More than 600 million Latin Americans look expectantly at the turmoil in the financial sector in the United States and Europe, and the implications that this unexpected shock in banking could have on their pockets this 2023, when the region barely reaches economic growth of 1% and just a few tenths more next year, according to forecasts.
Although organizations such as the Inter-American Development Bank (IDB) do not see an imminent risk of a domino effect from the northern power to the region -because “we have the resilience to face this type of shock”, as the chief economist of the multilateral organization in Washington, Eric Parrado- can have an impact on the low growth projected by the organization “if that turbulence continues” when updating expectations for the region last week at the governors’ summit in Panama.
Besides the rise of a quarter of a percentage point Announced by the Federal Reserve of the United States this Wednesday, with which interest on loans ranges between 4.5% and 5%, it has made money more expensive in Latin America for all types of transactions and credits.
Economists consulted by the voice of america explain how the interconnections of the global financial system can trigger unforeseen scenariosalthough they agree that the lessons learned from the “great crisis” of 2008, and other previous ones, left strong foundations to face turbulences like the current one from the region.
The former managing director of the World Bank, Juan José Daboub, who was in charge of 70 countries in the multilateral organization during the last crisis, tells the VOA For now, everything indicates that the shaking of the financial sector two weeks ago could be contained with the opportune interventions of the monetary authorities.
And that what we continue to see these days is the coupling of that earthquake, which had its epicenter in two US banks and whose replicas they moved the floor of the European financial sector.
In this context, this expert explains, from the Think-HUGE investment organization for Central America in Washington, that Latin America in general has very rigorous regulatory mechanisms for its financial systems -on a different scale depending on the economy of each country- and that they are subject to periodically to stress tests to prevent possible situations such as those that are occurring at this time.
“Our Latin America, due to many situations like these that occurred in the 1960s, 1970s, and 1980s, with systematic events in the monetary and fiscal sectors, has gradually learned the lessons (…) and the existing regulations in our countries have has been improving and has been integrated into the most developed markets”, says Daboub,
Above all, he points out that – at the moment – everything indicates that none of the bankrupt institutions or those that are staggering in other latitudes have a direct relationship with the banks of Latin American countries, so any contagion is “substantially less”.
connected systems
However, Daboub adds that “indisputably every time there are movements in the markets caused by bank problems and prices begin to move, any of the other banks in the world and particularly in Latin America are going to have some impact.” ”.
Another point made by this economist is that regulators must monitor bank portfolios in Latin America to prevent events such as those that occurred in the United States and Europe, where some banks have migrated from commercial banking and investment banking with technological facilities and some may have placed funds in “higher risk” portfolios.
For his part, Salvadoran economist Carlos Acevedo, also a former World Bank official in Washington, adds that financial systems have “very close communicating links” that currently make risk situations more complex.
And that this generates more uncertainty in the economy as seen in previous crises, given “the speed with which contagion effects and domino effects are transmitted.”
Acevedo believes that those responsible for financial systems do not want to see an effect like the one that occurred in 2008, when the Lehman Brothers Bank in New York collapsed due to the bursting of the real estate bubble and dragged other banks and many developed economies to the brink. the abyss of the worst recession on record since the Great Depression of the 1930s.
The Economic Commission for Latin America (CEPAL) concluded that the economic and financial crisis of 2008 “disrupted the performance of the economies and called into question paradigms that had guided economic policy in most of the countries of the region.”
At the same time, the contributions of remittances to the region decreased drastically, and the measurable negative effects were “the drop in the volume of international trade and the marked deterioration in the exchange of basic products.”
Based on that traumatic experience for the United States and the rest of the continent, economist Carlos Acevedo says that the United States and the European Union have stated that they will do whatever is necessary to guarantee the stability of the financial system, with which Latin America can breathe with ease. some relief.
“Right now the issue is controlling that all the embers go out and that the fire does not reignite again, in addition to the tools that the Federal Reserve and the European Central Bank have that allow them to put out these fires even though they seem dangerous,” he says. Acevedo.
disparate central america
Given the shaking of the banks in the power of the north and the first commercial partner of the Central American countries, the news is not taken lightly, the president of the Monetary Board (JM) and Central Bank of Guatemala (Banguat), Álvaro González Recci , came out to reassure Guatemalans to whom he assured that the country’s financial system is stable.
In Guatemala and the rest of the region, “one cannot stop being concerned,” the official told the media, adding that his country’s economy is proportionally smaller and the Central American country’s banking system is measurably down scale considered with the “large concentrations of deposits” in the liquidated and bailed out US and European banks.
“What we see is a consequence of the injection of liquidity that comes from COVID-19, it is not that it came overnight,” said the head of Banguat, explaining that the operations of bankrupt banks and at risk They were due to the long-term investments they made and, as they needed liquidity, they could not respond to their clients, so they were intervened.
In Central America, explains the Salvadoran Acevedo -who directed the Central Reserve Bank of El Salvador from 2009 to 2013-, the countries have disparate mechanisms to deal with a possible crisis.
In his opinion, the Salvadoran case is the most complicated because the country, with its dollarized economy, has less room for maneuver than its neighbors.
He also points out that, in addition to lacking a monetary policy, El Salvador has run out of international reserves because these have been spent little by little to cover the debt and state expenses.
This year it even paid due debt to multilateral organizations with international reserve funds and more loans such as consigned media salvadorans.
Other countries that can use to inject liquidity with their own currencies and face possible withdrawals of bank deposits, with the risks that this implies, he explains.
Panama also has its dollarized economy, but it is not in the same risk position. Acevedo points out that this country is a regional financial center that has weathered other crises “very well.”
“In the other countries, the central banks have the capacity to inject liquidity, if there is a problem in the financial system in Guatemala, the Banguat can inject liquidity like Honduras, Nicaragua and Costa Rica, El Salvador cannot”,
Neither in the region do the guarantee funds for depositors come close to the amount of 250,000 dollars of the banks in the United States, which is why customers are responded to when a bank goes bankrupt. In the Salvadoran case, the amount of guarantee for depositors is 10,800 Dollars.
Under this scenario, the Latin American region is expectantly following the evolution of the earthquake that has shaken the international financial system and the consequences that this may have on the domestic economy of families.
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