As the months roll on, the full effects of the Covid-19 pandemic have become clearer across the globe. Without a doubt, among the hardest hit regions has been Latin America. But despite the difficult health situation, banking systems have, so far, responded well to the socio-economic impacts of the crisis.
The COVID-19 crisis has engulfed all continents, but Latin America and the Caribbean has suffered more than most, coping with the high toll of lost human life and bankrupt businesses that once thrived. Banks cannot escape the inevitable collateral damage to their balance sheets, especially when government supports end. To avoid a financial crisis and ensure a return to economic health, good policies are needed to promote financial stability and recovery.
In December 2018, Andrés Manuel López Obrador swept to power, having promised to reduce Mexico’s longstanding problem of gang violence, which had climbed to record levels, and to bolster economic growth, which at that time had slowed considerably.
2019 was the year of two consequential free-trade agreements involving Latin American and Caribbean countries: USMCA and EU-Mercosur. How much of a positive impact these South-North agreements will have on especially countries in Latin America and the Caribbean, which have been languishing after the commodity boom, is yet to be seen. But they are likely to be more effectual than the South-South agreements that are in place in the region.
The world’s citizens have always been beset by risks of different types, but the frequency and intensity of risks from a variety of sources are increasing, especially for emerging economies in Latin America and the Caribbean. Insurance is the preferred recourse for those suffering from unfortunate events beyond their control, but even insurance has its limitations. What are the most effective risk-management tools available today?
It’s not news that many economies of the developing world face barriers to financial inclusion, making it difficult for citizens to both borrow and save; but the good news is that help has arrived in the linking of mobile payments with remittances. From sub-Saharan Africa to Latin America and the Caribbean, mobile money is bringing the previously underbanked into the fold.
With economic growth returning to the developed world, the end of years of quantitative easing and easy monetary policy is in view; inflation concerns are reviving, guaranteeing rising interest rates along with tightening liquidity. Emerging markets in Latin America are benefiting from higher commodity prices, and despite some political tensions are proving to be an increasingly attractive destination for investor funds.
As economic conditions return to “normal” in the industrial world, policy interest rates will inevitably rise from zero to “normal”—but not necessarily in Latin America and the Caribbean. Central banks in LAC will need to tailor their monetary-policy decisions to tackle the three-pronged challenge of currency depreciation, higher inflation and deceleration in economic activity, as capital flies away from emerging markets.
Brazil’s economy is emerging from a difficult few years—but when analysing its prospects, a positive, long-term view is warranted, based on the country’s important position in world trade. With a little help from its friends and its own internal enterprise, this major South American economy, the world’s ninth largest by nominal GDP, has every reason to expect a triumphant comeback.
Chile has been one of South America’s mainstays, lauded as possibly the continent’s wealthiest and most stable country. But the Chilean economy, the health of which is heavily dependent on copper exports, has suffered greatly since the decline of the commodity super-cycle in 2014-15, and credit-rating agencies are showing no mercy—making life even more difficult for the country’s incumbent government.