FACTBOX 4/13/20: Latin America moves to mitigate impact of COVID-19
April 13, 2020 | Jo Bruni
UPDATE 4/13: World Bank's Malpass confident IDA debt relief to be agreed by big creditor nations.
Economy & Policy Latin America Coronavirus
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Latin American central bankers and regulators have put into action a series of measures aimed at blunting the impact of the deadly novel coronavirus, COVID-19, as the threat to their citizens and economies grows severe.
These emerging market nations have moved, alongside their developed market peers, to increase local market liquidity, cut interest rates and begin addressing the expected surge in bankruptcies that come as a result of empty restaurants, aircraft and shopping malls, to name just a few of the COVID-19 consequences.
Experimentation with quantitative easing, a first for Latin America, as well as other government fiscal measures to provide cheap loans are just some of the other measures being put into play.
The latest developments are listed below by date:
FACTBOX - ACTIONS TAKEN BY CENTRAL BANKS AND GOVERNMENTS
BRAZIL
On March 18, Brazil’s central bank cut the benchmark Selic rate by 50 basis points to a record low of 3.75%.
On March 23, Brazil’s central bank and the national development bank BNDES announced a $234.2 billion package to increase liquidity available to banks, in what Roberto Campos Neto, the central bank’s president, called “the biggest liquidity injection ever announced by the central bank.”
On March 25, Brazil outlined a $24 billion spending program to provide healthcare and supplement lost income for informal workers.
On March 29, BNDES announced I would be injecting capital into airlines companies, adding BRL40 billion in payroll financing to help up to 1.4 million companies, and BRL2 billion in credit for medical equipment, and BRL97 billion support businesses.
On April 2, Brazil's central bank says it will offer a special temporary credit line to help banks handle increased demand for credit; monetary authority says central bank can lend to banks that have credit portfolios to offer as collateral. The estimated amount of collateral in those credit portfolios could reach BRL650 billion.
On April 8, Brazil's national development bank BNDES announced a new BRS40 billion ($7.8 billion) credit line to help up to 1.4 million small businesses pay their employees.
On April 9, Brazil's central bank announces new measure to purchase BRL1 trillion ($198.78 billion) worth of private sector assets to boost liquidity and increase availability of credit to companies impacted by COVID-19. Assets that could be purchased through the program: debentures, real estate credit notes (CCI), certificates of real estate receivables (CRI), agricultureal receivables certificates (CRA), commercial notes, bank credit note (CCB), credit rights funds.
CHILE
On March 16, Chile’s central bank decreased interest rates by 75 basis points to 1%.
On March 19, President Sebastian Piñera announced a $11.7 billion stimulus package, spending the equivalent to 4.7% of GDP, and introduced it in Chilean congress on March 23.
On March 23, Chile’s central bank announced the creation of a conditional credit facility (FCIC) providing a special financial line to banks, with incentives for refinancing loans to homes and companies. On Thursday, the bank approved the norms that regulate this facility and announced the activation of a liquidity credit line (LCL). The two credit lines are for up to 3% of the banks’ commercial and consumer portfolio.
On March 27, the Chilean congress approves a law to provide cash transfers to families. The program includes families that are already receiving subsidies and adds another 670 thousand low income homes to the program. The measure is expected to benefit 2 million homes that do not have formal jobs. The estimated cost is $170 million.
On March 31, the Chilean congress approves a law to protect employment as part of an emergency economic plan to face the pandemic.
On March 31, Chile’s central bank decreased interest rates by 50 basis points to 0.5%.
On April 8, Piñera announced the creation of a $2 billion fund to distribute more resources and create more employment in low-income sectors. The program is expected to benefit 2.6 million workers in the informal sector.
On April 8, Piñera and the central bank announced the creation of a government-guaranteed $24 billion credit line for small businesses and entrepreneurs.
On April 8, Chile's central bank offered liquidity lines to non-banking financial institutions.
COLOMBIA
On March 23, Colombia’s central bank announced measures of quantitative easing; a first time in the region with this type of measure.
On March 23, the ministry of finance announced the creation of an emergencies mitigation fund (FOME). Days before it committed $2.98 billion for the fund.
On March 24, announced a subsidized loan program through state-backed agency Findeter and government-owned lender Bancóldex to finance project and initiatives that try to impede the spread of the disease.
On March 27, Colombia’s central bank cut the benchmark interest rate half a percentage point to 3.75%. That same day, the bank announced a $400 million auction of FX swaps to be held on March 30 and authorized additional measures to reinforce liquidity in pesos.
On April 3, Minister of Finance Alberto Carrasquilla said the government was allocating COP15 trillion ($3.7 billion) from the country's savings funds (FAE and Fonpet) to tend to the "sanitary, productive and humanitarian emergency," adding that issuing new debt would be inevitable.
On April 6, state-backed development bank Findeter launched a COP713 billion credit line to underpin private companies and municipal and state governments affected by COVID-19. Of these, COP461 billion were allocated as 7-year loans with a 2-year grace period for working capital needs. Another COP252 billion were allocated to 12-year loans with a 2-year grace period for investment needs. Beneficiaries were given access to these loans through financial intermediaries whose interest rates were capped at 2% above Findeter’s interest rates.
On April 6, the ministry of finance announced the creation of a new COP12 trillion ($3 billion) special guarantees program to mitigate the impact of COVID-19 on the Colombian business sector. Through this program, the government will guarantee small business loans serving liquidity requirements to pay for personnel and fixed costs.
On April 7, the ministry of finance announced a program of cash transfers for 3 million households that are not the regular cash transfer programs. Each of these households will receive COP160,000 ($40.96) in the month of April.
On April 9, the IMF executive board met in an informal session to discuss Colombia's request to renew its Flexible Credit Line (FCL) with the same level of access as in its 2018 FCL arrangement of SDR7.85 billion (special drawing rights), equivalent to $10.8 billion, or 384% of quota.
On April 9, Colombia announced the suspension of tariffs on corn, sorghum and soy until June 30 to decrease the cost of production in the agricultural sector.
DOMINICAN REPUBLIC
On March 16, the central bank decreased interest rates by 100 basis points, to 3.5% from 4.5%.
On March 27, the ministry of finance announced it would allocate RD32 billion($591 million) to a package to protect the population's health, preserve employment, protect companies during the pandemic.
On March 30, the Dominican government announced it would be using $150 million from an existing contract with the World Band to tend to needs of the Dominican populated affected by the coronavirus.
On March 26, as a measure to mitigates the effects of COVID-19, the central bank increased liquidity facilities to RD$50 billion from RD$30 billion through 90-day repos at a 5% interest rate; it also decreased reserve requirements for banks, and increased liquidity facilities in foreign currency to $400 million from $300 million
On April 2, the government announced that it would begin to transfer cash to low income families staying at home during the pandemic. The payments program is due to start April 3 and is expected to benefit 1.5 million families at a cost of RD$17 billion ($314 million).
On April 6, the ministry of finance announced the implementation of a cash transfer program for 295,180 formal workers in the private sector. A total of DOP1.2 billion ($22.2 million) have been allocated to this program.
MEXICO
On March 20, a week in advance of the scheduled day of decision, Mexico’s central bank lowered interest rates by 50 basis points to 6.5%. That same day, the central bank loosened rules for banks on minimum deposits in the central bank and announced a lowering of interest rates for the central bank’s ordinary additional liquidity facility.
On March 20, Mexico’s ministry of finance announced new rules for market-makers to promote depth and liquidity in the local debt market.
On March 26, the finance ministry announced new measures to lessen the effects of COVID-19 in the financial and insurance sectors. These included changes in accounting rules to make it easier to defer capital and interest payments to financial institutions.
On March 31, Mexico’s central bank announced the implementation of a $60 billion swap line program with the US Federal Reserve (Fed). The first auction is scheduled for April 1.
On April 1, Mexico places $5 billion for a period of 84 days in first auction of greenbacks provided by the Fed through a $60 billion swap line program. Ten banks participated with orders totaling $6.32 billion. The weighted average interest rate in the transaction was 0.9056%. This is the first auction in the $60 billion program created on March 19 by the Fed to provide dollar liquidity to Mexico’s banking system in response to market volatility and the weakening of the peso that followed falling oil prices and the COVID-19 shock.
On April 3, Mexico's central bank announced that the second auction of greenbacks from the $60 billion swap line program is scheduled to take place on April 6. Up to $5 billion will be auctioned for a period of 84 days.
PERU
On March 19, Perú’s central bank decreased interest rates by 100 basis points, setting interest rates at 1.25% from 2.25%.
On March 20, Perú’s central bank injected PEN400 million ($119 million) for two years through a repo at a 3.24% interest rate.
On March 25, the ministry of finance announced the creation of a $87.7 million fund that would allow small and medium-size businesses to pay existing working capital credit lines and restructure or refinance their debts.
On March 26, the Peruvian central bank loosens reserve requirements in local and foreign currency. It also approved a new instrument to inject liquidity in companies: a loan portfolio, with the state serving as guarantor, for working capital needs.
On April 4, President Martín Vizcarra issued a decree to allow 4.8 million low-income households to postpone electric, gas and telecommunications service payments for March.
On April 6, the finance ministry initiated Reactiva Perú, a program with PEN30 billion in working capital loans.
On April 9, Peru's central bank cut its benchmark interest rate to 0.25%, an historic low. The bank expects inflation at the lower end of its 1% to 3% target range. Economic stimulus plans announced by the government amount to roughly 12% of GDP.
INTERNATIONAL MONETARY FUND & WORLD BANK
The International Monetary Fund (IMF) is publishing research and policy notes under a new section: SPECIAL SERIES ON COVID-19.
Five nations in the LAC (Latin America and Caribbean) region are slated to receive funding from either the IMF or World Bank. Argentina is receiving $35 million via the World Bank; Ecuador is receiving $20 million from the World Bank; Haiti is receiving $20 million from the World Bank; Honduras is receiving $135 million from the IMF; Paraguay is receiving $20 million from the World Bank.
On March 25, the IMF and World Bank requested that Group of 20 nations put on hold the debt payments made by some of the poorest countries, if asked, in order to let them focus resources on fighting the spread of the deadly novel coronavirus, COVID-19. Taking aim at the International Development Association (IDA) nations, the multi-lateral lenders issued a joint statement saying these countries, which are home to a quarter of the world’s population and two-thirds of the world’s population living in extreme poverty, will need relief.
On April 3, IMF Managing Director Kristalina Georgieva said some members have asked about "something that de facto goes into quantitative easing from the world. And it is by allocation of additional SDRs (special drawing rights) to boost liquidity" in emerging markets. She also admitted that the bank falls short on one particular instrument: "to provide short term liquidity to countries that are basically strong but may find themselves in a tight place."
On April 9, IMF Managing Director Kristalina Georgieva said the IMF sees trillions of dollars in financing needs to deal with the impact of the coronavirus outbreak in emerging markets.
On April 10, World Bank Group President David Malpass said in a LinkedIn post he is confident there will be progress at the upcoming G7 and G20 meetings and the virtual meetings of the IMF/WB for adopting debt relief for poor countries. The plan, unveiled on March 25 calls for big creditor nations to suspend debt payments made by International Development Association (IDA) nations, starting May 1. IDA nations owe $14 billion in 2020 on their official bilateral debt service obligations.
ECONOMIC FORECASTS
Goldman Sachs (as of March 27, 2020):
Predicting a 3.8% decline in Latin American GDP in 2020, a decline that is deeper than during the 2009 financial crisis (-2.1%), and also greater than the 2.4% decline experience by the region during the 1983 debt crisis. GDP forecast update by country (March 27 vs before outbreak of the virus):
Argentina to -5.4% from -1%;
Brazil to -3.4% from 2.2%;
Chile to -3% from 1%;
Colombia to -2.5% from 3.4%;
Ecuador to -5.7% from -0.3%;
Mexico to -4.3% from 1%;
Perú to -2.5% from 3.3%.
LatAm to -3.8% from 1.6%