By: Staff Writer
June 17, 2022
The Ukraine war is limiting access to financing says a United Nations Economic Commission for Latin America and the Caribbean (ECLAC) report.
ECLAC, in their latest report, “Repercussions in Latin America and the Caribbean of the war in Ukraine: how should the region face this new crisis?” details some of the significant factors hurting Caribbean and Central American countries as a result of the on-going Russia/Ukraine War.
Chief among these issues is how tighter monetary policies may hurt the highly indebted countries of the region, as it will limit their access to financing to roll over previous debt or increase net borrowing.
The report also said: “Rising interest rates will have a significant impact on countries with a high proportion of floating rate debt in their total external borrowing. Many countries in the region are in this situation. In some of the countries, the positive effect on balances of trade for commodities could offset the rise in interest payments, while in others that may have trade deficits, the combination of the two forces could lead to heightened vulnerability.”
“The increase in rates will also worsen the financial situation of the non-financial corporate sector, which is highly indebted in the region.”
The further effects on the region will differ according to the part of the region and the particular set of circumstances. The report, said: “As in previous crises, the effects in the region will differ according to subregion and even country. There are many examples: rising food and commodity prices affect countries according to their place in the “commodity lottery” and near-shoring strategies are strongly influenced by geographic proximity.
“The economic damage is unevenly distributed: severe in some countries and industries, and practically null in others. The level of dependence of each country on oil, gas and other primary products determines the impact of supply disruptions. However, as became clear during the pandemic, disruptions, however minor in one region, can lead to major supply obstructions in far-flung locations.”
The report added: “Uncertainty surrounding the duration and outcome of the conflict is determining, to a great extent, the effects of supply shocks, particularly owing to the different origins and magnitudes of the shocks. On one hand, production capacity has been destroyed in Ukraine and, on the other, economic sanctions have been imposed on the Russian Federation, whose production capacity has not been destroyed, but could deteriorate as a result.”
As a result of all of this the outlook for the region for the remainder of 2022 is difficult to assess as growth for 2022 is forecasted at 1.8 percent, down from the 6.3 percent of 2021. “In Central America, the economies with the highest forecast growth rates are Panama at 6.3 percent, the Dominican Republic at 5.3 percent and Guatemala at 4.2 percent. In the English- and Dutch-speaking Caribbean economies, growth is expected to be highest in Guyana 49 percent, Saint Lucia 10.5 percent and the Bahamas at 8.5 percent.”