May 18, 2021

Colombian former minister warns that Latin America is in a “serious” situation



The crisis unleashed by the expansion of COVID-19 and the fall in oil prices especially put Latin American countries in a “serious” situation due to the lack of economic resources to deal with them, the former minister explains in an interview with Efe. Colombian from Hacienda Mauricio Cárdenas.

“These are very difficult times throughout the world, but they are particularly complex for Latin America. I believe that we, in Latin America, are still not aware of the gravity of the situation,” says Cárdenas, visiting professor at Columbia University. from New York (USA).

Cárdenas explains that the Latin American countries, in addition to the “problem that the whole world has with COVID and all its manifestations and consequences, which are enormous”, and that “they are going to require a great deal of fiscal resources to face it, starting with public health issues” There is the “additional shock of oil” with the recent collapse of prices due to tensions between Russia and Saudi Arabia.

“I think we have not seen such a complex scenario in Latin America, probably since the end of the last century, because the crisis of 2008-2009 hit Latin America but it was rapid and, above all, there was a rapid recovery in China and the prices of basic products, “he stressed.

The expert cited, among other examples, the additional resources that the health sector needs to deal with the coronavirus, such as respirators and detection equipment, as well as the direct consequences on the economy by imposing extraordinary measures such as business closings or quarantine.

The quarantines will not only affect, he stresses, the ability of companies to produce and face the payment of their debts, but also the income of workers, as well as the “informal economy” of these countries.

“There are many people in our region who live in the informal market, that is, they do not have social security, they depend on what they earn daily. If they do not earn, they have nothing to eat with,” says Cárdenas.

THE FALL OF OIL PRICES

To this “extremely complex” panorama, he comments, we must “add the effect of the fall in oil prices”, which has a direct impact on the ability to finance of Latin American states.

In countries like Mexico, Venezuela, Colombia, Ecuador or Brazil, oil is “an activity that generates large incomes for governments through taxes, through royalties or through the profits of state-owned companies (focused in gas and oil) “.

This will produce a “negative effect on public finances” and “limits the ability of governments to increase spending, which is what COVID-19 requires.”

“No government is going to be able to face COVID without further public spending,” says Cárdenas, who believes that “all the governments of Latin America will try in a matter of days, if not hours, to reinforce the cash transfer programs to the poorest households. ”

THE DIFFICULTY OF FINANCING

But in addition to the fall in the price of black gold, the resources needed to deal with COVID-19 and the economic slowdown coupled with the spread of viruses, the former Colombian minister points to a third factor “that may be seen somewhat as a consequence of the but it has a life of its own. ”

“And it is that the capitals are returning to their natural refuges that are gold and the papers of the American treasure,” according to the expert, who adds that investors are going to try to sell Latin American shares “and that means an outflow of capital. So the problem is very serious. ”

The associate professor at Columbia University adds that “the ‘spreads’ on Latin American debt have risen a lot and, when that happens, financing is restricted, making it impossible for a Latin American government at this time , for a company, to think about making a bond issue in the international market “.

“All countries need to spend more at a time when it is known that tax revenues will fall due to the slower growth of the economy, point number one, and point number two, due to the lower income from oil revenues,” he points out. before warning that the issue will end up “gravitating” towards the multilateral organizations in Washington.

In this sense, he points out that these institutions will have a determining role, such as the International Monetary Fund (IMF), which already has programs with Argentina and Ecuador and that, according to Cárdenas, will have to “make flexible” some of “their components, especially in tax matters. ”

PAINFUL REFORMS, BUT NECESSARY.

“The countries are going to have to buy time to pay their obligations,” said the former minister, who also believes that it is necessary to overcome the looming crisis with an agenda of reforms that have not been carried out “for fear of unpopularity.” or “because the parties have not agreed.”

For him, this would be the time to apply them because “in times of crisis and in times of greatest tension is when societies unite” and it is easier to carry out reforms that, according to Cárdenas, can be “painful” in the short term term, but “necessary” in the long run.

The pension reform in Colombia, the tax reform in Brazil and the tax reform in Ecuador or Chile are some of the examples presented by the former minister, for whom the later he acts, the worse the consequences will be.

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