While the cases of people infected with coronaviruses surpassed 100,000 in the world on Friday, currencies in Latin America plummeted against the dollar.
Among the largest economies in the region, the countries most affected by the depreciation of their currency since the spread of covid-19 began are Brazil, Chile, Mexico, Argentina, Peru and Colombia.
The falls accelerate before the capital flight to safer destinations due to the financial uncertainty generated by the disease.
As the dollar is the main refuge of the world economy, Latin American currencies have lost value as economic prospects worsen.
“Latin America is an area very exposed to international trade and as China is the main trading partner of the region, the coronavirus is directly affecting it, “Diego Mora, an analyst, tells BBC Mundo senior from the consultant XTB.
Since the region is mainly an exporter of hydrocarbons and raw materials, the demand for oil and products such as copper, corn, soybeans, nickel and others decreases commodities, increases uncertainty about its economic future.
That’s why big investors prefer shelter your capitals in the dollar, particularly in the US Treasury bonds, given the negative forecasts of economic growth worldwide and regionally.
So much so, that the Organization for Economic Cooperation and Development (OECD) warned this week that global growth may fall by half this year if the problem gets longer and worse.
The crash in 2020
Since its appearance, the coronavirus has only accelerated a trend that had already been observed in the previous months, where the currencies of the region lost value with respect to the US currency.
The Mexican peso arrived Friday at its lowest level in 15 months (20.54 per dollar), becoming one of the currencies with the greatest decline among emerging economies, motivated by fears that the virus will strongly impact the growth of the United States, its main trading partner.
At the end of Friday, the dollar ended up 1.46% in Mexico; 1.47% in Colombia; 0.55% in Brazil; 0.28% in Argentina and 0.25% in Chile.
In ArgentinaThis situation causes an additional problem, because it implies a devaluation of the right weight at a time when the government appeals to exchange stability as a pillar of the economic program and as an anchor of the rest of the prices.
The worst part of the story has been taken by Brazilian real, when depreciating more than 15% so far this year.
The real has dropped so much that the Minister of Economy, Paulo Guedes, said that in his country “the era of the cheap dollar is over.”
As the following table shows, the countries where the dollar has risen most in 2020 in the largest economies in the region are Brazil, Chile and Colombia.
How can it affect you?
Although the effects are not the same in all the countries of the region, there are trends that are repeated and that can change both the economic health of your country and that of your pocket.
These are some of the potential consequences of the dollar’s rise in Latin America.
one. tourism
Tourism has been one of the sectors most hit by the outbreak. For fear of contagion people are suspending trips, even if they don’t get refunds.
The airlines Hotels and travel operators are living a real financial nightmare.
But for consumers, some offers have emerged and ticket reductions have been seen between 15% and 30%, Francisco Coll Morales, an economist and analyst at the World Tourism Forum, told BBC Mundo.
Regarding the depreciation of local currencies, no doubt It is much more expensive for a Latin American travel to countries where it is required to pay in dollars.
two. Imports
The more the dollar rises, the more the price of imported products increases.
“We see that in products such as vehicles, transport, energy and technology,” explains Diego Mora.
And although Mexico manufactures cars, the truth is that most of the region imports them.
The same goes for high demand items such as electronic devices, which may experience a price increase.
In this sense some economists explain that “people get impoverished” basically because its purchasing power decreases when it comes to countries that export raw materials.
3. Remittances
In the case of countries whose economy depends largely on remittances sent by their citizens from abroad, a rise in the dollar has a very positive effect
Family members who receive these remittances in dollars, exchange them for local currency and receive more money.
4. Exports
The issue of exports has two faces.
The companies that export are benefited in the short term with the rise of the dollar since the prices at which it sells are more competitive. But if it goes up too much, it is a symptom that international demand is not strong either.
So then, the exporter does a better business because they pay him in dollars, but at the same time they may be buying a smaller amount of his products, precisely because the economy is growing less.
With the spread of the coronavirus there is less demand, less production, less growth, less employment, so that good news for exporters can become Less positive than it seems.
On the other hand, there are companies that are financed in dollars and therefore have Debts incurred in dollars.
And the other is that at the level of financial planning, companies work with an annual budgeted dollar. If the value of the currency goes up too much, firms have to change their projections and adjust their budget.
5. Debt of the countries
Although Latin America does not have the same level of indebtedness that many developed countries have (such as Japan or the US), the rise in the dollar affects them directly anyway.
Governments tend to borrow, estimating that their economic growth will be higher than the payment of interest on the debt.
But if the dollar soars, it is possible that a given country can’t even cover interest payments, as is the case in Argentina, where the level of debt has become almost unsustainable.
In Latin America, most countries are indebted in dollars and secondly in euros.
Now you can receive notifications from BBC Mundo. Download the new version of our app and activate them to not miss our best content.
– .
