OBELA Analysis

COVID induced a drop in production that left the world exposed to a financial crisis derived from the lack of income of companies when they have an accumulation of private debt and loss of profits.

Regarding new signs of financial fragility or instability in the region, derived from private sector problems, evidence shows that private external debt is more substantial than sovereign external debt in Latin America in the third decade of the 21st century.

High levels of private external debt could lead to a costly renegotiation process to reduce or restructure it. The question is whether this would be done by private agents or by the State as guarantor of the economic activities of the country.

The world economy came to a standstill during the second quarter of 2020, when different governments imposed various measures of productive shutdown and social distancing around the world. This caused aggregate demand and supply to grind to a halt, causing the European Union's GDP to fall -6.12%, the G7 -2.10% and Latin America -7.01%.

In the face of the COVID-19 crisis, fiscal and monetary stimulus was expanded in almost all Latin American economies, with the aim of boosting recovery, although not all countries responded immediately.

In Ecuador, Mexico and Paraguay, the implementation of a small economic package was accompanied by increased economic activity. The COVID-19 crisis has shown that the speed of GDP recovery led by foreign trade is faster in the context of falling imports.

As the world economy moves towards a new normality, a stage of profound international transformations is approaching. In the face of these changes, what can international relations and our Latin American countries expect after the first 100 days of his term in office?

Biden presented Interim Strategic National Security Guidance (INSSG) and his Build Back Better (BBB) agenda comprised of three parts: rescue, recovery and reconstruction. Together, the blueprint comprises federal spending of more than $6 billion dollars, the largest in its history.

The BBB agenda, despite its huge budget, and the INSSG project, will face the structural limits of the U.S. economy and the accelerating global transformations led by China.