctad projects that growth in Mexico in 2021 (4%) will not be far from what is expected in the United States (4.5%). However, the Unctad warns Mexico of the risk in case the government opts for greater fiscal rigidity.
Argentina will require international financing
Argentina is, among the Latin American economies, one of the worst going through, since it was in recession before the pandemic and this has exacerbated the economic troubles of a country that has encountered many difficulties in renegotiating its debt. The contraction of the Argentine economy was 10% in 2020 and the report indicates that this year it will be able to recover only half of the lost income, at a time when inflationary pressure reduces the government’s ability to act.
“Without appropriate international assistance, there is a risk of a currency crisis. The International Monetary Fund can offer the necessary assistance if it transforms its pro-growth rhetoric into concrete action ”, points out about Argentina the analysis of the Unctad.
Outlook for Chile, other Andean countries and Brazil
Regarding the Andean economies, the report confirms how serious the impact of the pandemic has been for them, particularly in the cases of Peru, Chile and Colombia. However, the report’s authors’ calculations suggest that they could recover even faster than Mexico or Brazil., which will be helped by the high price of the basic products that make up its export basket, although it will not be enough by itself to face the effects of the pandemic.
In the specific case of Chile, rapid vaccination and the lifting of restrictions are elements that can accelerate recovery.
On the side of the largest economy in South America, it is stated that Brazil “did better than expected due to massive fiscal stimulus and monetary easing.” “As proof that an expansionary fiscal policy works, the budget deficit and public debt grew less than expected, which leaves room for more relief or reconstruction policies in 2021,” experts say. However, the authorities do not seem willing to use that fiscal space and instead “preach in favor of a rapid return to austerity,” they lament.
Regarding indebtedness, Latin American countries could pay their commitments through their economic growth and a progressive tax system that makes those who have more pay more, said the professor from the University of Brasilia and collaborator of the Unctad, Nelson Barbosa.
The expert anticipated that inequality could be further accentuated in the region because the class with the greatest resources will take advantage of the good performance of financial markets. “The natural way to approach this is through taxes”he commented.
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