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Home›International Monetary Economics›Inflation is a risk to stability in Latin America, analysts warn:

Inflation is a risk to stability in Latin America, analysts warn:

By Taylor J. Naylor
May 23, 2022
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Inflation threatens the immediate future and political stability in Latin America, several observers from the region warned on Monday at the Davos forum, a pessimistic diagnosis for which they advocate the strengthening of institutions and multilateralism.

“Latin America is entering a very dangerous period,” said Venezuelan Moises Naïm, a minister in the late 1980s and since then an analyst in international politics, in one of the debates organized by the forum this week in the city. Swiss.

“Now inflation is coming, all over the world and also for a generation of Latin Americans who do not know how to live with it. And the economic and social consequences can be disastrous,” said Naïm, who warns in this context of the risk of consolidation or the coming to power of certain autocratic regimes.

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

Although the region has fewer direct ties to Europe than other areas of the planet, it will also be affected by inflation and tighter monetary policies, the institution warned in April.

He also recalled that even before Russia invaded Ukraine on February 24, inflation had already increased in many countries of the zone due to commodity prices and supply and supply imbalances. demand caused by the pandemic.

In this regard, at the end of April, ECLAC, a regional organization of the United Nations, reduced its estimate of GDP growth for Latin America and the Caribbean for this year from 2.1% to 1.8%.

Democratic deterioration

Above all, inflation could lead to political instability.

“These are difficult times to be Latin American,” said Chilean Andrés Velasco, a former finance minister under Michele Bachelet and now dean of the School of Public Policy at the London School of Economics.

“We have a problem with the ability of our governments, right or left, more or less democratic, to achieve results,” he said, citing the example of Peru, which has the covid death rate. -19 highest in the world and suffers greatly from political instability.

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

In this context, many plead in Davos for multilateralism and for more presence of the region in international institutions.

“If we look at the international scene, we see a total absence of Latin American leadership,” said Spaniard Arancha González Laya, a former socialist minister in Pedro Sánchez’s government and now dean of one of the centers of the ‘Institute of Political Studies. in Paris.

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

Faced with this “glass half empty” scenario, some are opting for economic optimism, especially if Latin America manages to become a producer and exporter of green energy (solar and wind power in particular) in the medium term.

Others see the remote working revolution sparked 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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