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Developing countries are at risk of sliding into instability under the weight of the pandemic without more financial support from richer nations and the IMF, Costa Rica’s president has warned.
Costa Rica, which has a population of just over 5m people, is known for eco-tourism. It has suffered an increase in its own debt-to-GDP ratio in recent years. President Carlos Alvarado said that lower income and higher social spending caused by the pandemic were squeezing governments in the developing world and pushing society to its limit.
“It’s put a lot of economies that were already indebted under a lot more pressure,” he told the Financial Times. “There’s also a lot of social demands, there’s 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 100m more people into poverty in 2020, according to the World Bank. The IMF has offered new support by issuing special drawing rights or SDRs and debt service relief.
SDRs are aimed at boosting liquidity and can be held in reserve, exchanged for hard currency or used to pay obligations owed to other IMF members.
Costa Rica agreed to a nearly $1.8bn SDR facility with the IMF this year, but Alvarado said that alone would not be enough to have a deep impact. He said more development finance was needed from the IMF and others. Without it, instability will affect richer nations, particularly though migration or a lack of action against climate change, he said.
“I think here the phrase ‘we won’t all be OK until we’re all OK’ becomes reality,” he said. “If we want to change the world we need to generate more support, it’s the only way.”
The IMF did not immediately respond to a request for comment.
Centre-left Alvarado said US President Joe Biden’s government had brought a renewed focus on climate change and had a more holistic approach to migration issues, but that a deeper understanding was need of its causes, from crop failures to lack of opportunity.
His comments came 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 which some leftist members have suggested should replace the Washington-based Organization of American States (OAS).
CELAC leaders from left and right traded barbs at the meeting — including with surprise visitor Venezuelan President Nicolás Maduro — but they agreed to work broadly on access to Covid-19 vaccines and a new natural disasters fund.
Alvarado said he saw CELAC as complementary to the OAS, and that smaller nations like Costa Rica had long asked G20 members Mexico and Argentina to relay their plea for more development financing.
Rating agency Fitch said in September that Costa Rica’s “decade-long fiscal deterioration” might be reaching an inflection point thanks to belt tightening in its latest budget. But political gridlock remains a key risk, it said, with protests against austerity still fresh and elections scheduled for early 2022.
Alvarado said that he was confident that Costa Rica would remain solvent and comply with the IMF deal, but that co-operation and development finance were key to success.
“The more we squeeze ourselves the harder it’s going to be to take policies forward,” Alvarado said.