The indebtedness of Latin American countries is too high, warns the Inter-American Development Bank (IDB)

The indebtedness of Latin American countries is too high, warns the Inter-American Development Bank (IDB)

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The Inter-American Development Bank (IDB) is sounding the alarm on the high level of indebtedness of Latin American and Caribbean countries. According to a report by the bank, the private and public debt of the countries of the region now stands at 5,800 billion dollars against 3,000 billion 15 years ago.

The accumulated debt of Latin American countries has become worrying, says the IDB. It reaches 117% of the GDP of all these countries. It was 3,000 billion in 2008. Public debt, in particular, increased sharply between 2019 and 2020, rising from 58% of GDP to 72% in one year.

One of the main reasons, according to the Inter-American Development Bank, is the increase in budgetary expenditure by the States of the region to combat the effects of Covid-19.

However, the situation could deteriorate even more due to a difficult global economic context and the rise in interest rates in the United States to fight inflation.

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The danger of default

This causes a rebound effect, the debts issued by these countries become even more expensive to repay. Another effect: the rise in rates in their northern neighbor has mechanically strengthened the dollar against other currencies on the continent, which adds an additional difficulty for trade in these countries.

The IDB therefore invites them to reduce their debts at the risk of default. International economic institutions have been warning for several months about the risks of a generalized debt crisis in emerging and developing countries. The World Bank (WB) and the International Monetary Fund (IMF) estimate that around 60 countries are on the verge of a debt crisis.

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While the countries currently most affected by the risk of default are in Asia and Africa, Latin America is far from being exempt from risk in this area, even more so insofar as the region is experiencing relatively weaker than global growth, which limits its possibilities of mechanically reducing its indebtedness.

In addition, several countries are confronted with more or less strong social tensions, such as the recent events in the Brazilian capital, Brasilia, or protests and clashes which have been going on for several weeks in Peru and have already caused dozens of victims.


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