How Much of the G-20's Gift Will Go to Latin America?

By Claudio Loser
Published in the Dialogue’s Latin America Advisor, April 23, 2009

Originally published in Claudio Loser’s “By the Numbers” column for the Dialogue's daily Latin America Advisor

WASHINGTON—The beginning of the northern spring has brought considerable hope to Latin America, even as much of it is entering the southern autumn. The meeting of the G-20 early in the month brought about a commitment to a massive mobilization of resources; the IDB meeting in Medellin, and the subsequent Emerging Market Forum meeting in Bogota, focused attention on Latin America; the spring meetings of the International Monetary Fund and the World Bank will seek to formalize the commitment; and the Summit of the Americas in Trinidad brought the US and the rest of the region face to face to resolve some major multilateral and bilateral issues. There are abundant articles on these subjects, but not much has been written about the amounts of money the region can expect to get. The answer to this is both positive and negative. The region's prospects for financing seem good, but the money will be available over several years, and will not fully offset the loss of private flows.

The charts included provide a preliminary estimate of what the region will be able to receive. They include all the elements of the package, mostly linked to the new and enhanced role of the previously presumed moribund IMF. The numbers cover: (1) the possible increase in the amount of special drawing rights (SDRs), the international money invented 40 years ago and assigned proportionally on the basis of IMF quotas or shares; (2) possible new lending by the IMF and other international financial institutions, assuming that China, India and Saudi Arabia will  not borrow; (3) trade-related financing by developed countries, which in large part can be expected to finance exports to other developed countries. On this basis, Latin America and the Caribbean could have the potential to obtain $180 billion in loans, or about 5 percent of the region's GDP.






This is clearly a substantial amount, but we have to keep in mind a few factors: the approval and execution of the estimated commitments and their disbursement will take time, so that disbursements will occur over more than two years; the recent estimates for debt service payments for the region are in the order of $200 billion, of which more than half are official obligations; and private capital inflows can be expected to decline by at least $50 billion, with a significant fall in foreign direct investment. With exports declining at a fast rate, the financial outlook for the region does not seem that promising. Still, the package reflects the right policy approach, with the public sector acting as a countercyclical force at a time of financial catastrophe. Many may say that the amounts are not enough, but this is certainly a good beginning. Let's hope that policy makers do not deviate from the principles of the G-20 communique, as they become embroiled in domestic—and possibly petty—politicking.

Claudio Loser is a Senior Fellow at the Inter-American Dialogue and former head of the Western Hemisphere Department at the International Monetary Fund.