The International Monetary Fund (IMF) has predicted that Argentina's gross domestic product will contract by at least 5.7 percent this year due to the spread of the new coronavirus, just as the government is bidding to renegotiate its heavy debt burden with private creditors.
The downturn will slash US$9 trillion from the world economy, IMF chief economist Gita Gopinath told reporters as she presented the latest forecasts in the World Economic Outlook.
According to a new report published by the Fund on Tuesday, Argentina's economy would not bounce back until the following year, with IMF officials predicting 4.4 percent growth in 2021.
Argentina has been gripped by recession for two years. GDP contracted by 2.2 percent in 2019. During a currency crisis in 2018, the Mauricio Macri government tapped the IMF for the largest credit-line in the Fund's history, worth some US$57 billion. The country has received US$44 billion to date.
It's a complex moment for President Alberto Fernández, who took office last December and is seeking to restructure a colossal debt burden. On March, the government authorised a debt restructuring process for more than US$68 billion owed to private bondholders. The Peronist leader had intended to present an offer on March 31, but Economy Minister Martín Guzmán says plans were delayed by the global health crisis.
On March 20, IMF Managing Director Kristalina Georgieva said that "substantial relief" from private creditors would be necessary "to restore sustainability" of Argentina's debt-load, which amounts to around 90 of GDP. The Fund has been supportive of the Fernández administration to date.
The Fund's officials forecast that Latin America and the Caribbean as a region will contract 5.2 percent in 2020 as activity grinds to a halt.
A recession of that magnitude would be the worst since at least 1980, the first year in the IMF's World Economic Outlook database. For comparison, the global financial crisis caused a regional recession in 2009 that was less than half as deep as the one the IMF predicts for this year. Recession is expected in practically every economy, with recovery predicted in 2021.
The IMF report follows estimates by the World Bank of a 4.6 percent contraction for the region this year. The bank’s regional branch projected that GDP would slump before rebounding by 2.6 percent next year. Venezuela, which has already seen a dire economic plunge, was not included in the prediction.
Also last week, the UN’s Economic Commission for Latin America and the Caribbean projected economic activity would fall by 1.8 percent to 4 percent.
The World Bank said governments will need to rapidly ramp up existing social assistance programmes while also supporting financial sector institutions and key sources of employment.
“To support jobs and firms, governments may need to take ownership stakes in strategically important firms. To avert a financial crisis, they may need to recapitalise banks and absorb non-performing assets.”
Humberto López, the bank’s acting vice-president for the region, said, “We need to help people face these enormous challenges and make sure that financial markets and employers can weather the storm. That means limiting the damage and laying the groundwork for recovery as fast as possible.”
The bank warned that aid for businesses must be seen as “transparent and professional” to maintain confidence and avoid the appearance of corruption. “This may also allow decision makers to take urgently needed measures without fearing prosecution in the future,” it said.
Many Latin American governments already were facing economic problems when the crisis hit and have little room to manoeuvre without running into debt problems. That will complicate efforts to help their citizens.
“The hardship from the crisis will be enormous for large segments of the population,” the bank noted. “Many households live from hand to mouth and they do not have the resources to cope with the lockdowns and quarantines needed to contain the spread of the epidemic.”
The IMF's forecast included a 5.3 percent plunge in Brazil. That would be the deepest single-year tumble since at least 1901, when national accounts data from the government's economics institute begin. Brazil contracted two percent in 1918, the year of the Spanish flu pandemic, according to the institute.
The IMF’s 6.6 percent contraction forecast for Mexico is the worst among major countries in the region except Venezuela, which was already in the throes of a multi-year depression before onset of the pandemic. That would be an even poorer result for Mexico than 1995, the year of the peso crisis that followed sudden currency devaluation.
In its report, the IMF concedes there is “extreme uncertainty” around its outlook for global growth, which could be the biggest contraction since the Great Depression of the 1930s, and says exact fallout depends on difficult-to-predict factors including the path of the pandemic's spread, efficacy of containment efforts, extent of supply disruptions, tightening in global financial conditions and shifts in consumers' behaviour.
Ecuador will also be particularly hard hit, with a decline of 6.3 percent, the multilateral lender said in its report.