FACTBOX 4/20/20: Latin America moves to mitigate impact of COVID-19
April 20, 2020 |
UPDATE: IMF approves $112 mln in emergency financing for Haiti
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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 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
On April 1, Argentina said it will seek to restructure $83 billion in foreign currency debt with an offer to bondholders that will seek a grace period, an extension in maturities, a reduction in coupons and a potential haircut.
On April 7, Argentina postponed payments on $9.8 billion in local-law, US dollar-denominated bonds until Dec. 31.
On April 8, President Alberto Fernández said he planned to extend a lockdown of the economy beyond April. 12.
On April 13, Fernández announced that he would make an offer "in the next few days" to restructure $68.8 billion in foreign-currency bonds.
On April 14, Argentina carried out a debt swap, issuing new government bonds worth $4.795 billion in a bid to avoid default. The exchange included local Treasury bonds worth 98.328 billion pesos for newly issued debt maturing in 2020, 2021, and 2022. The Economy Ministry said the exchange would cover 90% of debt maturing in April.
On April 15, Argentina filed with the US Securities and Exchange Commission (SEC) on Wednesday to issue up to $51.7 billion in debt, a day before it is expected to unveil an offer to restructure as much as $83 billion in foreign-law bonds.
On April 15, Argentina asked the Paris Club of creditor nations for a delay in making a $2.1 billion payment due in May, according to a report by the state news agency, Telam.
On April 16, Argentina announced a restructuring offer for $68.8 billion in foreign-law bonds, proposing creditors accept a three-year grace period and 62% discount on interest payments. The plan asks that interest payments resume in 2023, starting at an average interest rate of 0.5% and increasing gradually over the years.
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, the central bank and the national development bank BNDES announced a $234 billion package to increase liquidity available to banks, in what Roberto Campos Neto, the head of the central bank, 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 ($7.7 billion) in payroll financing to help up to 1.4 million companies along with BRL2 billion in credit for medical equipment and BRL97 billion in support businesses.
On April 2, the central bank said it will offer a special temporary credit line to help banks handle increased demand for credit. The estimated amount of collateral in those credit portfolios could reach BRL650 billion.
On April 8, the national development bank BNDES announced a new BRS40 billion credit line to help up to 1.4 million small businesses pay their employees.
On April 9, the central bank said it could purchase up to BRL1 trillion ($198.78 billion) 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 include debentures, real estate credit notes (CCI), certificates of real estate receivables (CRI), agricultural receivables certificates (CRA), commercial notes, bank credit note (CCB) and credit rights funds.
On April 13, Brazil's chamber of deputies approved a BRL80 billion ($15.5 billion) financial aid package
for city and state governments to make up for lost tax revenues during the coronavirus pandemic.
On April 15, Brazil´s Treasury Secretary Mansueto Facundo de Almeida said the fiscal deficit could reach BRL 600 billion ($114.5 billion) and national debt as much of 90% of GDP as a result of efforts to fight the COVID-19 pandemic.
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, the 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, 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, Congress approves a law to protect employment as part of an emergency economic plan to face the pandemic.
On March 31, the 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, the central bank offered liquidity lines to non-banking financial institutions.
On April 13, Piñera announced the terms for government-guaranteed loans to SMEs. The amounts will be equivalent of three months of sales; the loans will last 24 to 48 months with a six-month grace period; and the maximum interest rates will be 300 basis points over the benchmark rate. All companies with less than UF25,000 ($852,960) in annual sales are eligible for the program.
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 Finance Ministry 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, the 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, Finance Minister 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 Finance Ministry announced the creation of a new COP12 trillion special guarantees program to mitigate the impact of COVID-19 on the 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 Finance Ministry announced a program of cash transfers for 3 million households that are not in the regular cash transfer programs. Each household will receive COP160,000 in the month of April.
On April 9, 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 the 2018 arrangement for $10.8 billion in special drawing rights (SDRs).
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.
On April 13, the Finance Ministry announces a measure to recover the COP10 trillion ($2.58 billion) in lost tax income from the coronavirus outbreak.
On April 14, the central bank cut bank reserve requirements by $2.3 billion, starting April 22. Savings and checking accounts now require reserves of 8%, down from 11%. Fixed-term savings accounts of 180 days reserve requirement cut to 3.5% from $4.5%. Bank to purchase up to 2 trillion worth of TES Treasury bonds by end of April, will participate in TES forward market in bid to inject liquidity into the economy.
On April 15, President Iván Duque decreed that all banks in Colombia are required to buy “solidarity bonds” from the government to raise money for the recently created Emergencies Mitigation Fund, or FOME.
On April 16, the government levied a “solidarity tax” on public employees making more than COP10 million ($2,515) per month.
On April 16, the Finance Ministry said the National Guarantees Fund, or FNG, will provide guarantees for loans held by SMEs and microenterprises to cover working capital and payroll costs.
On March 16, the central bank decreased interest rates by 100 basis points, to 3.5% from 4.5%.
On March 27, the Finance Ministry 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 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 Finance Ministry 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.
On April 14, the Finance Ministry announced that it was preparing a set of measures to reactivate the Dominican economy once the country got past the pandemic. The plan is being developed in collaboration with the IMF, the US Federal Reserve and the Bank for International Settlements.
On March 31, the Finance Ministry required utility companies not to suspend service in situations of delinquency due to the COVID-19 emergency.
On April 1, the Finance Ministry announced that the most affected sectors - tourism, airlines, agricultural exporters, exporters of goods and tax payers in Galápagos - would be able to differ income and value added tax payments due in April, May and June. Companies with revenues of up to $300,000 in 2019 will also benefit from this tax deferment.
On April 2, the Finance Ministry announced that all individuals and SMEs could differ payments for 60 days at no additional cost and without interest, expenses or fines. Borrowers will also be able request refinancing or restructuring of debts within 120 days of the announcement.
On April 8, the Finance Ministry asked investors to accept deferred interest payments on more than $800 million in bonds until August 15.
On April 14, the government announced that it had amended the consent solicitation seeking relief from short-term financial obligations in response to "constructive input from a group of institutional investors."
On April 14, the International Monetary Fund (IMF) granted $389 million in emergency financial assistance to El Salvador, the first loan to the Central American nation in more than 30 years.
On April 17, the IMF executive board approved $111.6 million in emergency financing for Haiti.
On March 31, the IMF disbursed $144 million in emergency financing to Honduras for the COVID-19 pandemic.
On April 3, Congress voted to allow the government to issue an additional $2.5 billion in debt to fund the response to COVID-19.
On April 16, Jamaica's Minister of Finance and Public Service, Nigel Clarke, sent a request to the IMF for access to its Rapid Financing Instrument to help alleviate a balance of payments risks.
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.
On April 14, Panama said it secured $1.3 billion in funding from the IMF, the World Bank and the Inter-American Development Bank (IDB) to help small businesses and job creation.
On April 16, the IMF approved $515 million in emergency funding for the COVID-19 pandemic.
On March 19, Peru's central bank decreased interest rates by 100 basis points, setting interest rates at 1.25% from 2.25%.
On March 20, the central bank injected PEN400 million ($119 million) for two years through a repo at a 3.24% interest rate.
On March 25, the Finance Ministry announced the creation of a $87.7 million fund that would allow small and medium-sized businesses to pay existing working capital credit lines and restructure or refinance their debts.
On March 26, the 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, the central bank cut its benchmark interest rate to a historic low of 0.25%. 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.
On April 12, the government extends for another 14 days the suspension of certain procurement procedures for goods and services related to the prevention and spread of COVID-19.
WORLD BANK, IMF, G20
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, 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.
On April 10, Georieva says in a podcast with The Economist magazine that the United States is not interested in expanding the use of Special Drawing Rights, the IMF's official currency unit. Expanding the amount of SDRs would give the IMF more financial firepower to get money to member nations. According to unnamed sources, Reuters reported the Trump Administration actively opposes the extra issuance because it would provide China and Iran with additional resources with now conditions.
On April 13, IMF agreed to immediate debt relief for 25 member countries under the Catastrophe Containment and Relief Trust (CCRT). The initial relief provided for immediate use by these nations is SDR157.1 million, or $213.4 million. This approval (given by the IMF's Executive Board on April 15) allows disbursement of grants from the CCRT for repayment of total debt service falling due to the IMF over the next six months, with potential extensions, up to a maximum of full two years from April 14, 2020, subject to availability of sufficient grant resources. CCRT could grow to $1.4 billion. Haiti is the only country in the LAC region included in this first list. CCRT rules amended in March, allow up to two years of debt service relief. CCRT has $500 million available, including new pledges from Great Britain ($185 million), Japan ($100 million), China (undisclosed), Netherlands (undisclosed).
On April 14, IMF Chief Economist Gita Gopinath unveils economic forecasts for 2020: Latin America and Caribbean region to shrink 5.2% in 2020, rebound with 3.4% growthin 2021. Global economy to contract 3% in 2020, rebound with 5.8% growth in 2021.
On April 14, G7 nation finance officials support temporary debt service relief to poorest nations if joined by China and other G20 nations, Paris Club creditors.
On April 15, G20 finance ministers agree to suspend debt service payments for world's poorest nations through Dec. 31, 2020. Freezing principal and interest expected to provide nations with $20 billion to redirect toward health systems to fight pandemic.
On April 15, Georgieva said fund is making a push to triple concessional financing to $18 billion for the Poverty Reduction and Growth Trust (PRGT).
IMF/World Bank - World Economic Outlook Growth Projections for 2020 and 2021 (released April 14, 2020)
Latin America and the Caribbean
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%