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Global financial system hampering South America’s response to pandemic crisis

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Argentine

While Argentina and Brazil implemented different responses to the pandemic outbreak, the two countries in South America will reportedly face similar economic ramifications due to the crisis. Significantly, the reason behind such an outcome rests on the two countries’ contributions to the international division of labour.

Historically, both Argentina and Brazil have been supplying cheap agrarian and mining commodities in the global market. Noting the role of Argentina and Brazil in world trade, the pandemic crisis has adversely contracted the inflow of ground rent. With external trade collapsing in the wake of pandemic restrictions, both the countries have witnessed a fall in prices and diminishing external demand. Due to shutdowns, manufacturing has already deteriorated in both South American countries since March which has also impacted the trade process.

Furthermore, due to the subordinated financial position of Argentina and Brazil in the international financial market, the impact of the COVID-19 pandemic is reportedly expected to augment in the region. External financing has already been halted which has resulted in a shortage of dollars in the two countries. In addition, the United Nations Conference on Trade and Development (UNCTAD) has also predicted that the Latin American region will witness its largest dip in foreign direct investment flows. Following this development, exchange rates in both Brazil and Argentina are under massive pressure and have lost their values in recent weeks.

The international position Argentina and Brazil has aggravated due to the overall COVID-19 impact leading to severe economic crises. At such a time, it is crucial for policymakers of both the countries to come up with bold reforms for a radical transformation of the contribution of Argentina and Brazil in the international division of labour and the global financial system.

After days of strict lockdown, Argentina is trying to find ways of economic revival. Even before the pandemic hit, the country was facing the third year of recession in 2020. According to official statistics, Argentina’s economy shrank by over 26% in April this year. With thousands of job losses, unemployment is on the rise even as President Alberto Fernandez’s administration barred companies from laying off employees. Currency controls have been tightened by the government making it difficult for people to exchange pesos for dollars.

Brazil, on the other hand, is facing an intense political crisis due to President Jair Bolsonaro’s mishandling of the pandemic situation and his fight with the Congress and Supreme Court. Brazil is currently the world’s second worst-affected country by the COVID-19 virus. The political chaos is further leading to instabilities in the market, adding to the crisis for investors.

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