Latin America is returning to a new normal that might be termed ‘resilient mediocrity’. On average, gross domestic product (GDP) and employment losses during the Covid-19 pandemic have been recovered. Poverty rates have fallen to pre-Covid levels, most big countries are inoculated at global rates, and although the lost year and a half of learning will have long-term impacts on growth and equity, Latin America’s children are back at school. The unwelcome guest at policy discussions is inflation and, as everywhere, the duration of the visit is proving longer than expected. But this is not a ‘Latin inflation’ episode of the past: most countries are near or below Organisation for Economic Co-operation and Development (OECD) levels with a median rate as of 6% in the first half of 2022.
However, the region faces two finance-related challenges. First, in the short term, the average 10% of GDP rise in debt accumulated during the pandemic – and corresponding budget deficits – grow harder to manage as global and domestic interest rates rise and growth cools.
