Financial Services Advisor covered the increase of defaults in Latin America, which is already affecting companies such as the retailer Lojas Americanas in Brazil and the Mexican financial institution Mexarrend. The publication featured a Q&A with some experts in the matter, including John Price, Managing Director at Americas Market Intelligence.
Here is what Price said:
We estimate that higher interest rates in 2023 will cost Latin America’s economies approximately $100 billion more of debt servicing as compared to 2022, a bill divided between governments and the private sector. Additionally, the United States-led credit squeeze will decrease Latin American venture capital funding by as much as two-thirds as compared to 2022, following a decade of more than 40 percent annual growth. That is a painful blow to the digital economy, which has spearheaded much of Latin America’s homegrown innovation in fields such as fintech, e-commerce and logistics. But most Latin American businesses, even the storied multilatinas, carry reasonable debt levels on their balance sheets. Devaluations in the past helped to wean Latin America off dollar debt. Today, most Latin American businesses rely on domestic sources of debt to fuel their growth. High domestic interest rates in Brazil, Mexico, Chile and Peru have buoyed those currencies, helping to sustain consumption levels, which will grow a surprising 6 percent across Latin America this year, when measured in dollars. Healthy consumption helps corporations stay liquid while servicing their higher debt costs. This is starkly different from historical Latin American downturns when higher interest rates combined with crashing demand.