Latin American Economy & Business Report

04/2020 - Fiscal austerity out the window – for now

As they buckle under the combined effects of the coronavirus (Covid-19) pandemic, the gathering global economic recession, and a slump in commodity prices, Latin American countries are all scrambling to launch countercyclical fiscal measures. But major economies such as Brazil, Argentina, and Chile are responding in different ways, as the unprecedented crisis is standing traditional thinking about fiscal austerity on its head.

Inter-American Development Bank (IDB) economists, Alejandro Izquierdo and Martín Ardanaz, recently compared the developing economic crisis derived from the Covid-19 pandemic with the financial crash of 2008-2009. Their main point is that in some key respects Latin American economies are significantly weaker now than they were then. Between 2008 and 2019 the region’s average fiscal deficit widened from 0.4% of GDP to 3%. At the same time, average public debt has soared from 40% to 62% of GDP.

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