While most economists predict that Latin American economies will start recovering from the COVID-19 crisis later this year, an extended interview with perhaps the most influential economic forecaster for the region makes me wonder whether the upturn will be as fast _ and as big _ as previously expected.
It has been nearly a month since the International Monetary Fund, the leading international financial institution when it comes to economic projections, issued its semiannual economic forecasts for the region. It predicted that Latin America's combined economy will fall by a steep 5.2% this year, and grow by a relatively healthy 3.4% next year.
But when I talked this week with Alejandro Werner, the IMF's director for the Western Hemisphere, he sounded a bit less optimistic than before.
Werner said that it's unusually hard for economists to make any forecasts right now because the economic impact of the COVID-19 pandemic will not depend as much on financial factors, but on medical ones. It will all depend on how much social distancing countries can enforce, and how fast a vaccine or a cure will be found.
Still, he conceded that the IMF's April forecasts for the region may have to be revised down.
"Most likely, Latin America's economic growth in 2020 will be even more negative than we had forecast, because the U.S. economy will probably fall more than we anticipated," Werner told me. "A bigger U.S. recession will translate into less family remittances (from U.S. residents) to Latin America, less tourism, fewer exports."
When the IMF released its previous forecast in April, the United States and most European countries had not released their first quarter economic figures, he said.
"When they released their first quarter figures, they were even weaker than we had expected. So, it's very likely that when we release our next forecasts, in the summer, the numbers will be worse than the ones we issued in April," he said.
Asked about his growth estimates now, Werner told me he expects the U.S. economy to shrink by 5.9% this year, and those of Mexico and Argentina to fall by 6.6% and nearly 6%, respectively.
The good news, he added, is that we will start seeing "a relatively rapid economic recovery in the second half of 2020, and especially in 2021," Werner told me. "The recovery will be faster than after the Great Depression of 1929 or after the financial crisis of 2008."
Werner is not alone in predicting a Latin American recovery in 2021. The World Bank, the United Nations and leading private banks are expecting the same because, among other reasons, China's economy is likely to grow by as much as 9% next year. China is the top buyer of Latin American commodity exports.
What worries me is a political fallout of the COVID-19 crisis, which may result in greater radical populism, with all of its disastrous sequels.
That could happen, for instance, if the world economy recovers slower than expected in the second half of this year, or _ worse _ if there is a second wave of the coronavirus pandemic. If that happens, many Latin American governments may conclude that their economies will sink even further, and that they won't be able to pay their foreign debts.
Investors, anticipating capital-flight controls, would rush to send their money to Miami and other havens. Populist leaders in Mexico, Argentina and even more economically responsible countries may conclude that they have nothing to gain by trying to forge good relations with the business community. They may effectively take over the big companies they rescued during the COVID-19 crisis.
They would start printing more money and giving it away in order to win the next elections, generating a new cycle of hyperinflation and disinvestment, plus greater poverty.
We have seen this movie several times before. Let's hope it doesn't happen again, because without investments there is no way the region will be able to recover from its current crisis. If Latin American governments understand that basic fact, there's no question that 2020 will be a horrible year. But things could start looking up in 2021.
