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IMF: poor people will be the most affected in Latin America by the Russian invasion of Ukraine

IMF: poor people will be the most affected in Latin America by the Russian invasion of Ukraine

Poor people in Latin America and the Caribbean will bear the brunt of the economic fallout from Russia’s invasion of Ukraine, as the region will face increased inflationary pressure, a senior International Monetary Fund (IMF) official said.

High inflation, especially for food, affects the poor in our region the most. So that is the main challenge that the region will face.“, said Ilan GoldfajnDirector of the Western Hemisphere Department of the IMF.

The value of US crude jumped to its highest level since 2008 this month, while the price of wheat hit a record high. Ukraine and Russia represent 30% of world cereal exports.

The current spike in wheat prices was triggered by the Russian invasion of Ukraine, the sanctions imposed on Moscow and the trade disruptions that followed. The World Bank noted that several developing countries face short-term wheat supply shortages due to their dependence on Ukrainian exports.

Russia was the top wheat exporter in 2018 and Ukraine the fifth, according to World Bank data. “Food and energy inflation is taking place on top of a legacy of high inflation from the previous (COVID-related) shock”, he indicated goldfajn.

Supply chain bottlenecks related to the pandemic had already put Latin America on a path of monetary tightening, with major central banks raising interest rates, both to fight inflation and to hedge against the expected outflow of capital in search of returns in developed countries. Now they would have to raise rates even higher.

According to Goldfajn, a further rise in borrowing costs, the corrosive effects of inflation on income and a slowdown in the global economy could undermine growth in the region.

With inflation-adjusted incomes falling and the global economy slowing, Latin America is facing a scenario similar to that of 2018-2019, when citizens took to the streets in protests that only stopped when lockdowns were imposed due to to the pandemic in 2020.

Governments must continue to strengthen well-targeted social safety nets, seeking to expand them and broaden coverage and reach”, stated Goldfajn.

As the region’s largest grain exporters, Argentina and Brazil could benefit, at a time when Colombia could tap into its oil exports. Chile’s mining capacity should also be a positive element.

Source: Gestion

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