LatAm, Caribbean face destabilizing capital movements as financing needs grow, CEPAL says

LatAm, Caribbean face destabilizing capital movements as financing needs grow, CEPAL says

Economy & Policy Corporate & Sovereign Strategy Capital Markets Debt Bonds Equity Asset Management Funds Fixed Income Structured Finance Regulation Coronavirus Latin America Caribbean

The Latin America and the Caribbean (LAC) economies will lose $80 billion in capital inflows between 2019 and 2020 as global capital takes a flight-to-safety amid nervousness over the coronavirus pandemic, the head of the UN Economic Commission for Latin America and the Caribbean, or CEPAL, said on Tuesday.

This fleeing of the region is going to occur just when countries, with already limited fiscal capacity and high levels of indebtedness, are needing to expand public spending the most, says the head of CEPAL.

“We are confronting a crisis of enormous magnitude that requires exceptional measures” said Alicia Bárcena, executive secretary of CEPAL.

A decade of economic stagnation following low commodity prices have left countries in the region with a limited fiscal space and a growing public debt that averaged 44.8% of GDP in 2019, CEPAL reported.

The debt of Caribbean countries, a group whose economies are collapsing with the sudden-stop of tourism, averaged 68.5% of GDP in 2019.

The high accumulation of cross-border debt by the non-financial corporate sector since the global financial crisis is also a “worrisome” problem, the report said. The recession, and the lower capacity of the corporate sector to pay its debts is deepening with current volatility in international financial markets.

Diminished exports, tourism activities and remittances will reduce the region’s fiscal space, and debt interest payments are already higher than expenditures in health, education and social protection, the report said.

“Countries are highly indebted; debts will become unsustainable and fiscal space would be endangered. To this we must add destabilizing capital movements,” Bárcena said.

“Our countries need access to more favorable sources of financing,” she said, “low cost, flexible lines of credit, the refinancing and restructuring of debt, and even the debt relief,” she said, while calling for more international cooperation and solidarity for middle income countries.

The IMF is already helping the very poor countries she said. “Highly indebted middle-income countries also need to be included.”