Latin America in uncertainty after being hit by inflation in 2022

Writing America, (EFE).- The inflationcalled by many the “tax of the poor” because of its impact on the most depressed social sectors, hit the economies of several Latin American countries hard last year and threatens to be again in 2023 a headache for the governments that It may even aggravate the problem of irregular migration to the United States.

Analysts agree that one of the most complex cases is that of Argentina, which with inflation of 94.8% almost doubled that of 2021, when it reached 50.90%, an unprecedented figure since the end of the last hyperinflation that that country suffered. country three decades ago.

The issue of the high cost of living also worries Colombia, which registered inflation of 13.12% (the highest in 23 years), Chile (12.8%, the highest since 1992), Peru (8, 56%, the highest in 26 years), Mexico (7.82%, the highest in 22 years) and Costa Rica (7.88%, the highest in a decade), in addition to the chronic case of Venezuela that, however, it closed 2022 with a figure of 305.7% compared to the astronomical 686.4% of 2021.

The cost of living increased 9.2% in Guatemala, 8.29% in Uruguay, 8.1% in Paraguay, 7.83% in the Dominican Republic, 5.79% in Brazil, 3.74% in Ecuador and 3 .12% in Bolivia. The final data for the end of 2022 is still unknown for the rest of the countries.

For the former Colombian Finance Minister Juan Carlos Echeverry, the increase in inflation in Latin America is due to a combination of factors such as the effects of increased public spending and the issuance of money during the pandemic, the increase in demand, problems in the of supply and even the La Niña phenomenon, which alters the climate in countries with a coastline on the Pacific Ocean.

EVERYTHING WENT WRONG

«Everything that could go wrong did go wrong in what has to do with inflation: international shocks, more public spending, more money issuance. Everyone thought that inflation was under control, not only in the United States and Europe, but also in Latin America, and was surprised when they realized that it even reached double digits,” Echeverry told EFE.

The panorama becomes more worrying if we add to this the annual report Preliminary Balance of the Economies of Latin America and the Caribbean, of the Economic Commission for Latin America and the Caribbean (Cepal), which a month ago projected that the regional growth of this year it will be a third of the rate expected for 2022.

«In a context of external uncertainties and internal restrictions, the countries of Latin America and the Caribbean will grow by 3.7% in 2022, a little more than half the rate of 6.7% registered in 2021. It is estimated that in 2023 the deceleration of economic growth deepens and a rate of 1.3% is reached, ”says this analysis.

According to the executive secretary of ECLAC, José Manuel Salazar-Xirinachs, the monetary policy responses adopted worldwide in 2022 in the midst of global inflation increased financial volatility and affected capital flows to emerging economies, including those of the countries of the region.

Although inflation is not the main cause of migration to the United States, what happened in 2022 may somehow influence an increase in the flow to the northern country due to the difficulties faced by the most disadvantaged sectors.

“Poor families in Latin America have gone through very difficult times. Inflation, especially food, has risen dramatically by 20 percent, even 30 percent in some cases, and this affects the poorest the most, because they proportionally spend more of their income on food,” according to Echeverry. .

“This definitely has to do with migration forces, although it is not the biggest determinant. Venezuelans, Central Americans and Cubans are fleeing from countries whose governments mismanage their economies and are looking for a better destiny, so inflation is only one of the factors, probably not the strongest, but one of the most pressing,” he added. .

ARGENTINA, A DIFFERENT CASE

According to the former Colombian Finance Minister, 2023 will be “a difficult year” for several Latin American economies, especially those of Argentina and Chile, due to the possibility that inflation will continue to rise and that a recession will be added to this scenario.

«The case of Argentina needs different attention from other countries, because it has a traditionally very poorly managed macroeconomic situation, it does not have an easy solution and the Government is constantly fed with emission resources. Thus it is impossible to control the exchange rate and inflation », he commented.

In addition, the expert deepened, “in Argentina there is simply a bad design of economic policy, poor quality of the authorities, mismanagement of the Central Bank and lack of control of inflation and the exchange rate.”

For their part, Chile, Peru, Colombia, Mexico and Brazil have faced the situation in an orthodox way, with the increase in interest rates, and now they face the dilemma of cutting or increasing public spending.

“Governments are in the dilemma of what to do, whether to control public spending or not,” Echeverry explained to EFE. There is a new wave of left-wing rulers in the region facing a fiscal dichotomy: if they raise interest rates to control inflation, they can induce a slowdown in economic activity, even a recession. But at the same time, their governments try to protect the poorest families by spending resources and, therefore, generating more fiscal deficits,” said the former Finance Minister.

For this reason, “2023 is going to be a difficult year for Latin America. It is possible -he added- that a recession can be avoided in Europe and the United States, but it seems more difficult to avoid that recession in Chile or Argentina. Colombia will probably avoid recession with 2-3% growth; Peru, Mexico and Brazil are probably going to be more positive, but Chile and Argentina are going to suffer more,” Echeverry concluded.