Oil Crash Puts LatAm Governments In a Fiscal Bind: To Spend or Not to Spend?

A plunge in world oil prices and resulting market turmoil has thrust Latin American governments into the unenviable position of trying to shore up their economies without blowing a hole in their budgets or scaring off international investors, Reuters reported. From Mexico to Brazil, many countries in the region are major exporters of crude and other commodities, and have been hit by a triple whammy of oil’s price crash, cratering import demand from major buyer China, and a precipitous fall in their exchange rates. Economic growth forecasts for this year were already being cut due to the global spread of the novel coronavirus, but a fall in major revenue streams will tighten the squeeze on many government budgets. The orthodox policy response, especially in emerging markets that rely heavily on capital flows from abroad, may be to tighten the fiscal belt. Read more