Jerome Powell, chairman of the Federal Reserve, in an appearance before the Senate last September. POOL (Reuters)
In Washington DC, housed in the Marriner S. Ecles building, there is a room in which four people lock themselves, with a periodicity that is generally bimonthly, to make a decision that is as encrypted as it is strategic: they define the cost of money.
They are the directors of the Federal Reserve, the Central Bank of the United States.
That quartet, chaired by lawyer Jerome Powell, has the material destiny of the planet in its hands.
In their last meeting, which took place on March 16, Powell and the other directors abandoned the inertia in which they were installed.
After two years of inactivity, they decided to raise the cost of money by 0.25%.
With this change, credits in dollars, which had been kept at a zero rate since the beginning of the pandemic, are now in a range that goes from 0.25% to 0.5%.
The market is preparing for further increases, perhaps more pronounced.
He calculates that at the beginning of 2023 the interest rate in dollars could be at 3%.
It is the beginning of a new era.
The Federal Reserve reacted in this way to the increase in inflation in the United States.
Americans are embarrassed with an acceleration in prices that was 7.9% in 2021. The highest since 1982. This alteration, which has consequences for the global economy as a whole, installs disturbing clouds on the horizon of Latin America.
The increase in rates has an immediate effect on capital flows.
Obtaining dollars to finance themselves will be more expensive because savers will prefer, compared to more uncertain options, to buy Treasury bonds, which are now becoming more profitable.
It is a special challenge for the States.
The experts who anticipate this movement sound alarm bells about the Latin American economies.
This is what happened on Tuesday of last week at a meeting organized by the Latin American Center for Economic and Social Policies (CLAPES) of the Catholic University of Chile, in which several former Ministers of Economy of the region participated: the Peruvian Mercedes Aráoz , the Argentine Nicolás Dujovne, the Chilean Felipe Larraín, the Colombian Mauricio Cárdenas, the Mexican José Meade and the Paraguayan Santiago Peña,
Dujovne put the main data under the microscope: Latin American countries entered the pandemic with a debt of 45% of GDP and came out of it with another 55%.
This greater indebtedness corresponds to a doubling of the fiscal deficit, which went from 0.8% to 1.6%.
Financing that debt will be more difficult from now on.
It is not, of course, a homogeneous problem.
It affects more the treasuries that incurred greater imbalances.
Argentina and Brazil are in the lead.
Against this background other peculiarities operate.
Companies that have a more consistent capital market to finance themselves in local currency will have fewer setbacks.
That is why it is so important for Chilean economists that two withdrawals from pension funds have failed in Congress, as reported by Rocío Montes in EL PAÍS.
As can be seen, a new panorama is taking shape: if accessing the financial market becomes more difficult, governments will have to face adjustments by reducing expenses or, which is more frequent, increasing taxes.
The rise in rates by the Federal Reserve has another, less direct, derivation.
Those who want to protect their savings with Treasury bonds, will have to get hold of dollars to acquire those papers.
This buying current will determine the depreciation of the rest of the currencies against a dollar that, being more demanded, will come out stronger.
Without going any further, the dollar index, which compares the price of the American currency with that of other currencies, rose 3.7% in April, the highest since 2015. The devaluation of other currencies will make imports more expensive of goods or supplies.
Most things will be less accessible.
At the CLAPES conference there were many references to this problem.
Cárdenas, for example, recalled that in his country, Colombia, inflation, which was scheduled for a range of 2 to 4%, is already at 8%.
The Peruvian Aráoz analyzed the impact of the increase in fuel and fertilizer prices, which is a consequence of Russia's invasion of Ukraine.
Dujovne added another factor: during the pandemic, all governments, starting with the United States, embarked on an expansion of public spending and currency issuance, the consequences of which are now being seen in the wave of inflation.
The increase in the price of gas and oil aggravates this trend.
As Cárdenas observed, governments prefer to assume this additional cost through subsidies so as not to pass on the new prices to consumers.
The fiscal accounts become more deficient at the precise moment in which financing becomes more expensive.
There are societies for which this complication is aggravated.
Larraín recalled that Chile imports 98% of the fuels it consumes.
The improvement in the price of copper is not enough to compensate for this higher outlay.
To make the immediate future more worrying, there is another consequence of the rise in the American interest rate: as there are fewer dollars available, international trade is reduced.
Therefore, the price of raw materials becomes cheaper.
Latin America, which is a great seller of raw materials, will have less income.
It means that the boom in prices recorded in these months, derived especially from the pandemic and Russia's aggression against Ukraine, will fade.
Less capital to finance enterprises and to solve the deficit of the States.
Weaker currencies to pay for imports, which will increase in price.
Cheaper products that the region offers to the world.
This is worrying news, above all because it will be received by societies dissatisfied with the benefits provided by the policy.
The pandemic rarefied the public climate.
Especially since it threw more people into poverty.
And it disrupted education.
The Mexican Meade presented at that meeting of former economy ministers a chilling piece of information: people who did not finish high school or high school have such a mortifying existence that their lives are dramatically shortened.
In Mexico it is five years.
In Chile, 10 years.
The elections throughout the region show that restlessness that is expressed in ideological radicalization and, as a consequence of this, in party fragmentation.
Politicians often respond to this climate of concern with demagogic reflexes.
This is when what happens in that room of the Federal Reserve is so unpleasant: the money, which will be more expensive, will be less available.
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