The International Monetary Fund (IMF) has predicted that Argentina’s gross domestic product will contract by at least 5.7% this year due to the spread of the novel coronavirus, just as the government tries to renegotiate its heavy burden of debt with private creditors.
The slowdown will reduce the global economy by $ 9 trillion, IMF chief economist Gita Gopinath told reporters as she presented the latest World Economic Outlook forecast.
Argentina’s economy would not rebound until the following year, according to a new report released by the Fund on Tuesday, with IMF officials forecasting 4.4% growth in 2021.
Argentina has been in recession for two years. GDP contracted by 2.2% in 2019. During a monetary crisis in 2018, Mauricio Macri’s government appealed to the IMF for the largest line of credit in the history of the Fund, with a worth about $ 57 billion. The country has received $ 44 billion to date.
It’s a complex moment for President Alberto Fernández, who took office last December and seeks to restructure a colossal debt. In March, the government authorized a process of restructuring debt for more than US $ 68 billion owed to private bondholders. The Peronist leader intended to make an offer on March 31, but Economy Minister Martín Guzmán said plans had been delayed by the global health crisis.
On March 20, IMF Managing Director Kristalina Georgieva said “substantial relief” from private creditors would be needed “to restore the sustainability” of Argentina’s debt, which stands at around 90%. of GDP. The Fund has supported the Fernández administration so far.
Fund officials predict that Latin America and the Caribbean as a region will contract 5.2% in 2020 as activity comes to a halt.
A recession of this magnitude would be the worst since at least 1980, the first year in the IMF’s World Economic Outlook database. By comparison, the global financial crisis caused a regional recession in 2009 that was less than half of what the IMF predicted for that year. A recession is expected in virtually all economies, with a recovery expected in 2021.
The IMF report follows World Bank estimates of a 4.6% contraction for the region this year. The regional branch of the bank predicted that GDP would collapse before rebounding 2.6% next year. Venezuela, which has already experienced a disastrous economic fall, was not included in the prediction.
Also last week, the United Nations Economic Commission for Latin America and the Caribbean predicted economic activity would fall from 1.8 percent to 4 percent.
The World Bank said governments will need to quickly scale up existing social assistance programs while supporting financial sector institutions and key sources of employment.
“To support jobs and businesses, governments may need to take stakes in strategically important companies. To avoid a financial crisis, they may need to recapitalize banks and absorb non-performing assets. “
Humberto López, the bank’s acting vice president for the region, said: “We need to help people face these huge challenges and make sure financial markets and employers can weather the storm. This means limiting the damage and setting the stage for as quick a recovery as possible. “
The bank warned that business aid should be viewed as “transparent and professional” to maintain trust and avoid the appearance of corruption. “It can also allow policymakers to take urgent action without fear of prosecution in the future,” he said.
Many Latin American governments were already facing economic problems when the crisis erupted and have little room for maneuver without running into debt problems. This will complicate efforts to help their citizens.
“The hardships of the crisis will be enormous for large segments of the population,” the bank noted. “Many households live hand to mouth and lack the resources to deal with the lockdowns and quarantines needed to contain the spread of the epidemic.”
The IMF forecast included a 5.3% drop in Brazil. It would be the deepest annual drop since at least 1901, when national accounts data from the government’s Institute for Economics began. Brazil contracted 2% in 1918, the year of the Spanish flu pandemic, according to the institute.
The IMF’s 6.6% contraction forecast for Mexico is the worst among the region’s major countries except Venezuela, which was already in the throes of a depression several years before the pandemic began. This would be an even worse outcome for Mexico than in 1995, the year of the peso crisis that followed the sudden devaluation of the currency.
In its report, the IMF admits that there is “extreme uncertainty” about its outlook for global growth, which may be the sharpest contraction since the Great Depression of the 1930s, and says the exact fallout depends on factors that are difficult to predict. , including the trajectory of the pandemic’s spread, the effectiveness of containment efforts, the extent of supply disruptions, tighter global financial conditions, and changes in consumer behavior.
Ecuador will also be particularly hard hit, with a 6.3% drop, the multilateral lender said in its report.
– SCHEDULES / AFP / AP