28th October 2020

Central & South America

Cooperation between Mercosur, IMF and G20 necessary for Latin American growth

The Economic Commission for Latin America and the Caribbean (ECLAC) asked in a virtual meeting the cooperation of the International Monetary Fund (IMF), Mercosur and the G20 with the main goal that Latin America and the Caribbean can continue to apply expansive fiscal and monetary policies to mitigate a crisis that estimates will last longer than expected.

The Executive Secretary of ECLAC, Alicia Bárcena, considered that the region needs to grow 4% annually and focus on seven main activities, avoid the risk of primarizing its exports and define its interregional trade policy, especially Mercosur.

The Central Bank of Argentina (BCRA) organized the virtual meeting and for the first time the organization's sessions were held in this way. The event was led by Costa Rica, country that will preside the organization for the next two years.

Bárcena assured that the crisis will last longer than expected, stating a drop of 9.1% in the Gross Domestic Product (GDP) is expected for the region this year and that recovering from the pandemic will be harder than the previous crisis.

Some of the procedures the region has to follow include the maintenance of expansionary fiscal and monetary policies, avoid of systemic risks and financial volatility. This will require a multilateral dynamic and international cooperation.

One of the important issues to negotiate is whether the IMF is going to approve the issuance of Special Drawing Rights for US $ 500 billion and a redistribution of those existing in surplus countries that could reach the region for US $ 39,540 million.

In addition, the initiative to suspend debt services approved by the G20 for low-income countries in 2020 to also be extended to middle-income countries and the 2021 deadline to be expanded.

One of the important issues to negotiate is whether the IMF is going to approve the issuance of Special Drawing Rights for US $ 500 billion and a redistribution of those existing in surplus countries that could reach the region for US $ 39,540 million.

In addition, the initiative to suspend debt services approved by the G20 for low-income countries in 2020 to also be extended to middle-income countries and the 2021 deadline to be expanded.

ECLAC estimates that it is urgent for the region to grow at least 4% per year, with a redistribution rate of 0.5% of income each year until reaching a Gini index of 0.4% in 2024. In order to create jobs in the next decade.

The region has to strengthen the collection of income tax from individuals, corporations and extend the scope of the tax on wealth, property and the digital economy.  Also, try to eliminate the spaces for tax evasion and avoidance, which reach 6.1% of GDP.

Integration mechanisms, such as Mercosur, are not working as expected. Only Central America is strong in this regard. Regional integration is vital to face this crisis.