“Therefore, you won’t be able to keep spending further of their possibilities,” says López Vivas.
The cuts could provoke another outbreak of social unrest in which inflation would play a key role.
“This, along with unemployment, rising poverty, pandemic exhaustion and highly polarized political processes, means that the region’s major economies face a latent risk of civil unrest in 2022,” Jimena Blanco, head of analysis in the Americas region at Verisk Maplecroft, tells BBC Mundo.
For the firm, the key countries to watch in this regard include Argentina, Brazil, Chile, Peru, Colombia and Paraguay.
“We have seen many cases where cuts in fuel subsidies (Ecuador 2019) and other benefits (metro fares in Chile 2019) or proposals to raise taxes (Colombia 2021) caused social unrest,” says Carlos de Sousa, emerging markets strategist at investment firm Vontobel.
“So, looking ahead to 2022, of course discontent will be a risk,” he says.
However, it is likely that two countries escape this trend of cuts: Chile and Peru.
And it is that after the elections it is expected that the new governments of both countries substantially increase public spending -especially in the social sphere- as they advanced during their electoral campaigns.
Both countries have the financial capacity to do so, explains Edgardo Stenberg, vice president and emerging markets specialist at Loomis Sayles.
“The countries of the region have already begun to reduce public spending, at least as a percentage of their gross domestic product (GDP), after the significant increase in the previous two years to combat the pandemic and its economic effects,” he adds.
In the case of Mexico, he says, fiscal spending has always been moderate and the government of Andrés Manuel López Obrador (AMLO) follows the same fiscal policy.
Their levels of popularity are sky-high, he adds, making social instability unlikely.
For its part, “Colombia and Brazil to hold elections this year and voters will have the opportunity to demonstrate at the polls and would not need social protests,” says Stenberg.
Ecuador could find it more difficult to place its debt due mainly to country risk.
Seizing the moment
But that Latin America was placed last year as the region of the emerging countries that issues the most debt in dollars is also due to market conditions.
Latin American governments saw an opportunity: that of finance cheaper than within a few months.
The possibility that the US Federal Reserve will raise interest rates in March has set off alarm bells.
With rising rates, loans become more expensive around the world.
That is, the amount that countries will have to repay thereafter will be higher, especially if their debt is dollarized.
“The central banks of major economies have tried to get ahead of this rate hike and we saw that they started to be much more aggressive with their own interest rate hikes,” says Alejandro Arévalo, head of emerging market debt at Jupiter AM.
The key behind this boom in emissions in these months is to attract investors.
“When the Federal Reserve raises interest rates, andThese markets are not going to be as attractive as before. for international investors, who will no longer want to take the geopolitical currency risk of a country whose economy is unstable or slowing down,” says Arévalo.
Thus, by issuing debt now, the region’s major economies take advantage of a favorable environment that may disappear when the United States tightens its monetary policy.
The other factor that catapulted Latin America to the top of the ranking of issuers among emerging markets has to do with the behavior of other markets.
The bloc that has historically held that position for years, Middle East, has sharply reduced its debt levels.
“In relative terms, what propelled Latin America to become the largest emitter as a region is that fiscal deficits in the Middle East are shrinking at a much faster rate than elsewhere thanks to high oil prices,” Sousa explains.
“The countryThe Gulf issued a lot of foreign debt in 2020 because oil prices were low. Now that the prices of the raw are high, the fiscal balance of the big oil producers has improved faster than anywhere else in the world,” he adds.
That is why emerging countries in the Middle East and Africa region issued less debt.
On the other hand, several Latin American countries “will benefit from rising commodity prices and tighter fiscal policy,” says Guillaume Tresca, senior emerging markets strategist at Generali Investments.
A notable exception is Mexico, which has surprisingly applied a strict fiscal policy since the beginning of the health crisis, experts agree.
For all this, the view of economists is that this year the indebtedness of Latin America should be lower than in 2021.
“Global inflation growth should slow at some point and as far as specific countries are concerned: the credit rating of Colombia has already been downgraded, Mexico now has some margin to cut the rates and assets of Chile and Peru they are already assessing political risks,” says Romain Bordenave, senior analyst of emerging sovereign debt portfolios at Edmond de Rothschild Asset Management.
“The year 2021 leaves us with many opportunities in this region,” he adds.