Which Latin American Countries Will Be Most Affected By the War In Ukraine?

Russia’s invasion could have the severest economic effects on El Salvador and the Dominican Republic, while Bolivia and Ecuador are among the region’s countries that may be less affected

Bolivia and Ecuador could be the Latin American countries least affected by the war in Ukraine, while El Salvador and the Dominican Republic could be the worst affected.
May 12, 2022 | 06:00 PM

Russia’s invasion of Ukraine has impacted several economic variables, such as a rise in the price of raw materials and the reduction of energy supplies, and The Economist has prepared an analysis of which Latin American countries are best prepared in the face of the new global scenario, and which are the least prepared.

Among the countries in the region that are best positioned to face the conflict are Bolivia, Ecuador, Paraguay, Chile and Peru, while the countries that are likely to be more severely affected are El Salvador, Dominican Republic, Nicaragua, Costa Rica, Panama, Jamaica and Brazil.

The report takes into account countries' current account, inflation, interest payments, public debt, the risk of political instability, regulatory and legal risk, and dependency on commodities. dfd

The report takes into account the health of each country’s current account, inflation, interest payments, public debt, the risk of political instability, regulatory and legal risk, and dependency on commodities.

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The Best Positioned

According to the analysis, Bolivia is the country with the most to gain from the situation, as the gas price boom would not only boost its growth much faster, but would also completely alter the economic policy outlook, since Bolivian authorities have the possibility of avoiding fiscal and monetary adjustments.


On the other hand, Bolivia, Ecuador, Peru, Paraguay and Chile are producers of raw materials, so, thanks to the increase in raw material prices, they can better weather the situation, according to the analysis.

Commodity prices won't come down for some timedfd

Meanwhile, the region’s second and third-largest economies, Mexico and Argentina respectively, appear in eighth and ninth position. According to the analysis, Mexico is most affected by the commodities factor, while Argentina is particularly affected by inflation, public debt and legal and regulatory risk.


The Worst Positioned

According to the analysis, the five countries in the region that are most vulnerable to the global impact of the war are El Salvador, Dominican Republic, Nicaragua, Costa Rica and Panama.


“All are entering the crisis with relatively high levels of public debt, external imbalances and high inflation, and none are major commodity exporters,” the analysts note.

In this environment, U.S. monetary tightening will weigh on growth, given that the U.S. is an important trading partner for all five countries.

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Meanwhile, the region’s largest economy, Brazil, also appears among the worst positioned. Concerns about the South American giant include rising inflation, high interest payments on debt, and a large stock of public debt.

Virtuous Or Vicious Cycle?

Although the moments when commodity prices go through the roof are usually beneficial for the region, and given that the countries have experienced phenomenal growth, the analysis who drew up the report doubts that something similar will happen this time around.

The central banks of Latin America get ahead of U.S. monetary policy tightening. dfd

“Unlike true commodity super-cycles, this one may not be sufficient to produce a more beneficial investment boom in areas such as energy that require long lead times,” The Economist says.

It also highlights the “continuing political upheavals in the region”, related to “voter disillusionment with crime, corruption and income inequality, and exacerbated by the coronavirus”,

On the other hand, analysts noted that Latin America’s domestic fundamentals also appear weaker this time than in 2008, when the last global financial crisis hit.

The region entered the global financial crisis in 2008 “in unprecedented economic health”, given that “public debt was low, the banking sector was healthy and the arduous efforts of the main central banks in the region to control inflation expectations had paid off”. In contrast, today the region is dealing with high inflation and much higher public debt, which “leaves governments with little room to maneuver”, according to the report.