Actions taken in Latin America to overcome the Covid-19 crisis

The Covid-19 virus which originated in late 2019 in China has spread worldwide, creating a pandemic with unprecedented health and economic consequences. Countries around the world have set to work to try to tackle the crisis on both fronts. In this article we will focus on the measures that the governments and central banks of Chile, Mexico, Peru and Colombia have adopted to lessen the impact in their respective countries.

Below we summarize the key actions and initiatives taken by each country.


Although Chilean GDP fell 2.1% during the last quarter of 2019 as a result of the social uprising, unemployment and inflation data was not as bad as expected. In fact, up to February, the economy grew 2.7% in year-on-year terms. But then the Covid-19 pandemic arrived, and new fiscal policy measures had to be taken.

The government has promoted two fiscal plans for a total of 35,750 million dollars, which represents 14.3% of the national GDP. The first USD 11.75 billion plan focused on three fronts:

  • Strengthen the health system budget.
  • Protect the income of families: allocation of 2,000 million dollars to a special unemployment insurance fund, a payment of a Covid-19 aid grant of 50,000 Chilean pesos to each family, a lowering of the tax burden for fee based self-employed professionals and a fund of 100 million dollars for social emergencies.
  • Protect employment: the collection of numerous taxes on companies and individuals who meet certain requirements is delayed and stamp duty is reduced to 0%. In addition, to aid liquidity, payments to state suppliers are accelerated and Banco Estado’s [1] capital is increased to grant financing to small companies and individuals.

The second fiscal plan was aimed at helping companies, $ 24 billion dollars will be used to strengthen state guaranteed credit lines, $ 2 billion dollars of which will be used to create a fund to help informal workers.

On the monetary policy side, the Chilean Central Bank lowered the monetary policy rate (TPM) by 50 basis points to its technical minimum of 0.5%. Other measures adopted by the entity were to increase financing facilities, dependent on like for like increase in loans (FCIC); the inclusion of corporate bonds within eligible collateral for all current liquidity operations in pesos, including the FCIC; the initiation of a program of bank bond purchases to the participants of the SOMA system for an equivalent amount in UF of up to 4 billion dollars and an extension of the end date of the currency sale program until January 9, 2021.

In relation to the country’s credit rating, the Moody’s agency maintains the “A1” rating, with a stable outlook for Chile, however, it warns of risk due to the absence of debt stabilization indicators. For its part, Fitch Ratings places Chile in “A” with a negative projection.

Lastly, the march Monetary Policy Report showed that the Chilean economy will contract between 1.5% and 2.5% this year as a result of the Covid-19 crisis, which is close to the biggest drop since the crisis of the 80s.


The Peruvian government has presented one of the most ambitious contingency plans in the region, of up to 12% of GDP. It has committed to spend at least 90,000 million soles (about 26,000 million dollars). Of the total, 60,000 million Peruvian soles will be directed to rebuilding industries such as tourism, which is the third most important sector in the country and whose industry has been almost completely paralyzed by the crisis.

Meanwhile, the Central Bank reduced the benchmark interest rate by 100 basis points from 2.25% to 1.25% and is preparing a program to grant government-backed loans of 30,000 million of soles aimed at small and medium-sized companies.

Despite the crisis and the increase in public spending, the Fitch Ratings agency maintains Peru’s credit rating at BBB + with a stable outlook, arguing that it reflects the country’s solid public and external balance sheets, as well as its macroeconomic policies that have strengthened the economic and financial stability.

Finally, the Peruvian government’s estimates of the growth of the economy in 2020 have worsened from 4% to 2%. However, there are more pessimistic estimates such as Scotiabank’s, which lowered the growth projection from 2.4% to 0.3% due to the impact of the coronavirus pandemic on the economy. In addition, it foresees a recession during the first semester, with the strongest falls occurring between March and May.


In Mexico, the Covid-19 pandemic arrived in parallel with the crisis generated by the fall in oil prices. For his part, the president Andrés Manuel López Obrador has been announcing his aversion to using public debt to finance programs that help combat the crisis. However, a 14 billion dollar public and private investment program for the energy sector is expected to be rolled out. In addition, it announced its intention to create, within the next nine months, two million public jobs and the use of 10 billion dollars from public trusts for productive and social development projects.

Another series of initiatives has also been implemented, such as granting 61.1 billion Mexican pesos to development banks and another 25,000 million pesos through one million loans to small businesses.

Despite the above, there have been several voices from the political, economic and business world that affirm that the economic plan is far from meeting expectations and would be limited to only a continuation of the fiscal plan that they already had prior to the emergence of the pandemic, thus leaving the country without a countercyclical fiscal policy.

For its part, Banxico lowered the interest rate 50 basis points, standing at 6.5% and opened a swap line of 60,000 million dollars that will be exchanged with the United States Federal Reserve. Of these, it has already auctioned 5 billion to release pressure on the exchange rate.

The Standard & Poor’s Global Ratings agency lowered Mexico’s sovereign credit rating from BBB + to BBB, leaving the country only two levels above the investment grade limit.

Mexico has suffered sharp cuts to its growth projections by various analysts, for example, Citibanamex reduced its growth outlook from 0.5% to a negative figure of 2.6% by 2020, Bank of America anticipates a contraction of 4.5% and the OECD, being the most optimistic, estimates a growth of 0.7% for the country.


To date, the Colombian government has mobilized the least resources in absolute terms (US$ 4.6 billion). In addition to increasing the health budget to face the pandemic, it has been announcing a series of measures since the Covid-19 crisis began:

  • Concession of credits to the agricultural sector for 1 trillion of Colombian pesos (about 260 million dollars).
  • Aid to families: a subsidy will be awarded to the 2.6 million households that form part of one of the social programs and a second program called Solidarity Income is launched, which benefits 3 million households with the delivery of a subsidy 160,000  Colombian pesos.
  • Taxes: a bi-monthly VAT refund will be made to the neediest sectors and that will have a total cost of 400,000 million pesos (about 100 million dollars).

These programs are funded by the Emergency Mitigation Fund (FOME), endowed with US$ 3.8 billion. In addition, the government has requested a line of financing from the IMF amounting of US$ 11 billion.

On the business financing side, the National Guarantee Fund offers financial support to SMEs with coverage of 60% of the credits requested, while the financial sector is offering extensions on some loans without modifying the initial contractual conditions.

In monetary policy, the Colombian Central Bank has reduced the interest rate by 50 basis points to 3.75% and increased liquidity in dollars through Swaps auctions (FX Swaps) by 400 million dollars. Along with the above, a new auction of financial compliance forward operations (Non-Delivery Forwards) will be held for 1,000 million dollars over 30 days, to expand the exchange hedging mechanism.

Both Standard & Poor’s and Fitch Ratings downgraded Colombia’s credit rating to BBB.

Regarding future prospects, the National Association of Financial Institutions (ANIF) published its estimate of GDP growth, placing it between 1.8% and 2% this year, below the range of 3.4% and 3.6 % expected at the beginning of the year.


Each of the countries analyzed has adopted different initiatives to tackle the crisis. The two healthiest economies in the region, Chile and Peru, are also the countries that are implementing the greatest fiscal and monetary stimulus. However, they have both seen their growth projections reduced.

Looking at the measures adopted by the United States and the Eurozone, both regions are focusing on attacking credit risk – granting public guarantees on certain types of loans, and liquidity risk – expanding the range of instruments eligible as collateral to request liquidity from their central banks. In the case of Latin America, the measures seem to be more focused on ensuring credit risk and not so much on liquidity, except in the case of Chile, which has already expanded the eligibility of collateral.

In addition, it should be noted that Latin American economies have other problems to face, such as exchange rate risk or talking poverty. As a result, the majority of the measures taken are focused on the most vulnerable sector of the population.

In any case, it is an unprecedented and constantly evolving crisis. Governments and central banks must be alert to developments to overcome uncertainty and while adapting to the contingencies of each country.

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[1] Government-owned bank.

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