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ECONOMY | 24-05-2022 09:25

Inflation a severe risk to Latin America's stability, warn analysts at Davos

Inflation threatens the immediate future and political stability of Latin America, experts warn at event in Davos.

Inflation threatens the immediate future and political stability of Latin America, several observers from the region warned this week at the Davos forum, a pessimistic diagnosis for which they advocate strengthening institutions and multilateralism.

"Latin America is entering a very dangerous period," cautioned Moises Naïm, a Venezuelan government minister at the end of the 1980s and since then an analyst of international politics, in one of the debates organised by the forum this week in Switzerland.

"Now inflation is coming, all over the world and also to a generation of Latin Americans who don't know how to live with it. And the economic and social consequences could be dire," said Naïm, who warned of the risk of autocratic regimes consolidating or coming to power.

Forecasts vary from one institution to another, but the "seismic waves" caused by the war in Ukraine, as the International Monetary Fund (IMF) recently described them, will directly affect the Latin American economy.

Although the region has fewer direct links to Europe than other parts of the world, it will also be affected by inflation and tighter monetary policies, the IMF said back in April.

It also recalled that even before Russia invaded Ukraine on February 24, inflation had already risen in many countries in the region due to commodity prices and supply and demand imbalances caused by the coronavirus pandemic. 

In response, the Economic Commission for Latin America and the Caribbean (ECLAC), a regional UN agency, has reduced its estimate for Latin American and Caribbean GDP growth this year from 2.1 per cent to 1.8 per cent at the end of April.

 

'Democratic deterioration'

Inflation could, above all, lead to political instability, experts warn.

"These are hard times to be Latin American," said Chile's Andrés Velasco, a former finance minister under centre-left president Michele Bachelet and now the dean of the London School of Economics' School of Public Policy. 

"We have a problem with the ability of our governments, right-wing or left-wing, more or less democratic, to achieve results," he said, citing the example of Peru, which has the world's highest death rate from Covid-19 and suffers from great political instability.

The combination of mismanagement and inflationary pressure could lead to "democratic deterioration," with systems weighed down by "fragmentation, short-termism and Twitter-based governments," according to Velasco.

In this context, many at Davos advocate for more multilateralism and a larger regional presence in international institutions.

"If we look at the international scene, we see a total absence of Latin American leadership," said Spain's Arancha González Laya, a former socialist minister in the government of Pedro Sánchez and now dean at one of the centres of the Institute of Political Studies in Paris.

Experts also cited the upcoming ninth Summit of the Americas, scheduled for next month in Los Angeles, as an example of the lack of regional cooperation. The multilateral forum has been threatened with a boycott by several governments in the region following criticism from the United States, the host country, of Cuba, Nicaragua and Venezuela. 

Faced with this "glass half-empty" scenario, some opt for economic optimism, particularly if Latin America manages to become a producer and exporter of green energy (solar and wind energy in particular) in the medium term. 

Others see the telecommuting revolution triggered by the pandemic as a way for professionals who cannot find work in their home country to work remotely in another country in the region.

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by Pol Costa in Davos, AFP

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