Latin America has been badly hit by Covid-19. The number of cases per one million population exceeds 22,500 (the US rate) in Brazil, Chile, Panama and Peru. The number of new cases is starting to fall but, in most economies, stringent restrictions remain. There are some notable exceptions: Uruguay, with less stringent measures than other countries in the region, has a lower incidence of the virus and so far, has recorded only 53 deaths (as of 22 October). 
But for the region as a whole, Covid-19 has had a substantial effect with GDP expected to contract by almost 10 per cent in 2020, on the basis of the International Monetary Fund’s latest forecasts.
Rebuilding economies is set to require substantial resources both to meet immediate needs and build a more resilient economy for the future.
We see three sources of funds as being important:
1. Funds from the IMF, which has a range of different programmes. Its new flexible credit lines have already been deployed, providing short-term credit for emergency needs. However, these are restricted to what the IMF describes as countries with ‘platinum quality policies’. Four countries fall into that category: Chile, Colombia, Mexico and Peru. More conventional IMF programmes (such as that for Argentina) have a chequered history in the region and are unlikely to be used enthusiastically.
2. The IADB (Inter-American Development Bank) may well play a greater role under its new leader, Mauricio Claver-Carone, a Cuban-American. The first president of the institution from outside the region, he is expected to forge closer ties with the US. This, to us, seems consistent with our long-held view that the world will become tripolar. Latin America is well-placed to make greater inroads into the north American supply chain, potentially emulating the success of Mexico in that respect.
3. China – Increased interest in pan-American development may well have a close eye on China’s increasing involvement in the region. 
In the region, Brazil has received the most investment from China, amounting to almost $70bn since 2005 (see graph). That investment has been largely in the agricultural sector. Other economies receiving Chinese funds – Argentina and Venezuela – are less likely to be favoured by investors with a more capitalist orientation. Proposals for an extension of Argentina’s wealth tax to citizens living outside the country are unlikely to kindle the interest of western investors seeking investment opportunities.
Monetary easing
On a more optimistic note, there is scope for more monetary easing, especially in economies, such as Brazil, where inflation has fallen sharply. Even so, in both Brazil and Mexico, the effects of currency weakness risk pushing inflation higher in the short term. Two countries with already low official interest rates – Peru and Chile – are in a position to be able to use quantitative easing if needed. Latin America will undoubtedly weather this latest storm, but brighter prospects may not be evident until well into 2021.
Joaquin Thul is an investment analyst at EFG Asset Management. The views expressed above are his own and should not be taken as investment advice.