The spread of the coronavirus and the fear of a relevant impact of the disease on the global economy have encouraged investors to abandon the currencies of the most vulnerable emerging countries, and seek refuge in the dollar, which has resulted in depreciation Sustained from Latin American currencies.
This behavior will facilitate the exports of Latin American countries, but it will make the majority of imports more expensive and make it difficult to pay the debt, public and business, incurred in dollars.
So far this year, the Brazilian real has devalued around 12%; the Colombian peso and the Chilean peso, almost 9%; the Peruvian sun and the Mexican peso, about 5%; and the Argentine peso, around 4%.
According to Javier Santacruz, professor of economics at the Institute of Stock Market Studies (IEB), this evolution shows that investors are convinced that Latin American countries will implement monetary and fiscal stimulus plans.
“That effort to continue putting liquidity on the table and more public spending has a depressing effect on currencies,” he says.
Santacruz emphasizes that in times of uncertainty “the dollar always acts as a refuge currency.”
Along the same lines, Juan Carlos Higueras, a professor at the EAE Business School, argues that investors opt for the dollar because the currencies of emerging countries “have a high risk of devaluation.”
Regarding the effects of this situation, Higueras points out that it will affect the imports of Latin American countries “that will be more expensive.” “The positive effect is that they will export more and that is good for the economy,” he explains.
Germán Ríos, professor at the IE Business School, advances that the situation may change after the presidential elections in the United States.
“If the US economy begins a process of weakening, we will have an exchange rate that is closer to the historical average,” he says.
In Brazil, the depreciation of the peso so far this year adds to the decrease registered in 2019 due to factors other than the coronavirus, such as lowering interest rates to historical lows.
As explained by Efe the chief economist of the consulting firm Necton, André Perfeito, the impact of the coronavirus in Brazil can not be specified, but the effects could become “particularly dramatic” because China is its main trading partner and the country that More raw materials you buy.
In his opinion, the crisis arising from the coronavirus could affect both Brazil’s trade balance and its stock market, in which large commodity exporting companies, such as Vale mining, participate.
In the case of Mexico, the depreciation of the peso responds to a lower appetite for risk and uncertainty due to the impact of the coronavirus, points to Efe Luis Alvarado, an expert at Banco Base.
Although 21% of Mexican sovereign debt has been issued in foreign currencies – dollars, euros, yen, pounds and Swiss francs – Alvarado believes that the depreciation of the peso would only have significant negative effects if it were very severe.
As for Colombia, the dollar has moved this week in highs of the year with respect to the peso.
According to Federico Corredor, professor at the Faculty of Economics of the Externado University of Colombia and an expert in markets, the exchange rate depends on many factors, including the expansion of the coronavirus.
In his opinion, current volatility makes it impossible to determine whether the dollar will remain at current levels or if there will be any adjustment shortly.
In Chile, the wave of protests against inequality is added to the threats derived from the epidemic.
The Deputy Manager of Studies of the Chilean consultant Econsult, Mauricio Carrasco, explained to Efe that the depreciation of the peso is related to the decrease in copper prices, caused by the expansion of the coronavirus.
“When the peso depreciates, it becomes more difficult to pay off debts, but one of the advantages we have is that a large part of the external debt is from mining companies, which makes it a long-term debt and is less exposed to these very specific ups and downs, “he explains.
The social outbreak has plunged the peso to its lowest levels since the beginning of the century, which led the central bank to make a historic intervention in the foreign exchange market.
On the evolution of the sun, the analyst Marco Alemán, of Kallpa SAB, expects that the coronavirus crisis will “sink a little more” into the Peruvian currency against the dollar.
In his opinion, “what investors do in these scenarios is to take refuge in solid assets.”
Aleman warns that the appreciation of the dollar “makes Peru’s public debt more expensive,” although he expects it to be somewhat transitory.
In Argentina, the foreign exchange market has a particular behavior due to restrictions on the purchase of dollars imposed in August.
In this sense, the official price of the dollar is conditioned by the interventions of the central bank.