Biden Not Prepared for Latin America Debt Crisis
As Latin America begins to recover from the massive economic contraction that occurred in 2020, analysts warn of a looming market debt crisis the Biden Administration is ill-equipped to address.
Though GDP for Latin American countries will likely grow by an average of 4.1% as vaccinations continue and businesses reopen, analysts expect a “W” shaped recovery with another recession in 2022 before improvements in 2023.
Thanks to widespread poverty and other factors plaguing the region before the pandemic, COVID-19 had a disproportionately severe effect on the region.
Though Latin America represents just 8% of the world’s population, it accounted for nearly 25% of COVID deaths worldwide.
“In 2019, the region was flying with one broken engine,” says Eric Parrado of the Inter-American Development Bank (IDB). “In 2020, its other engine also took a hit. The challenge we now face is to fly this aircraft to safety, rescue the passengers, and prepare for the necessary repairs.”
Despite financial aid from Latin American governments, the average public debt in these countries has increased to roughly 72% of GDP. The IDB expects this number to increase to 76% by 2023.
Brazil, the region’s largest economy, saw its budget deficit jump to nearly 15% of its GDP due to the pandemic. Nearly 30% of Brazil’s debt is due within the year.
Chinese banks further exacerbated the Latin America debt crisis.
For the first time in 15 years, they offered no new loans to the region after several countries failed to make debt payments.
“The slowdown in lending to Latin America reflects a broader, global pullback as China turns inward to bolster its own recovery efforts amid the pandemic,” reports The Associated Press. “The ruling Communist Party has lent billions of dollars to build ports, railways, and other infrastructure across Asia to Africa, Europe, and Latin America in order to expand China’s access to markets and resources.”
Instead of loans, China increased its influence in Latin America last year by donating more than $215 million in medical supplies. They also conducted clinical trials in countries such as Brazil, Peru, and Mexico.
“Without a doubt part of the region’s COVID response has a Chinese face,” explains economist Rebecca Ray. “It’s a missed opportunity for the US but since the bottoming out of American manufacturing in the 1990s there’s really no way to compete. Many of the same medical supplies China ships to Latin America we buy from China as well.”
China has also aided Latin America’s economies by continuing to buy soybeans, iron ore, and other exports and by purchasing major utility companies in Peru and Chile.
China’s seeming generosity is clearly aimed at advancing the CCP’s commercial and political interests in Latin America.