Latin America and the Caribbean experience an exceptionally high risk of social unrest, derived from inflationary shocks in which it is immersed, whose impact is on a population that was barely recovering from the impact of the covid-19 pandemicrecognized this Tuesday the International Monetary Fund (IMF).

There has been an erosion of the real income of the population, especially that of the most vulnerable. There is a risk of social cohesion and disturbances explained the Director for the Western Hemisphere of the IMF, Ilan Goldfjan.

At a press conference, he specified that in the countries of the region we have one inflation shock after another. The derivative of Russian invasion of Ukraine that cohabits with that generated by the pandemic. To this context it must be added that households are coming out of the economic effect generated by the health emergency.

From Washington, he suggested to the governments to keep as temporary their relief strategies to the food price crisis and energy, so that they do not become a burden on public finances.

Without specifically mentioning the subsidy plan for gasoline prices which is leading the Mexican government, stressed the importance of maintaining relief strategies for the population as “temporary”.

inflation and poverty

The official stressed that inflation tends to have a greater impact on families with fewer resources. In fact, he referred to data from the IMF itself to show that price escalation affects between 2 and 3 times more people living in poverty than the rest of the population.

And at this particular moment, when food and energy prices are the most pressured, countries and people with limited resources are more impacted, since they usually allocate more than half of their spending to these goods.

Given this scenario, the IMF’s recommendation is to protect the most vulnerable through economic transfers from the social safety net. And if countries do not have this tool, he suggests using other measures to soften the impact of price increases.

It does have tax consequences, but the key is that it be temporary to avoid a higher tax cost.

Capital outflows and slow growth

The official explained that another risk that affects the countries of the region is the tightening of monetary policies in advanced economies such as the United States.

When central banks like the United States increase interest ratesthere are capital outflows from emerging markets and there is a depreciation of currencies as well as more difficult financing conditions, he described.

Faced with inflationary pressure, it is to be expected that local central banks will also restrict their monetary politics and in the long run it will have an impact on economic activity. Hence the downward revision in economic expectations, he stated.

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