## Regional Economic Outlook: Western Hemisphere — October 2020 (selected excerpts)

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---

### Preface and key projection
- Prepared by Samuel Pienknagura with contributions from Jaime Guajardo and Anna Ivanova, under guidance of Jorge Roldós and overall direction of Alejandro Werner and Krishna Srinivasan.
- Report reflects developments and IMF staff projections through the end of September 2020 and is based on background papers (IMF 2020a, 2020b, 2020c, 2020d).
- Key projection:
  - Real GDP is projected to contract by 8.1 percent in 2020, followed by a mild recovery in 2021 reflecting persistent spread of the virus and associated social distancing and scarring.

### An unparalleled health crisis: incidence, drivers, and containment
- Regional incidence and mortality as of end-September:
  - LAC population share: 8.2 percent (640 million people).
  - Share of global cases in LAC: 28 percent (9.3 million).
  - Share of global deaths in LAC: 34 percent (341,000).
- Pandemic spread and containment:
  - Lockdowns implemented early when cases were still low.
  - Lockdowns initially slowed the epidemic as mobility plummeted, but mobility later rose and containment weakened.
  - The pandemic evolved as a “slow burn”—a prolonged period of steady increase in new cases and deaths.
- Contributing factors to high death toll and spread:
  - Prevalence of poverty and informality in labor markets.
  - Inability to practice social distancing in densely populated urban areas and crowded low-income neighborhoods.
  - Weak state capacity and lack of fiscal buffers hindered strengthening testing and tracing capacities.
  - Poorly prepared health systems came under pressure and failed to contain human costs.
- Regional heterogeneity:
  - Some Caribbean nations and Uruguay contained outbreaks more successfully.
  - Large urban centers were hit harder than other areas.
- Policy implication:
  - Containing spread and addressing the health crisis remain key priorities; slow reopening advised given high marginal contagion and persistent concerns over health system resilience.

### A historic economic contraction: nature and channels
- Nature of the shock:
  - Global and synchronized pandemic led to national lockdowns, border closings, collapse in activity and global trade, and sharp tightening of financial conditions.
  - Financial conditions eased due to prompt policy action in advanced economies but trade contraction took longer to revert.
- High economic vulnerability to lockdowns:
  - Contact-intensive sectors (wholesale and retail trade, transportation and storage, accommodation and food services, education, arts and entertainment, domestic employment) have a larger employment share in LAC than in advanced, emerging market, and low-income economies.
  - Caribbean islands and Central American countries (Costa Rica, El Salvador) have particularly large shares employed in contact-intensive sectors.
  - Low share of workers employed in teleworkable occupations increased labor market vulnerability.

### External channels and financial conditions
- External developments:
  - Sharp contractions among trading partners contributed to sudden decline in merchandise exports, which began reversing gradually in July.
  - Enduring collapse in tourism severely affected several countries, notably in the Caribbean.
  - Remittances, expected to remain depressed, showed a surprising rebound in several countries in recent months.
  - Except for oil prices, commodity prices recovered to pre-COVID-19 levels after falling in March.
  - Stability of key agricultural and metal prices, and recovery of the Chinese economy in Q2, buffered export contractions in H1 2020.
- Financial conditions:
  - Global risk aversion from mid-February to late March led to large portfolio reallocations: abrupt increase in spreads and steep falls in currencies and equity prices.
  - Financial conditions stabilized and capital outflows moderated in April after large monetary and fiscal support packages in advanced economies.
  - Valuations have generally not yet recovered to pre-COVID-19 levels.
  - Sovereign yields in LA5 (Brazil, Chile, Colombia, Mexico, Peru) are close to historic lows.
  - Decline in US interest rates reduced financial stress across countries.
  - Central banks intervened in bond and foreign exchange markets, peaking in March and scaled back as volatility subsided.
  - Investment grade sovereigns in LAC (Colombia, Chile, Mexico, Panama, Peru, Trinidad and Tobago, Uruguay) issued hard currency debt in international markets.
  - Argentina and Ecuador concluded debt restructurings of their external public debt.

### A historic collapse in activity: magnitude, sectoral and labor impacts
- Magnitude and timing:
  - LA5 countries experienced larger quarterly GDP contractions in Q2 2020 than in any recession on record.
  - Monthly activity indicators and retail sales show sharp contraction in April followed by partial improvement from May onward.
- Sectoral impacts:
  - Contact-intensive sectors, especially services, experienced abrupt fall in value added in LA5 in Q2.
  - Other sectors contracted more in line with past recessions.
- Demand composition:
  - Private consumption had an atypically large contraction compared with investment.
- Employment effects:
  - Employment decline in Q2 2020 was larger than the decline in GDP, an unusual pattern relative to past recessions.
  - Labor market features—informality, concentration in SMEs, low ability to work from home—put large fractions of employment at risk.
  - Informal employment, which previously acted as a buffer, was severely affected.
  - Women, young, and low-skilled workers experienced relatively large employment losses.
  - The shock is regressive given large impacts on low-skilled workers from low-income households.
- Recovery heterogeneity:
  - High-frequency indicators point to an uneven recovery since May.
  - Purchasing managers’ indices and business confidence improved, with some countries entering expansionary territory.
  - Brazil, Costa Rica, and Uruguay experienced less pronounced collapses and by July had smaller gaps in economic activity relative to January than peers.
  - Overall, economic activity remains depressed relative to pre-COVID-19 levels throughout the region.

### Recent activity, labor markets, and policy response
- Recent activity and labor markets:
  - Retail sales and business confidence in Brazil bounced back to pre-COVID-19 levels in June, while Mexico recovered less strongly and remained depressed; Ecuador and Peru suffered large contractions and activity remained relatively subdued in July.
  - After labor market improvements in May and June, some countries experienced further reductions in employment in July associated with new outbreaks and containment measures.
  - In the second quarter of 2020 employment in LA5 countries fell by more than 30 million people, affecting especially workers with low educational attainment.
- Policy response — fiscal:
  - Countries in LAC announced fiscal support amounting to about 8 percent of GDP on average.
  - About half of above-the-line measures in LAC (approximately 2.5 percent of GDP) corresponds to increases in support for households; the rest is split evenly between support to firms, support to the health system, and other measures.
  - IMF staff estimates: if fully implemented, the macroeconomic effect of the fiscal measures would raise the region’s level of real GDP by about 6–7 percent within a year compared with a counterfactual scenario with no fiscal measures.
  - Brazil example: without the emergency aid program the poverty headcount ratio would have increased from about 6.7 percent to 14.6 percent; once the emergency aid is taken into account, the poverty headcount ratio fell to 5.4 percent.
  - Some countries passed legislation allowing withdrawals from individual pension fund accounts (notably Chile and Peru), alleviating liquidity constraints but creating short-term pressures on pension funds and potential medium- to long-term fiscal liabilities.
- Policy response — monetary and financial:
  - Most central banks in the region eased monetary policy and provided liquidity support; Brazil, Colombia, Costa Rica, Mexico, and Peru cut rates by more than 200 basis points.
  - Chile and Peru are at the effective lower bound.
  - Liquidity support measures amounted, in some cases, to significant shares of GDP (about 16 percent in Brazil and about 8 percent in Peru).
  - Measures included quasi-fiscal operations and financial policies to mitigate bank balance sheet stress (loan restructurings, limits on dividend payouts, reduction in countercyclical or conservational capital buffers, government guarantees).
  - Asset purchase programs were used in some countries (Colombia, Guatemala, Chile) to improve market functioning, attend to social needs, and ease financial conditions.
  - Central bank actions (examples): funding for lending — ARG, BRA, CHL, MEX, PER, PRY; private security purchase programs — BRA, CHL, COL; government bond purchase programs — COL, CRI, GTM, JAM.

### Regional outlook and growth projections (percent, year-over-year)
- Latin America and the Caribbean: 2018 = 1.1; 2019 = 0.0; 2020 = –8.1; 2021 = 3.6
- LAC excluding Venezuela: 2018 = 1.7; 2019 = 0.8; 2020 = –7.8; 2021 = 3.8
- South America: 2018 = 0.3; 2019 = 2.0; 2020 = –8.1; 2021 = 3.6
- CAPDR (Central America, Panama, and the Dominican Republic): 2018 = 3.8; 2019 = 3.2; 2020 = –5.9; 2021 = 3.6
- Caribbean (tourism-dependent): 2018 = 2.0; 2019 = 0.5; 2020 = –9.9; 2021 = 4.0
- Commodity exporters: 2018 = 1.1; 2019 = 1.0; 2020 = –10.6; 2021 = 3.8
- Memorandum items:
  - LA6: 2018 = 2.1; 2019 = 0.9; 2020 = –7.6; 2021 = 3.6
  - Brazil: 2018 = 1.3; 2019 = 1.1; 2020 = –5.8; 2021 = 2.8
  - Mexico: 2018 = 2.2; 2019 = 0.2; 2020 = –9.0; 2021 = 3.5
- The 2020 growth projection is 1.3 percentage points higher than in the June 2020 World Economic Outlook Update, reflecting revisions to trading partners’ growth and a better-than-expected second quarter outturn in Brazil.
- Timing and recovery:
  - After a steep and broad-based collapse in activity in Q2 2020, regional GDP is expected to rebound in the second half of 2020 and continue a gradual recovery.
  - The medium-term outlook points to a protracted recovery, with most countries not returning to pre-pandemic GDP levels until 2023.

### External conditions, inflation, and medium-term scars
- External sector:
  - Trading partner growth is projected to fall to –4 percent in 2020 and recover in 2021.
  - Commodity prices: oil prices expected to remain subdued; prices of metals and, to a lesser extent, soybeans are projected to firm up over the medium term.
  - Current account deficits are expected to remain contained despite weak export growth and low commodity prices.
  - Impact heterogeneity: positive terms-of-trade shock will partly offset external demand shock in Dominican Republic, El Salvador, Paraguay, Uruguay, and most of the Caribbean; negative terms-of-trade shock will add drag in Bolivia, Colombia, and Ecuador.
- Domestic demand, income, and inequality:
  - Fear of contagion and precautionary saving will weigh on consumption of contact-intensive goods and services until the virus is controlled.
  - LAC’s real income per capita is expected to remain below pre-COVID-19 levels until 2025, implying the prospect of a “decade lost” similar to the 1980s.
  - The shock is expected to have a large impact on jobs and erase some social progress made until 2015, and to exacerbate LAC’s preexisting high income inequality.
  - Emergency assistance programs are expected to mitigate the social impact.
- Inflation and output gaps:
  - Amid economic slack, inflation is projected to decline and fall below target ranges in many countries in 2020.
  - Inflation is expected to rise gradually starting in 2021 but remain contained amid weak aggregate demand and negative output gaps.

### Key statistics and magnitudes (preserved exactly)
- Fiscal support announced: about 8 percent of GDP on average.
- Above-the-line measures supporting households: approximately 2.5 percent of GDP.
- Estimated GDP level effect of fiscal measures if fully implemented: about 6–7 percent increase within a year versus no fiscal measures.
- Brazil poverty headcount ratio estimates: without emergency aid 14.6 percent; pre-crisis about 6.7 percent; with emergency aid 5.4 percent.
- Central bank rate cuts: Brazil, Colombia, Costa Rica, Mexico, and Peru cut rates by more than 200 basis points.
- Liquidity support shares of GDP: about 16 percent in Brazil; about 8 percent in Peru.
- Employment decline in LA5 in Q2 2020: fell by more than 30 million people.
- Regional growth projection: LAC 2020 = –8.1 percent; 2021 = 3.6 percent.

### Inflation, poverty, and scarring
- Estimated impact of COVID-19 on poverty (Millions) — selected estimates:
  - October 2020 Fiscal Monitor: 14.7
  - World bank (June 2020): 18–35
  - Lustig and others (2020): multiple ranges cited in source.
- COVID-19 expected to leave lasting scars on potential GDP through:
  - Higher prevalence of “zombie” firms from corporate support.
  - Bankruptcies, firm closures, and postponed business plans depressing investment.
  - Destruction of organizational capital and firm-specific human capital.
  - Long episodes of unemployment and informality leading to skill losses.
- Total factor productivity expected to suffer because of misallocation during an uneven recovery and adaptation to social distancing.
- Accelerated structural transformation expected, with potential high adjustment costs; stringent labor market regulations and bankruptcy laws could hamper the process.

### Risks to the outlook and scenarios
- Overall risk bias: skewed to the downside; uncertainty about the pandemic’s evolution is a key risk.
- Adverse scenario triggers:
  - New outbreaks prompting tighter containment measures or further depressing demand for contact-intensive sectors.
  - Intensification of the pandemic associated with tightening of financial conditions.
- Benign scenario:
  - Improvements in treatment and early development of a vaccine could improve the outlook.
- External risks:
  - Lackluster global growth, slowdown in global trade, and escalation of geopolitical tensions.
- Regional and domestic risks:
  - Longer-lasting decline in activity could tighten financial conditions, exacerbate corporate and sovereign debt and funding issues, and increase insolvencies.
  - High sovereign debt levels could lead to credit rating deterioration and pressure in local bond markets.
  - Corporate and financial stress: nonfinancial corporate debt at risk could rise (see Annex figures).

### Regional policy focus and recommendations
- Immediate priorities:
  - Contain the spread of the virus and address the health crisis.
  - Short-term policies should focus on the recovery; gradual reopening facilitated by safer workplace arrangements and improved access to digital technologies.
- Fiscal policy:
  - Maintain fiscal support in the short term to safeguard incipient recovery.
  - Accompany support with explicit, clearly communicated commitments to consolidate and rebuild buffers over the medium term.
  - Communicate plans to restore fiscal rules where suspended; consider passing legislation (e.g., preapproval of future tax reforms) to provide credibility for medium-term plans.
  - Where fiscal space exists, provide broad-based stimulus such as temporary payroll tax cuts and boosting public investment.
  - Where fiscal space is limited, preserve measures with largest social impact, increase spending efficiency, and mobilize revenue.
- Structural policies:
  - Foster market-based reallocations by tackling burdensome regulations: relax entry barriers and labor market rigidities.
- Monetary policy:
  - Remain accommodative given stable inflation expectations and persistent negative output gaps.
  - Combine low policy rates with bond and foreign exchange market interventions if financial conditions tighten.
  - Asset purchase programs can help at the effective lower bound but should be temporary, with clear communication and exit strategies, focus on high quality tradable assets, and be consistent with central bank objectives.
- Financial sector:
  - As activity recovers, banks need to rebuild capital buffers.
  - Tackle corporate debt overhang: distinguish viable firms from unviable firms and use efficient bankruptcy frameworks; out-of-court frameworks may be needed to handle high case volume.
- Medium-term and long-term:
  - Rebuild fiscal space, strengthen medium-term anchors, implement fiscal structural reforms, and improve tax progressivity and fairness of fiscal adjustments.
  - Invest in green infrastructure and technologies; complement investment with structural reforms in product and labor markets.
  - Protect income and employment of the vulnerable alongside pro-growth reforms; strengthen safety nets and social registries.

### Debt restructurings: Argentina and Ecuador (features and outcomes)
- Argentina:
  - Presented offers in April and July; reached agreement with key external creditors in August.
  - Complex restructuring of $65 billion in foreign-law bonds, completed by September 4 with 99 percent creditor participation after CACs (94.6 percent tendered the exchange).
  - $15.2 billion of domestic law foreign exchange-denominated bonds were restructured by September 21, with 99.4 percent bondholder participation.
  - Restructurings took place outside of an IMF-supported program.
- Ecuador:
  - Launched market-friendly restructuring of its $17.4 billion international bonds, finalized on August 31 with 100 percent creditor participation facilitated by CACs (98 percent tendered the exchange).
  - An IMF staff-level agreement on an IMF program was reached on August 28.
- Common features of the deals:
  1. A small nominal principal reduction of $1.6 billion in Argentina and $1.5 billion in Ecuador.
  2. Increase in the weighted-average maturity from 7.9 years to 11 years in Argentina and from 6.1 years to 12.7 years in Ecuador.
  3. Reduction in the weighted-average coupon rate from 6.5 to 3.2 percent in Argentina and from 9.2 to 5.3 percent in Ecuador.
  4. Weighted-average grace period of 6.9 years in Argentina and 6 years in Ecuador.
  5. Very low annual interest payments between 2021 and 2024, averaging (figure/text truncated in source).
- Box 1 summary outcomes:
  - Debt restructurings provide liquidity relief of $33.3 billion to Argentina and $16.4 billion to Ecuador over the next decade.
  - Public-debt-to-GDP ratios are expected to decline to 40 percent in Argentina and 45 percent in Ecuador following restructurings.
  - Bond prices recovered in the run-up to the restructurings but have declined since, reflecting, in part, domestic policy uncertainty.
  - Debt restructuring dates:
    - Argentina: September 4, 2020
    - Ecuador: September 1, 2020
- Box Table 1.1 — Selected figures (Billions of US dollars; unless indicated otherwise):
  - Public debt (end-2019)¹: Argentina: 206.5; Ecuador: 55.7
  - Public debt (end-2019; percent of GDP)¹: Argentina: 56.2; Ecuador: 51.8
  - Debt Subject to Restructuring: Argentina: 80.2; Ecuador: 17.4
  - Cash flow Relief, 2020–30: Argentina: 33.3; Ecuador: 16.4
  - Recovery value (percent; 10 percent discount rate): Argentina: 55.1; Ecuador: 55.0
  - Restructured bonds — Price: Argentina: 45–52; Ecuador: 49–74
  - Restructured bonds — yields (weighted average): Argentina: 11–12; Ecuador: 9.6

### Annex highlights (COVID-19, labor markets, fiscal policy, corporate and banking sector)
- Annex 1 — COVID-19 containment and outcomes:
  - Latin America locked down early; lockdowns were stringent and mobility plummeted for a while but mobility rose before restrictions were relaxed, producing a slow-burn pattern.
  - Local projection results cited:
    - In countries with low informality/high government effectiveness, the increase in total cases 30 days after containment measures was about 75/65 percent lower compared with similar countries that did not introduce such measures.
    - In countries with high informality/low government effectiveness that imposed containment measures, total cases experienced an increase/no change relative to comparators.
  - IMF staff analysis links high total death toll to weak hospital capacity, high population density, and, in some cases, large populations and geographic location; relatively favorable demographics and BCG vaccination have helped reduce total death toll in the region.
- Annex 2 — Labor markets distributional impacts:
  - Employment fell more steeply for women, especially in Brazil, Colombia, and Peru.
  - Young and older workers were affected more than those between 25 and 60 years of age.
  - Workers with tertiary education suffered smaller reductions in employment; in Brazil and Chile, employment for this group was back to pre-pandemic levels by June.
  - Informal employment declined substantially; except in Colombia, informal employment fell at a higher rate than formal employment.
  - The shock is regressive: contact-intensive occupations are more common among women and informal workers; ability to work remotely is more prevalent among formal and high-skilled workers.
- Annex 3 — Fiscal policy at the time of a pandemic:
  - Governments announced fiscal support packages amounting to 8 percent of GDP on average (including above-the-line and below-the-line and off budget measures).
  - Structural-model simulations indicate:
    - Above-the-line fiscal measures increase real GDP by about 5 percent relative to the baseline without fiscal support.
    - The debt-to-GDP ratio increases by about 2 percentage points relative to baseline within a year.
    - Below-the-line and off-budget measures could add between 1 and 2 percentage points to real GDP levels.
    - The combined effect of above- and below-the-line measures, if fully implemented, would raise LAC real GDP by about 6 to 7 percent within a year relative to the counterfactual.
  - Policy recommendations: as lockdowns are lifted, gradually scale down lifelines; broad-based fiscal stimulus where there is fiscal space; preserve high social-impact measures where space is limited; enhance automatic stabilizers and safety nets.
- Annex 4 — Corporate and banking sectors:
  - Share of corporate debt at risk (debt of firms with earnings before taxes and interest lower than interest expense):
    - December 2019: 14 percent
    - June 2020: 29 percent
    - Could rise to near 50 percent in 2021 in an adverse scenario where corporate earnings do not grow and interest expenses increase in line with the rise in corporate debt.
  - Banking sector entered the pandemic with ample capital and liquidity buffers and low nonperforming loans; stress-test results indicate most banks would maintain capital ratios under the WEO baseline but weaker banks could face capital shortfalls under the WEO adverse scenario without policy response.

### Country-specific data and methodological notes (selected)
- Venezuela:
  - Last Article IV consultation: 2004.
  - Data for 2018–19 are IMF staff estimates.
  - Nominal GDP is estimated assuming the GDP deflator rises in line with the IMF staff’s projection of average inflation.
  - Public external debt in relation to GDP is projected using the IMF staff’s estimate of the average exchange rate for the year.
  - Venezuela’s consumer prices are excluded from all WEO group composites.
- Uruguay:
  - Coverage of fiscal data changed from consolidated public sector to nonfinancial public sector (NFPS) with the October 2019 WEO.
  - Transfers to the public pension system recorded as revenues: 2018 = 1.3 percent of GDP; 2019 = 1.2 percent of GDP; projected 2020 = 0.8 percent of GDP.

*International Monetary Fund | Regional Economic Outlook: Western Hemisphere — October 2020*

### Preface v

### Preface v

### Overview and authorship
- Prepared by Samuel Pienknagura with contributions from Jaime Guajardo and Anna Ivanova, under guidance of Jorge Roldós and overall direction of Alejandro Werner and Krishna Srinivasan.
- Contributors included Ali Alichi, Joe Chensavasdijai, Ding Ding, Bert van Selm, Jeff Danforth, Atsushi Oshima, Javier Arze del Granado, Esther Perez Ruiz, Genevieve Lindow, Adam Siddiq, and others.
- Report reflects developments and IMF staff projections through the end of September 2020 and is based on background papers (IMF 2020a, 2020b, 2020c, 2020d).

### Key projection
- Real GDP is projected to contract by 8.1 percent in 2020, followed by a mild recovery in 2021 reflecting persistent spread of the virus and associated social distancing and scarring.

---

### An Unparalleled Health Crisis
- Regional incidence and mortality as of end-September:
  - LAC population share: 8.2 percent (640 million people).
  - Share of global cases in LAC: 28 percent (9.3 million).
  - Share of global deaths in LAC: 34 percent (341,000).
- Pandemic spread and containment:
  - Lockdowns implemented early when cases were still low.
  - Lockdowns initially slowed the epidemic as mobility plummeted, but mobility later rose and containment weakened.
  - The pandemic evolved as a “slow burn”—a prolonged period of steady increase in new cases and deaths.
- Contributing factors to high death toll and spread:
  - Prevalence of poverty and informality in labor markets.
  - Inability to practice social distancing in densely populated urban areas and crowded low-income neighborhoods.
  - Weak state capacity and lack of fiscal buffers hindered strengthening testing and tracing capacities.
  - Poorly prepared health systems came under pressure and failed to contain human costs.
- Regional heterogeneity:
  - Some Caribbean nations and Uruguay contained outbreaks more successfully.
  - Large urban centers were hit harder than other areas.
- Policy implication:
  - Containing spread and addressing the health crisis remain key priorities; slow reopening advised given high marginal contagion and persistent concerns over health system resilience.

---

### A Historic Economic Contraction
- Nature of the shock:
  - Global and synchronized pandemic led to national lockdowns, border closings, collapse in activity and global trade, and sharp tightening of financial conditions.
  - Financial conditions eased due to prompt policy action in advanced economies but trade contraction took longer to revert.

### High Economic Vulnerability to Lockdowns
- Structural exposures:
  - Contact-intensive sectors (wholesale and retail trade, transportation and storage, accommodation and food services, education, arts and entertainment, domestic employment) have a larger employment share in LAC than in advanced, emerging market, and low-income economies.
  - Caribbean islands and Central American countries (Costa Rica, El Salvador) have particularly large shares employed in contact-intensive sectors.
- Teleworkability:
  - Low share of workers employed in teleworkable occupations increased labor market vulnerability.

### A Global Shock
- External channels and developments:
  - Sharp contractions among trading partners contributed to sudden decline in merchandise exports, which began reversing gradually in July.
  - Enduring collapse in tourism severely affected several countries, notably in the Caribbean.
  - Remittances, expected to remain depressed, showed a surprising rebound in several countries in recent months.
  - Except for oil prices, commodity prices recovered to pre-COVID-19 levels after falling in March.
  - Stability of key agricultural and metal prices, and recovery of the Chinese economy in Q2, buffered export contractions in H1 2020.
- Financial conditions:
  - Global risk aversion from mid-February to late March led to large portfolio reallocations: abrupt increase in spreads and steep falls in currencies and equity prices.
  - Financial conditions stabilized and capital outflows moderated in April after large monetary and fiscal support packages in advanced economies.
  - Valuations have generally not yet recovered to pre-COVID-19 levels.
  - Sovereign yields in LA5 (Brazil, Chile, Colombia, Mexico, Peru) are close to historic lows.
  - Decline in US interest rates reduced financial stress across countries.
  - Capital outflows hit local currency bond markets; central banks intervened in bond and foreign exchange markets, peaking in March and scaled back as volatility subsided.
  - Domestic banks and institutional investors partly absorbed bonds sold by foreign investors.
  - Investment grade sovereigns in LAC (Colombia, Chile, Mexico, Panama, Peru, Trinidad and Tobago, Uruguay) issued hard currency debt in international markets.
  - Argentina and Ecuador concluded debt restructurings of their external public debt.

---

### A Historic Collapse in Activity
- Magnitude and timing:
  - LA5 countries experienced larger quarterly GDP contractions in Q2 2020 than in any recession on record.
  - Monthly activity indicators and retail sales show sharp contraction in April followed by partial improvement from May onward.
- Sectoral impacts:
  - Contact-intensive sectors, especially services, experienced abrupt fall in value added in LA5 in Q2.
  - Other sectors contracted more in line with past recessions.
- Demand composition:
  - Private consumption had an atypically large contraction compared with investment.
- Employment effects:
  - Employment decline in Q2 2020 was larger than the decline in GDP, an unusual pattern relative to past recessions.
  - Labor market features—informality, concentration in SMEs, low ability to work from home—put large fractions of employment at risk.
  - Informal employment, which previously acted as a buffer, was severely affected.
  - Women, young, and low-skilled workers experienced relatively large employment losses.
  - The shock is regressive given large impacts on low-skilled workers from low-income households.
- Recovery heterogeneity:
  - High-frequency indicators point to an uneven recovery since May.
  - Purchasing managers’ indices and business confidence improved, with some countries entering expansionary territory.
  - Brazil, Costa Rica, and Uruguay experienced less pronounced collapses and by July had smaller gaps in economic activity relative to January than peers.
  - Overall, economic activity remains depressed relative to pre-COVID-19 levels throughout the region.

---

*International Monetary Fund | October 2020*

### 1. Real GDP Growth

### 1. Real GDP Growth

### Recent activity and labor markets
- Economic activity shows a partial and uneven recovery since May 2020 across countries: retail sales and business confidence in Brazil bounced back to pre-COVID-19 levels in June, while Mexico recovered less strongly and remained depressed; Ecuador and Peru suffered large contractions and activity remained relatively subdued in July.
- Employment trends: after labor market improvements in May and June, some countries experienced further reductions in employment in July associated with new outbreaks and containment measures.
- In the second quarter of 2020 employment in LA5 countries fell by more than 30 million people, affecting especially workers with low educational attainment.

### Policy response: fiscal, monetary, and financial measures
- Fiscal support:
  - Countries in LAC announced fiscal support amounting to about 8 percent of GDP on average.
  - About half of above-the-line measures in LAC (approximately 2.5 percent of GDP) corresponds to increases in support for households; the rest is split evenly between support to firms, support to the health system, and other measures.
  - Most of the measures aimed at supporting households and firms have been fully implemented, though some countries experienced delays in implementation of investment plans and health expenditure.
  - IMF staff estimates: if fully implemented, the macroeconomic effect of the fiscal measures would raise the region’s level of real GDP by about 6–7 percent within a year compared with a counterfactual scenario with no fiscal measures.
  - Example social impact: in Brazil, without the emergency aid program the poverty headcount ratio would have increased from about 6.7 percent to 14.6 percent; once the emergency aid is taken into account, the poverty headcount ratio fell to 5.4 percent.
  - Some countries passed legislation allowing withdrawals from individual pension fund accounts (notably Chile and Peru), alleviating liquidity constraints but creating short-term pressures on pension funds and potential medium- to long-term fiscal liabilities.
- Monetary and financial measures:
  - Most central banks in the region eased monetary policy and provided liquidity support; Brazil, Colombia, Costa Rica, Mexico, and Peru cut rates by more than 200 basis points.
  - Chile and Peru are at the effective lower bound.
  - Liquidity support measures amounted, in some cases, to significant shares of GDP (about 16 percent in Brazil and about 8 percent in Peru).
  - Measures included quasi-fiscal operations and financial policies to mitigate bank balance sheet stress (loan restructurings, limits on dividend payouts, reduction in countercyclical or conservational capital buffers, government guarantees).
  - Asset purchase programs were used in some countries (Colombia, Guatemala, Chile) to improve market functioning, attend to social needs, and ease financial conditions.
- Central bank actions table (objectives and example country actions):
  - Easing stress in longer-term funding markets: funding for lending — ARG, BRA, CHL, MEX, PER, PRY
  - Easing stress in securities markets: Private security purchase programs — BRA, CHL, COL
  - Government bond purchase programs — COL, CRI, GTM, JAM

### Regional outlook and projections
- Real GDP is expected to contract sharply in 2020, followed by a partial recovery in 2021.
- Growth projections (Percent, year-over-year):
  - Latin America and the Caribbean: 2018 = 1.1; 2019 = 0.0; 2020 = –8.1; 2021 = 3.6
  - LAC excluding Venezuela: 2018 = 1.7; 2019 = 0.8; 2020 = –7.8; 2021 = 3.8
  - South America: 2018 = 0.3; 2019 = 2.0; 2020 = –8.1; 2021 = 3.6
  - CAPDR (Central America, Panama, and the Dominican Republic): 2018 = 3.8; 2019 = 3.2; 2020 = –5.9; 2021 = 3.6
  - Caribbean (tourism-dependent): 2018 = 2.0; 2019 = 0.5; 2020 = –9.9; 2021 = 4.0
  - Commodity exporters: 2018 = 1.1; 2019 = 1.0; 2020 = –10.6; 2021 = 3.8
  - Memorandum items:
    - LA6: 2018 = 2.1; 2019 = 0.9; 2020 = –7.6; 2021 = 3.6
    - Brazil: 2018 = 1.3; 2019 = 1.1; 2020 = –5.8; 2021 = 2.8
    - Mexico: 2018 = 2.2; 2019 = 0.2; 2020 = –9.0; 2021 = 3.5
- The 2020 growth projection is 1.3 percentage points higher than in the June 2020 World Economic Outlook Update, reflecting revisions to trading partners’ growth and a better-than-expected second quarter outturn in Brazil.
- Timing and recovery:
  - After a steep and broad-based collapse in activity in Q2 2020, regional GDP is expected to rebound in the second half of 2020 and continue a gradual recovery.
  - The medium-term outlook points to a protracted recovery, with most countries not returning to pre-pandemic GDP levels until 2023.

### External conditions, inflation, and medium-term scars
- External sector:
  - Trading partner growth is projected to fall to –4 percent in 2020 and recover in 2021.
  - Commodity prices: oil prices expected to remain subdued; prices of metals and, to a lesser extent, soybeans are projected to firm up over the medium term.
  - Current account deficits are expected to remain contained despite weak export growth and low commodity prices.
  - Impact heterogeneity: positive terms-of-trade shock will partly offset external demand shock in Dominican Republic, El Salvador, Paraguay, Uruguay, and most of the Caribbean; negative terms-of-trade shock will add drag in Bolivia, Colombia, and Ecuador.
- Domestic demand, income, and inequality:
  - Fear of contagion and precautionary saving will weigh on consumption of contact-intensive goods and services until the virus is controlled.
  - LAC’s real income per capita is expected to remain below pre-COVID-19 levels until 2025, implying the prospect of a “decade lost” similar to the 1980s.
  - The shock is expected to have a large impact on jobs and erase some social progress made until 2015, and to exacerbate LAC’s preexisting high income inequality.
  - Emergency assistance programs are expected to mitigate the social impact.
- Inflation and output gaps:
  - Amid economic slack, inflation is projected to decline and fall below target ranges in many countries in 2020.
  - Inflation is expected to rise gradually starting in 2021 but remain contained amid weak aggregate demand and negative output gaps.

### Key statistics and magnitudes (exact figures emphasized)
- Fiscal support announced: about 8 percent of GDP on average.
- Above-the-line measures supporting households: approximately 2.5 percent of GDP.
- Estimated GDP level effect of fiscal measures if fully implemented: about 6–7 percent increase within a year versus no fiscal measures.
- Brazil poverty headcount ratio estimates: without emergency aid 14.6 percent; pre-crisis about 6.7 percent; with emergency aid 5.4 percent.
- Central bank rate cuts: Brazil, Colombia, Costa Rica, Mexico, and Peru cut rates by more than 200 basis points.
- Liquidity support shares of GDP: about 16 percent in Brazil; about 8 percent in Peru.
- Employment decline in LA5 in Q2 2020: fell by more than 30 million people.
- Regional growth projections: LAC 2020 = –8.1 percent; 2021 = 3.6 percent.

*International Monetary Fund | Regional Economic Outlook: Western Hemisphere — October 2020*

### 1. Inflation

### 1. Inflation

### Inflation and Output
- Data sources: IMF, World Economic Outlook database; national authorities; and IMF staff calculations.
- Note: Data labels use International Organization for Standardization (ISO) country codes. LAC = Latin America and the Caribbean.
- Includes countries with an inflation-targeting framework.
- Purchasing-power-parity GDP-weighted average noted.
- Charts referenced for end-of-period; percent, year-over-year inflation and LAC output gap (percent of potential GDP; excludes Venezuela).

### Impact on Poverty and Scarring
- Table 3. Estimated Impact of COVID-19 on Poverty (Millions): multiple estimates across sources (October 2020 Fiscal Monitor; World bank (June 2020); ECLAC (July 2020); Lustig and others (2020)) show large uncertainty and varied estimates:
  - October 2020 Fiscal Monitor: 14.7
  - World bank (June 2020): 18–35
  - Lustig and others (2020): ranges and country-specific impacts including 1.4–2.0; 0.5–1.7; 9.3–13.9; (0.4)–5.3; 2.5–2.9; 2.2–2.7; 10.1–11.2; n.a.
- Note: Each estimate reflects different assumptions about baseline growth rates and the incidence of the crisis along the income distribution. Estimates are subject to a large degree of uncertainty, depending on pandemic developments, designated poverty thresholds, the growth outlook, and fiscal policy responses. World bank LAC estimates are relative to the counterfactual poverty headcount without a pandemic. World bank country-specific differences are relative to the 2019 poverty headcount.
- The COVID-19 crisis is expected to leave lasting scars on potential GDP. Although the pandemic’s impact on cyclical and potential output is quantitatively similar in 2020, potential output losses become more prominent as the recovery takes hold.
- Contributing factors to long-lasting damage to potential GDP:
  - Support to the corporate sector will exacerbate high leverage and increase prevalence of “zombie” firms.
  - Bankruptcies, firm closures, and postponed business plans will keep investment depressed over the medium term (Figure 14, panel 2).
  - Destruction of organizational capital and relationship-specific capital between input suppliers and final goods producers.
  - Layoffs of workers with on-the-job experience will destroy firm-specific human capital (Figure 14, panel 3).
  - Past shocks in LAC have resulted in lasting adverse effects on productivity (Figure 14, panel 4; World Bank 2020).
  - Long episodes of unemployment and informality could lead to further skill losses (IMF 2020b).
- Total factor productivity is expected to suffer because of misallocation during an uneven recovery and necessary adaptation to social distancing (October 2020 WEO).
- An accelerated structural transformation is expected, with potential high adjustment costs. Stringent labor market regulations and bankruptcy laws could hamper the process (October 2019 Regional Economic Outlook: Western Hemisphere).
- Countries with strong economic support programs aimed at preserving formal employment and viable firms may mitigate some effects; countries with limited support will likely suffer larger impacts on potential GDP.
- Trade-off: excessive preservation of existing jobs and firms may hinder necessary structural transformation (Blanchard, Philippon, and Pisani-Ferry 2020).

### Risks to the Outlook
- Overall risk bias: skewed to the downside; uncertainty about the pandemic’s evolution is a key risk.
- Adverse scenario triggers:
  - New outbreaks prompting tighter containment measures or further depressing demand for contact-intensive sectors.
  - Intensification of the pandemic associated with tightening of financial conditions (October 2020 WEO, Box 1.1).
- Benign scenario: improvements in treatment and early development of a vaccine could improve the outlook.
- External risks:
  - Lackluster global growth and a slowdown in global trade if countries tighten policy too quickly or turn protectionist (October 2020 WEO).
  - Escalation of geopolitical tensions could lower global growth and increase commodity price volatility, eroding risk appetite and reducing capital flows to the region.
- Regional and domestic risks:
  - Longer-lasting decline in activity could tighten financial conditions, exacerbate corporate and sovereign debt and funding issues, and increase insolvencies (October 2020 GFSR).
  - High sovereign debt levels could lead to credit rating deterioration and pressure in local bond markets. Large fiscal deficits and sharp GDP contractions will lead to spikes in debt-to-GDP ratios (Figure 15, panel 1). Debt expected to stabilize in the baseline as growth resumes in 2021, but adverse scenarios could lead to rating downgrades and increases in funding costs.
  - Debt service pressures likely larger in domestic markets than in external markets in non-Caribbean countries (Figure 15, panel 2).
  - Corporate and financial stress: nonfinancial corporate debt at risk has risen sharply in 2020 and could increase further in 2021 in an adverse scenario (IMF 2020d). SMEs expected to feel largest effect; Brazil firm surveys through August 2020 show higher fraction of small firms reporting declining sales than large firms.
  - Banking sector entered the crisis in a strong position, but rising bankruptcies and nonperforming loans could create pockets of vulnerability and capital shortfalls in some banks.
  - Further deterioration could lead to additional layoffs and permanent closures, especially among small and young firms, deepening scarring and amplifying inequities and social unrest.
  - Natural disasters and extreme weather remain significant risks (hurricanes, earthquakes, volcanic eruptions).

### Regional Policy Focus
- Immediate priorities:
  - Contain the spread of the virus and address the health crisis.
  - Short-term policies to remain focused on the recovery; gradual reopening facilitated by safer workplace arrangements and improved access to digital technologies.
- Fiscal policy:
  - Fiscal support should be maintained in the short term to safeguard the incipient economic recovery (IMF 2020c).
  - Accompany support with explicit, clearly communicated commitments to consolidate and rebuild buffers over the medium term.
  - Fiscal rules: countries that suspended rules should communicate commitments to restore them conditional on recovery. Passing legislation (e.g., preapproval of future tax reforms) could provide credibility for medium-term plans and create fiscal space.
  - Where activity is picking up, emergency lifelines should be gradually unwound, avoiding sudden declines in income, especially among the vulnerable.
  - Where fiscal space exists, governments could provide broad-based stimulus such as temporary payroll tax cuts (covering existing employees and new hires) and boosting public investment.
  - Where fiscal space is limited, priorities when unwinding support: preserve measures with largest social impact, increase spending efficiency, and mobilize revenue.
- Structural reforms and market reallocations:
  - Foster market-based reallocations by tackling burdensome regulations: relax entry barriers and labor market rigidities to boost recovery.
- Monetary policy:
  - Stable inflation expectations and persistent negative output gaps suggest monetary policy in LAC should remain accommodative.
  - Low policy rates may need to be combined with bond and foreign exchange market interventions if financial conditions tighten.
  - Asset purchase programs could help countries hitting the effective lower bound by lowering term premiums and flattening the yield curve, but must be combined with clear communication, be temporary with clear exit strategies, focus on high quality tradable assets, and be consistent with central banks’ objectives.
- Medium-term once medical solutions are widespread:
  - Fiscal policy will need to address legacy effects and credibly rebuild space, strengthen medium-term anchors, and implement fiscal structural reforms to enhance automatic stabilizers, preserve and improve public investment management, and improve tax progressivity and fairness of fiscal adjustments.
  - Improve targeting of social safety nets by strengthening social registries to better identify vulnerable households and achieve savings without hurting vulnerable groups (Figure 17).
- Financial sector:
  - As activity recovers, banks need to rebuild capital buffers to ensure medium-term financial stability.
  - Tackle corporate debt overhang: distinguish viable firms requiring restructuring from unviable firms requiring efficient and equitable bankruptcy frameworks; out-of-court frameworks may be needed to handle high case volume.
- Long-term growth and employment:
  - Increased urgency to close gaps in infrastructure and productivity. Invest in green infrastructure and technologies as part of reprioritization of government expenditure (October 2020 WEO).
  - Complement investment with structural reforms in product and labor markets to facilitate cross-sectoral reallocation.
  - Protect income and employment of the vulnerable alongside pro-growth reforms; stronger safety nets focusing on poverty alleviation and human capital incentives should continue.
  - Opportunity to pursue a new generation of social safety nets and programs ensuring better access to basic utilities, education, health care, and formal markets to strengthen resilience and social cohesion, prepare for automation and AI-driven changes, and make social progress more resilient to shocks including climate change (IMF 2020b, 2020c).

### Debt Restructurings and Debt Outlook
- Argentina and Ecuador undertook successful debt restructurings in 2020 amid mounting debt sustainability concerns and financing pressures.
- Argentina:
  - Presented offers in April and July; reached agreement with key external creditors in August.
  - Complex restructuring of $65 billion in foreign-law bonds, completed by September 4 with 99 percent creditor participation after CACs (94.6 percent tendered the exchange).
  - $15.2 billion of domestic law foreign exchange-denominated bonds were restructured by September 21, with 99.4 percent bondholder participation.
  - Restructurings took place outside of an IMF-supported program.
- Ecuador:
  - Launched market-friendly restructuring of its $17.4 billion international bonds, finalized on August 31 with 100 percent creditor participation facilitated by CACs (98 percent tendered the exchange).
  - An IMF staff-level agreement on an IMF program—a precondition for the debt exchange—was reached on August 28.
- Features of the debt deals:
  1. A small nominal principal reduction of $1.6 billion in Argentina and $1.5 billion in Ecuador.
  2. Increase in the weighted-average maturity from 7.9 years to 11 years in Argentina and from 6.1 years to 12.7 years in Ecuador.
  3. Reduction in the weighted-average coupon rate from 6.5 to 3.2 percent in Argentina and from 9.2 to 5.3 percent in Ecuador.
  4. Weighted-average grace period of 6.9 years in Argentina and 6 years in Ecuador.
  5. Very low annual interest payments between 2021 and 2024, averaging (figure/text truncated in source).

*International Monetary Fund | October 2020*

### 0.25 percent of GDP in Argentina and 0.35 percent of

### Box 1. Sovereign Debt Restructuring in Argentina and Ecuador

### Restructuring outcomes and market reaction
- Debt restructurings provide liquidity relief of $33.3 billion to Argentina and $16.4 billion to Ecuador over the next decade.
- Public-debt-to-GDP ratios are expected to decline to 40 percent in Argentina and 45 percent in Ecuador following restructurings.
- Bond prices recovered in the run-up to the restructurings but have declined since, reflecting, in part, domestic policy uncertainty.
- Both restructurings include legal innovations aimed at encouraging bondholder participation, such as clauses to limit the possibility of voting abuses (IMF 2020e).
- Debt restructuring dates:
  - Argentina: September 4, 2020
  - Ecuador: September 1, 2020

### Box Table 1.1 — Selected Debt Restructuring Operations (Billions of US dollars; unless indicated otherwise)
- Public debt (end-2019)¹
  - Argentina: 206.5
  - Ecuador: 55.7
- Public debt (end-2019; percent of GDP)¹
  - Argentina: 56.2
  - Ecuador: 51.8
- Debt Subject to Restructuring
  - Argentina: 80.2
  - Ecuador: 17.4
    - foreign Law
      - Argentina: 65.0
      - Ecuador: 17.4
    - domestic Law
      - Argentina: 15.2
      - Ecuador: . . .
- Cash flow Relief, 2020–30
  - Argentina: 33.3
  - Ecuador: 16.4
- Recovery value (percent; 10 percent discount rate)
  - Argentina: 55.1
  - Ecuador: 55.0
- Restructured bonds — Rating (Standard & Poor’s)
  - Argentina: CCC
  - Ecuador: 1b2
- Restructured bonds — Price
  - Argentina: 45–52
  - Ecuador: 49–74
- Restructured bonds — yields (weighted average)
  - Argentina: 11–12
  - Ecuador: 9.6

Notes in table:
- Sources: Bloomberg Finance L.P.; national authorities; and IMF staff calculations.
- 1 for Argentina, excludes debt held by other public sector entities.
- 2 for Argentina, excludes US$3 billion in foreign currency debt converted to local currency.
- 3 Standard & Poor’s.
- 4 Includes past-due interest (PdI) bonds. In the case of Ecuador, the amount of PdI is as of September 1 and is after the nominal haircut. For Argentina, PdI is as of September 4, 2020.
- Long-term past-due-interest bonds: $3.5 billion in Argentina and $1 billion with nominal haircut in Ecuador.

### Annex 1. COVID-19 in Latin America and the Caribbean — containment and outcomes
- Latin America locked down early, when total cases were still low; lockdowns were stringent and mobility plummeted for a while.
- Lockdowns were not fully effective; mobility started rising before relaxation of restrictions and while new cases and deaths were still rising, producing a slow-burn pattern.
- Structural factors contributing to containment difficulties: high degree of poverty and informality, urban agglomeration, weak state capacity and lack of fiscal resources, weak health systems, and lack of tests and tracing.
- Local projection results cited:
  - In countries with low informality/high government effectiveness, the increase in total cases 30 days after containment measures was about 75/65 percent lower compared with similar countries that did not introduce such measures.
  - In countries with high informality/low government effectiveness that imposed containment measures, total cases experienced an increase/no change relative to comparators.
- IMF staff analysis links high total death toll to weak hospital capacity, high population density, and, in some cases, large populations and geographic location; relatively favorable demographics and BCG vaccination have helped reduce total death toll in the region (Annex Table 1.1, IMF 2020a).

Annex Table 1.1. Correlates of Total Deaths (Dependent variable: total deaths per million)
- Population over 70 years Old
  - May 30: 14.8*** (2.93)
  - Aug. 30: 15.7*** (4.73)
- bCG dummy
  - May 30: 2117*** (30.9)
  - Aug. 30: 2107*** (47.6)
- Hospital beds per 10,000 People
  - May 30: 212.5 (5.14)
  - Aug. 30: 214.3 (7.10)
- Log (total population)
  - May 30: 10.20* (2.68)
  - Aug. 30: 20.05** (8.90)
- LAC dummy
  - May 30: n.s.
  - Aug. 30: 153.2*** 
- R 2
  - May 30: 0.35
  - Aug. 30: 0.27
- Number of Countries
  - May 30: 15
  - Aug. 30: 21
- Number of Countries in LAC
  - May 30: 22
  - Aug. 30: 17

### Annex 2. Latin American Labor Markets during COVID-19 — distributional impacts
- Employment fell more steeply for women, especially in Brazil, Colombia, and Peru.
- Young and older workers were affected more than those between 25 and 60 years of age.
- Workers with tertiary education suffered smaller reductions in employment; in Brazil and Chile, employment for this group was back to pre-pandemic levels by June.
- Informal employment declined substantially; except in Colombia, informal employment fell at a higher rate than formal employment.
- The shock is regressive: contact-intensive occupations are more common among women and informal workers; ability to work remotely is more prevalent among formal and high-skilled workers.

Annex Figure 2.1. Employment Changes by Workers’ Characteristics (Percent; February to June 2020)
- Panels reported: 
  1. Employment Changes by Gender (Male / Female)
  2. Employment Changes by Age (<24; 25–45; 46–60; >60)
  3. Employment Changes by Education (Primary; Secondary; Tertiary)
  4. Employment Changes by Informality (Informal / Formal)

Notes:
- For Mexico, changes are for June relative to the first quarter of 2020.
- For Brazil, age groups are: younger than age 24, 25–40, 41–60, and older than age 60.
- Data for Peru are for Lima; no data are available for informality.

### Annex 3. Fiscal Policy at the Time of a Pandemic: How Has Latin America and the Caribbean Fared?
- Governments in LAC announced fiscal support packages amounting to 8 percent of GDP on average (including above-the-line and below-the-line and off budget measures).
- Structural-model simulations indicate:
  - Above-the-line fiscal measures increase real GDP by about 5 percent relative to the baseline without fiscal support.
  - The debt-to-GDP ratio increases by about 2 percentage points relative to baseline within a year.
  - Effects dissipate in the medium term as stimulus is unwound and partial consolidations occur.
  - Below-the-line and off-budget measures could add between 1 and 2 percentage points to real GDP levels.
  - The combined effect of above- and below-the-line measures, if fully implemented, would raise LAC real GDP by about 6 to 7 percent within a year relative to the counterfactual.
- Policy recommendations summarized:
  - As lockdowns are lifted, gradually scale down lifelines under uncertainty about the pandemic’s course.
  - Broad-based fiscal stimulus could support recovery when there is fiscal space, but additional support should be accompanied by a clear commitment to adjustment over the medium term to restore sustainability.
  - Fiscal rules will play an important role.
  - Passing legislation to ensure fiscal consolidation over the medium term (such as preapproval of tax reforms) would help as a commitment device.
  - Enhancements to automatic stabilizers and safety nets would strengthen a more inclusive recovery.

Annex Figure 3.1. Effects of COVID-19 Measures
- Panels reported:
  1. LAC: Effects of Above-the-Line Measures (Real GDP level percent difference; Government debt percent of GDP difference; Min-max range)
  2. Effects of Below-the-Line and Off-Budget Measures on Real GDP Growth (Percentage points)
- Time horizon shown includes years 2019–2025.
- Below-the-line components include Total, Contingent liabilities and other, and Below the line measures.

### Annex 4. Assessing the Impact of the COVID-19 Pandemic on the Corporate and Banking Sectors in Latin America
- Nonfinancial corporate sector in LAC was weakening before the pandemic with falling profitability and increasing leverage.
- Share of corporate debt at risk (debt of firms with earnings before taxes and interest lower than interest expense):
  - December 2019: 14 percent
  - June 2020: 29 percent
  - Could rise to near 50 percent in 2021 in an adverse scenario where corporate earnings do not grow and interest expenses increase in line with the rise in corporate debt.
- LAC banks entered the pandemic with ample capital and liquidity buffers and low nonperforming loans; financial soundness indicators worsened somewhat in H1 2020 but impact has been moderate so far due to financial sector policy measures.
- IMF (2020d) stress-test exercise for a sample of 61 major banks in the six largest economies in LAC (covering over 75 percent of bank assets in each jurisdiction) yields:
  - Under the WEO baseline scenario, most LAC banks would maintain capital ratios well above regulatory minimums.
  - Under the WEO adverse scenario, weaker banks with high nonperforming loans and low profitability at the onset could face significant deterioration and some could experience capital shortfalls without policy response.

Annex Figure 4.1. Corporate and Financial Vulnerabilities
- Panels reported:
  1. Corporate Leverage in Latin America (Debt to assets; percent) — median of nonfinancial corporations of Argentina, Brazil, Chile, Colombia, Mexico, and Peru.
  2. Capital Adequacy Ratio (Percent)
  3. Distribution of Bank Assets by CET1 Ratio under Adverse Scenario (Percent of sample banks in each jurisdiction)

Notes:
- CET1 = common equity Tier 1; EME = emerging market economies.
- Shaded areas in charts refer to percentile ranges where indicated.

### Annex 5. Disclaimer (data and series notes)
- For Argentina, fiscal and inflation variables are excluded from publication for 2021–25 and 2020–25, respectively, as these are linked to pending program negotiations.
- Official national CPI for Argentina starts in December 2016. For earlier periods CPI data reflect different series: Greater Buenos Aires Area CPI (prior to December 2013), the national CPI (IPCNu)—(December 2013–October 2015), the City of Buenos Aires CPI (November 2015–April 2016), and the Greater Buenos Aires Area CPI (May–December 2016). Average CPI inflation for 2014–16 and end-of-period inflation for 2015–16 are not reported in the October 2020 WEO.
- Argentina discontinued publication of labor market data in December 2015; new series available starting Q2 2016.
- Fiscal series for the Dominican Republic: public debt, debt service, and cyclically adjusted/structural balances are for the consolidated public sector; remaining fiscal series are for the central government.
- Fiscal data for Ecuador reflect net lending/borrowing for the nonfinancial public sector. Ecuadorean authorities, with IMF technical support, are revising historical fiscal data for net lending/borrowing of the nonfinancial public sector over 2012–17.
- Starting in October 2018 Uruguay’s public pension system began receiving transfers recorded as revenues consistent with IMF methodology; these transfers amounted to 1.3 percent of GDP in 2018, 1.2 percent of GDP in 2019, and are projected to be 0.8 percent of GDP in 2020.

*Prepared by IMF staff (Box prepared by Matteo Ghilardi and Michael Perks). Source: International Monetary Fund — Regional Economic Outlook: Western Hemisphere, October 2020.*

### 0.2 percent of GDP in 2021, and zero thereafter.

### 0.2 percent of GDP in 2021, and zero thereafter.

### Uruguay: change in fiscal coverage and implications
- The coverage of the fiscal data for Uruguay was changed from consolidated public sector to nonfinancial public sector (NFPS) with the October 2019 WEO.
- In Uruguay, NFPS coverage includes central government, local government, social security funds, nonfinancial public corporations, and Banco de Seguros del Estado.
- Historical data were also revised accordingly.
- Under this narrower fiscal perimeter—which excludes the central bank—assets and liabilities held by the NFPS where the counterpart is the central bank are not netted out in debt figures.
- In this context, capitalization bonds issued in the past by the government to the central bank are now part of the NFPS debt.
- See IMF Country Report 19/64.

### Venezuela: data limitations, projection methodology, and uncertainty
- Projecting the economic outlook in Venezuela, including assessing past and current economic developments as the basis for the projections, is complicated by the lack of discussions with the authorities (the lastest Article IV consultation took place in 2004), incomplete understanding of the reported data, and difficulties in interpreting certain reported economic indicators given economic developments.
- The fiscal accounts include the budgetary central government; social security; FOGADE (insurance deposit institution); and a sample of public enterprises, including Petróleos de Venezuela, S.A. (PDVSA); data for 2018–19 are IMF staff estimates.
- The effects of hyperinflation and the paucity of reported data mean that the IMF staff’s projected macroeconomic indicators need to be interpreted with caution.
- Nominal GDP is estimated assuming the GDP deflator rises in line with the IMF staff’s projection of average inflation.
- Public external debt in relation to GDP is projected using the IMF staff’s estimate of the average exchange rate for the year.
- Wide uncertainty surrounds these projections.
- Venezuela’s consumer prices are excluded from all WEO group composites.

### Key numeric and methodological points preserved from the source
- 0.2 percent of GDP in 2021, and zero thereafter.
- Last Article IV consultation: 2004.
- Data for 2018–19 are IMF staff estimates.
- Nominal GDP estimation: assumes the GDP deflator rises in line with the IMF staff’s projection of average inflation.
- Public external debt projection: uses the IMF staff’s estimate of the average exchange rate for the year.
- Venezuela’s consumer prices are excluded from all WEO group composites.

*Source: https://www.imf.org/-/media/files/publications/reo/whd/2020/oct/english/text.pdf*

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_Source: https://www.imf.org/-/media/files/publications/reo/whd/2020/oct/english/text.pdf_