The Economic Commission for Latin America (ECLAC) and the Inter-American Development Bank (IDB), among other economic authorities, have warned about the region’s high indebtedness and the social cost to countries of growing interest payments.
According to the diagnoses of multilateral organizations, Latin America faces an imbalance between assets and liabilities that, during the last five decades, has been accentuated, putting its fiscal situation in trouble.
The IDB made a measurement, which incorporates data since 1970, according to which the assets of the main economies of the region reached 75% of the gross domestic product in 2020. Debts reached levels of 125% of GDP.
During the pandemic, the trend of increasing indebtedness continued, especially in the public sector, due to the needs of governments to address the COVID-19 emergency.
“It is not just a matter of whether there is going to be a debt crisis; this depends on each country. There are countries with different levels of indebtedness and different capacities, but debt service and interest payments are consuming a lot of resources and limiting fiscal space and the ability of governments to allocate resources towards education and social investment,” ECLAC’s Director of Economic Development, Daniel Titelman, said when asked about the risks and implications of growing indebtedness and a possible payment crisis.
“The high costs of public debt in Latin America not only affect assistance programs; they also impact investment plans to face climate change. So, we are in a situation in which the high level of indebtedness and its high cost are generating a very significant reduction in the fiscal capacity of our countries to make investments and social spending,” Titelman said.
Informality and low economic growth
In the report “Economic Survey of Latin America and the Caribbean 2023,” ECLAC revealed that the countries with the highest levels of public debt as a proportion of GDP are: Argentina (85.4%), Brazil (73%), Panama (59.4%), Costa Rica (58.2%), and Colombia (51.7%).
Argentina, Brazil, Panama, Costa Rica, and Colombia also face high levels of labor informality, which is consistent with the agency’s thesis on the limitations imposed by high indebtedness to finance public policies aimed at generating quality jobs.
“Informality in Latin America is around 50%; that is, one in two workers is in that condition, and ECLAC considers that this is one of the greatest economic challenges that is holding back growth,” ECLAC said.
“Informality generates many problems: it is associated with low productivity, a lack of access to social protection, and the universalization of social protection systems,” ECLAC added.
