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Economic crisis: The World Bank calls to “prevent a debt crisis from spreading” in Latin America | Economy

World Bank President David Malpass in a 2019 image.
World Bank President David Malpass in a 2019 image.getty

The route to get Latin American economies afloat includes aid to the most vulnerable populations, strong international trade and the possibility of restructuring government debt with private investors, said David Malpass, president of the World Bank, in a virtual press conference. this Tuesday. The multilateral estimates that some 100 million people in the world fell into poverty due to the economic crisis caused by the pandemic and this, he points out, “has been particularly evident in Latin America.” The bank expects that by June this year, it will have allocated 10 billion dollars for different aid programs in 24 countries in the region, including the Caribbean.

From the crisis and the financial investment climate worldwide, Latin American countries have resorted to debt to be able to pay for spending on social programs and economic stimulus. This debt is already becoming a peso and the World Bank hopes that, at least, the poorest countries will see their debts canceled or restructured while a recovery gets underway.

“For a year, we have been working on the moratorium on payments and also the G20 has presented a common framework for debt reduction, which recognizes that the debt burden and the payment of existing debt are using a very fiscal space It is important in the countries, that space that is needed for social safety nets, for education, health, for the basic needs of people ”, said Malpass. “If countries are paying their creditors, that exhausts available resources,” he added.

Malpass recalled his job in the Treasury Department when, in the late 1980s, the United States agreed to the Brady Plan, which consisted of granting bonds to Latin American countries that were immersed in a debt crisis. “That led to a lost decade. This time, we have to try to prevent a debt crisis from spreading, ”Malpass said. “So we are trying to avoid a situation where debt is simply rolled over at a high interest rate and then continues to grow into the future. This requires that the official bilateral creditors, the private sector creditors, work to find lower interest rates for the various debts that tax the region, ”he said.

In the last 20 years, governments have resorted more than before to private debt, that is to say with funds and investors in international financial markets, and not only with multilateral organizations. “That is very difficult to restructure under the current rules,” Malpass explained. “The rules are lopsided, so they tend to favor creditors over debtors through the legal structures of New York and London, which creates big challenges for countries as they try to restructure.” In the last year, Ecuador and Argentina have had to renegotiate their external debt with bondholders abroad, which has increased the cost of their debt for longer.

In addition to spending on health and social guarantees that countries need as they manage to vaccinate their populations to eventually reopen their economies to full capacity, countries will benefit from international trade, Malpass said. “We have regional programs that help cross borders and facilitate important things like trade, so that goods can flow from one place to another within Latin America and the Caribbean and also to other countries, because I believe that these commercial channels will end up being vital. in the new economy ”.

Latin America, as a region, has only 8% of the world’s population, but accounts for 20% of COVID-19 infections worldwide and 30% of deaths, Malpass said. And the slow vaccination and the low access that countries have had to vaccines “is a difficult and severe problem for Latin America,” he said. The World Bank has provided and has funds available for some countries that need them to purchase vaccines through the Covax program, a public-private partnership promoted by the World Health Organization and the GAVI Vaccine Alliance.

“Latin America has been working intensively with Covax,” Malpass said, “and as Covax has supplies I think there will be some of that available to Latin America, but not enough to really address this big problem. According to some estimates, it seems that Latin America will only have 3% of the vaccines available, which is not enough ”.

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