Latin America’s debt risks revisited

A year ago, we published an in-depth report arguing that the calm prevailing at the time around sovereign debt risks in Latin America wouldn’t last and that public debt dynamics would deteriorate. While there have been some positive stories (Argentina, to an extent), if anything developments over the intervening period have been worse than we feared. With governments seemingly reluctant to tighten their belt, public debt ratios are likely to rise further, bond spreads could widen, and central banks may increasingly need to take a leaf out of Brazil’s book and factor fiscal risks into their decisions too.