KY­RON REG­IS

ky­ron.reg­is@guardian.co.tt

A Work­ing Group re­port au­thored by the In­ter-Amer­i­can De­vel­op­ment Bank (IDB) and the Cen­tre for Glob­al De­vel­op­ment (CGD) has re­vealed that the COVID-19 pan­dem­ic has giv­en rise to chal­lenges in the fi­nan­cial sys­tems of coun­tries in Latin Amer­i­ca and Caribbean coun­tries.

In the re­port ti­tled “Sound Banks for Healthy Economies: Chal­lenges for Pol­i­cy­mak­ers in Latin Amer­i­ca and the Caribbean in Times of coro­n­avirus,” the or­gan­i­sa­tions posit­ed, “The deep re­ces­sion and the se­ri­ous in­come loss­es for fam­i­lies and firms may pro­voke sig­nif­i­cant chal­lenges for fi­nan­cial sys­tems.”

The IDB and CGD ac­knowl­edged that the COVID-19 cri­sis has al­ready tak­en a large toll on Latin Amer­i­ca and the Caribbean in terms of con­firmed cas­es and deaths as well as sharp de­clines in eco­nom­ic ac­tiv­i­ty.

The or­gan­i­sa­tions al­so ex­pressed that “it is far from over,” not­ing that they are still un­clear how long the health cri­sis will per­sist and how soon and how fast economies will re­cov­er.

Ac­cord­ing to the IDB and CGD: “Un­like re­cent fi­nan­cial or bal­ance of pay­ments’ crises, this may be more of a slow-mov­ing event in which cred­it risks take cen­tre stage.”

This why the or­gan­i­sa­tions have ad­vised that good poli­cies will be crit­i­cal to nav­i­gate the com­ing months. The IDB and CGD in­di­cat­ed that most fi­nan­cial sys­tems re­main dom­i­nat­ed by banks and will un­doubt­ed­ly see non-per­form­ing loans rise and suf­fer loss­es on oth­er as­sets as well.

More­over, the IDB and CGD con­tend­ed that coun­tries in the re­gion have lim­it­ed fis­cal re­sources and debt po­si­tions had al­ready risen sig­nif­i­cant­ly be­fore the COVID-19 cri­sis hit.

How­ev­er, they dis­closed that mon­e­tary frame­works have im­proved con­sid­er­ably. In most coun­tries, the IDB and CDG re­vealed that in­fla­tion and in­fla­tion ex­pec­ta­tions re­main well an­chored and more coun­tries have gained ex­change rate flex­i­bil­i­ty by in­tro­duc­ing in­fla­tion tar­get­ing regimes.

The re­port added that Fi­nan­cial sys­tems were al­so in rel­a­tive­ly good shape be­fore the cri­sis hit and banks had high cap­i­tal and liq­uid­i­ty buffers. How­ev­er, the or­gan­i­sa­tions in­di­cat­ed that the cri­sis and the im­me­di­ate re­sponse present a set of sub­tle but ex­treme­ly im­por­tant “dilem­mas for pol­i­cy­mak­ers deal­ing with fi­nan­cial sec­tor is­sues.”

Ac­cord­ing to the IDB and CGD, the re­gion will face chal­leng­ing months ahead and con­cerns re­gard­ing fi­nan­cial sta­bil­i­ty are very like­ly to sur­face. The re­port high­light­ed, “A les­son of pre­vi­ous fi­nan­cial crises is that con­fronting these con­cerns head-on is bet­ter than try­ing to hide them if they emerge.”

The IDB and CGD as­sert­ed that good poli­cies ap­pro­pri­ate to the na­ture of the prob­lem at hand will boost con­fi­dence, help over­come the prob­lems, and “en­sure that banks play a con­struc­tive role as sup­pli­ers of liq­uid­i­ty and cred­it” in or­der for economies in the re­gion to re­cov­er as swift­ly as pos­si­ble.