Fourteen Latin American and Caribbean countries have requested urgent help from the IMF as the region braces ifor its worst recession in 50 years, according to a senior Fund official.
Alejandro Werner, head of the western hemisphere department, told the FT that Latin America was particularly exposed to the impact of the coronavirus crisis because many of its economies were struggling even before they were hit with multiple shocks from weaker commodity values, the oil price crash and capital flight.
“You never had severe recessions in all the countries together and therefore this will make for the worst growth year in Latin America in the last 50 years,” Mr Werner said in an interview. “With high probability that is going to be the case.”
The 14 nations have asked the IMF for urgent help totalling $4.48bn using a Fund facility which allows disbursement of up to half of a country’s IMF quota per year with minimal conditions. Mr Werner declined to name the countries but said some had discussed requesting a full-blown IMF programme once the effects of the virus were better known. Mexico and Colombia already had in place before the crisis substantial flexible credit lines from the Fund.
The IMF says it has up to $1tn available globally to help countries manage the financial effects of the coronavirus crisis and Mr Werner said this would more than cover requests received so far, without requiring additional Special Drawing Rights (SDRs), a proxy for foreign exchange reserve assets that are made available to IMF members.
“There are talks about other issues . . . new allocation of SDRs etc,” he said. “Those are happening simultaneously but we in the staff are highly concentrated on responding to the requests that we have and for these requests we have more than sufficient resources so far.”
The coronavirus pandemic hit Latin America relatively late compared to Asia and Europe. The first infection was only recorded on February 25 in Brazil and the first death on March 7 in Argentina, although a lack of testing means that the virus may well have spread earlier than that.
Most of the region’s governments responded by imposing drastic lockdown measures, with the notable exceptions of Brazil and Mexico, whose populist leaders took a more relaxed approach.
One of the worst affected countries so far has been Ecuador, which already had a $4.2bn programme with the IMF to prop up its shaky government finances before the virus hit. The recent collapse in global oil prices has wrought havoc with its dollarised economy and the country also has one of Latin America’s highest totals of infections relative to the size of the population, despite having imposed a lockdown early on.
Mr Werner said Ecuador had already requested rapid financing help from the IMF and was now discussing a broader new programme with the Fund which would reflect the reality of lower oil prices, low growth and higher health spending.
Elsewhere in the region, governments have begun to experiment with more unconventional policies to fight the crisis. Colombia’s central bank has begun to buy government and private sector bonds on secondary markets, while the central bank of Brazil has asked for new laws to allow this.
“We are seeing Latin America be a little bit more audacious in the way they handle monetary policy,” Mr Werner said. “We might end up seeing things that were in the past a little bit taboo . . . if the recession that is anticipated starts materialising and inflation expectations continue to be well anchored. QE or things that look like QE.”
QE, or quantitative easing, was used by the US Federal Reserve and other central banks in the G7 group of wealthy nations after the global financial crisis of 2008-09, as other ways of loosening monetary policy such as cutting interest rates failed to reignite their economies.
Much of Latin America’s population is now locked down but concerns have been raised about possible social unrest if this continues beyond a few weeks, because many work in the informal economy and cannot survive without employment.
Mr Werner agreed the lockdowns were not sustainable for a prolonged period but added: “If the number of infected and dead people continues to rise then nobody will go to the cinema, to the airport, to the restaurants. Some people will go out to work but the demand will not be there either, so it will be a different dynamic . . . panic will also affect economic activity significantly.”
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