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Developing countries risk sinking into instability under the weight of the pandemic without further financial support from rich countries and the IMF, the Costa Rican president has warned.
Costa Rica, which has just over 5 million inhabitants, is known for its ecotourism. It has experienced an increase in its own debt-to-GDP ratio in recent years. President Carlos Alvarado said declining income and increased social spending caused by the pandemic was compressing governments in developing countries and pushing society to its limits.
“It has put a lot more already indebted economies under a lot more pressure,” he told the Financial Times. “There are also a lot of social demands, there is a big risk of economic, political and social instability in developing economies.
The UN has warned of a global debt sustainability crisis in the wake of the coronavirus pandemic, which pushed an estimated 100 million more people into poverty in 2020, according to the World Bank. The IMF has offered further support by issuing special drawing rights or SDRs and debt service relief.
SDRs are intended to increase liquidity and can be held in reserve, exchanged for hard currencies, or used to pay obligations owed to other IMF members.
Costa Rica agreed to a nearly $ 1.8 billion SDR facility with the IMF this year, but Alvarado said that alone would not be enough to have a profound impact. He said more development finance was needed from the IMF and others. Without it, instability will affect richer countries, especially through migration or a lack of action on climate change, he said.
“I think here the phrase ‘we will not all agree until we all agree’ becomes reality,” he said. “If we want to change the world, we have to generate more support, this is the only way. “
The IMF did not immediately respond to a request for comment.
Center-left Alvarado said the government of US President Joe Biden had focused on climate change and had a more holistic approach to migration issues, but that a deeper understanding of its causes was needed, from poor harvests to lack of opportunities.
His comments came on Saturday on the sidelines of a meeting in Mexico City of the Community of Latin American and Caribbean States (CELAC), a group of 33 countries that some leftists say should replace the Organization of American States. (OAS) based in Washington. .
CELAC leaders from left and right traded beards during the meeting – including with surprise visitor Venezuelan President Nicolás Maduro – but they agreed to work widely on access to Covid-19 vaccines and a new fund for natural disasters.
Alvarado said he sees CELAC as a complement to the OAS and that smaller nations like Costa Rica have long called on G20 members, Mexico and Argentina, to relay their advocacy for more funding. of development.
Rating agency Fitch said in September that Costa Rica’s “decade-long fiscal degradation” could reach an inflection point thanks to the belt tightening in its latest budget. But the political deadlock remains a major risk, he said, with protests against austerity still recent and elections scheduled for early 2022.
Alvarado said he was confident Costa Rica would remain solvent and comply with the deal with the IMF, but that development cooperation and financing was the key to success.
“The more we understand each other, the harder it will be to move policies forward,” Alvarado said.