South America

Latin America’s economy was already going backward when the coronavirus hit. Now it’s at risk of losing a whole decade –- and pushing fragile democracies closer to their breaking points, Bloomberg News reported. Like most of the world, the region is bracing for the deepest recession in its modern history. Bank of America expects a 4.4% slump in output this year as the epidemic spreads. But what’s distinctive about Latin America is that incomes had already been declining for years –- driven in part by lower commodity prices.

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As the coronavirus crisis deepens in emerging economies around the world, collapsing currencies, commodity prices, export earnings and tourism revenues threaten to shred the finances of many governments, leaving them scrambling to avoid default, the Financial Times reported. Zambia has already called in advisers to restructure its debt while Ecuador has asked for more time to make coupon payments on three dollar bonds. Few analysts believe they will be the last.

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Argentina unilaterally postponed until next year the payment on $10bn of dollar-denominated debt governed by local law on Monday in what some analysts have called a technical default, the Financial Times reported. The move has raised new concerns about Argentina’s approach to debt restructuring as it negotiates the fate of $83bn in debt issued under foreign law. Private sector investors holding that debt expect an offer to be made by the centre-left government of President Alberto Fernández as soon as this week.

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The Covid-19 pandemic pushed Moody’s Investors Service to downgrade Argentina, Ecuador and Zambia deeper into junk territory on Friday, Bloomberg News reported. Moody’s warned of escalating default risks in the three developing nations as global coronavirus cases topped 1 million. The combination of stalled trade, low commodity prices and deteriorating growth has sent emerging-market risk premiums soaring. Bonds from Argentina, Ecuador and Zambia have tumbled amid concern the nations may follow Lebanon’s lead in defaulting.

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For emerging economies, coronavirus struck first through the financial markets. Long before the numbers of cases and deaths in these countries began to spread alarm, many emerging markets experienced a sudden halt in foreign investment inflows, the Financial Times reported in a commentary. Overseas investors have taken $95bn out of EM stocks and bonds since late January, according to the Institute of International Finance, dwarfing the withdrawals that followed the onset of the global financial crisis in September 2008.

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Argentina’s debt restructuring talks with creditors will continue for at least two more weeks after the centre-left government failed to meet its deadline of March 31 to cut a deal, the Financial Times reported. The deadline had been considered to be ambitious by investors and economy minister Martin Guzmán admitted on Tuesday that the outbreak of the coronavirus pandemic, which has now claimed 27 lives in Argentina, had further delayed progress in negotiations.

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Brazil’s largest fixed-line carrier Oi SA has kicked off a renewable energy project that will cut its operating costs by 400 million reais ($77.09 million) per year, the company said on Tuesday, Reuters reported. The initiative is part of Oi’s efforts to gain efficiency as it strives to revamp its business since filing for bankruptcy protection in June 2016. The renewable project, which involves 25 solar, biomass and hydroelectric mills totaling 123 megawatts in capacity, follows the so-called “distributed generation” model, in which Oi buys clean energy at lower prices.

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Brazil’s government is considering an emergency loan package for energy distributors struggling with lower energy use and facing lost revenues because of the coronavirus outbreak, an industry group told Reuters on Monday, Reuters reported. Marcos Madureira, president of Brazilian energy distributors association Abradee, said the package being negotiated by companies and the government could involve loans from state development bank BNDES or a pool of banks, but that the value of the loans and other details was not yet settled.

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Argentina said it will still try to avoid a costly default, even as it extends a nationwide lockdown to stop the spread of coronavirus. President Alberto Fernandez said that the country would still prioritize avoiding a default on its overseas debt, even though the already struggling economy will be hampered by a government-ordered lockdown, now in effect until April 12, Bloomberg News reported.

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Cracks are appearing across the emerging-market landscape like never before. As most nations brace themselves for a likely surge in coronavirus cases through April, the signals from the developing world could hardly be more worrying for investors, Bloomberg News reported. Indexes of stocks, bonds and currencies may have risen last week as countries from India and Brazil to South Africa enacted unprecedented measures to buttress their economies, but the retreat on Friday was a reminder the turmoil is far from over.

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