Currently, Latin America and the Caribbean have a Gross Domestic Product (GDP) and a labor market at pre-pandemic levels. However the International Monetary Fund (IMF) forecasts that the region’s economy will slow down from 4.0% in 2022 to 1.6% this year, although most countries will avoid a recession.
“This moderation of economic growth is not surprising given the favorable terms of trade that we saw after the Covid-19 have slowed down and global financial conditions are not as beneficial as they were a few years ago,” he said. Nigel Chalkdirector of the Western Hemisphere department of the International Monetary Fund.
For the director of the department, the bad thing for the region is the inflation high that disproportionately affects lower-income households because most of it is concentrated in rising food prices and wages have failed to keep up with prices.
“Headline inflation in the main Latin American economies slowed to 7% in March, after peaking at 10% in mid-2022, however progress in reducing core inflation seems to have stalled, it was 8% in February. In many countries, inflation is above the target of the central banks”, Chalk mentioned at a press conference.
In this sense, he said, it is necessary that the interest rates of the different central banks of Latin America and the Caribbean remain at high levels during part of this year and part of the next.
Tensions in the banking sector
In recent weeks, the financial system of the United States and Europe has seen the bankruptcy of some banks as a result of increases in interest rates to control inflationary effects, which has had “little impact” in the region.
So far these problems have had little impact in Latin America and the Caribbean, in part because the region has few direct links to troubled institutions in the United States and Europe,” he said.
More progressive tax system
At the same time, Chalk suggested that the nations of the region redesign taxes to increase collection and make the tax system more progressive.
“Those who have the most have to pay their fair share to help maintain social cohesion and invest for the long term. This agenda is not easy, but well designed, it is possible to restore macroeconomic stability, contain inflation and reduce debt with social equity”, he affirmed.
