The conflict in Eastern Europe had direct consequences on the dynamism of the global economy, and indirect consequences on Latin American economies. Depending on the magnitude and intensity of the conflict in the near future, it is possible to propose prospective scenarios and their consequences. For the time being, a negative impact of one percentage point on world product is already expected, according to projections by international organizations.
Before the outbreak of hostilities, the world economy was suffering the consequences of the Covid-19 pandemic, due to the interruption of numerous productive activities. This happened despite successive economic stimulus packages from almost every country in the world.
Such stimuli were necessary both to maintain some social and health protection and to reactivate the productive apparatus in many countries. However, these economic packages, which reached US$9 trillion (11% of world output), also ended up generating significant inflationary pressures.
Since the Russian invasion of Ukraine and the immediate imposition of economic sanctions by some Western powers on the Moscow government and its surroundings of supporters and collaborators, including the Minsk regime, pre-existing inflationary pressures have accelerated.
The increase in prices was quite clear in the case of goods exported by Russia, Ukraine and Belarus to the international market, particularly in the energy sector (oil, natural gas, coal), food (corn, wheat), inputs (fertilizers) and strategic minerals. (neon, palladium, aluminum, titanium).
In the logistical field, in addition to the attack on Ukraine’s infrastructure (ports, roads, bridges, nuclear power plants, factories, residential areas), there was a notable increase in freight and insurance prices for cargo ships in the Black Sea, as well as obstacles growth in land and air transport between Central and Eastern Europe.
It is estimated that in the first month of military operations, the economic costs for Ukraine were over one hundred billion dollars. Many resources were also allocated by the Moscow government to finance its war effort. In this sense, and without forgetting human suffering, it is worth asking: who will pay for this massive destruction of Ukraine’s economy (war reparations)?
From the perspective of international economic security studies, it is known that the sanctions imposed by certain Western governments against the Russian economy began to generate consequences such as the sharp depreciation of the ruble, the disconnection of digital networks and the financial intermediation system, or the increase in base interest rates in that country. These are supposed to become increasingly incisive and costly for the Moscow government.
In any case, the Russian government, while recognizing some implications of the “economic war” of hostile powers, maintains military operations against its neighbor. At the same time, the Kiev government received humanitarian, economic and military aid from numerous countries in order to maintain its productive apparatus and its war efforts. All this generates local, bilateral and global implications in the medium and long term.
And in Latin American countries?
The conflict in Eastern Europe opens up opportunities, incentives, risks and threats. At first, due to the geographical distance, the war did not have any vital consequences in Latin America. However, the situation could change considerably in the event of an escalation of tensions and war operations inside and outside Ukraine, including the use of unconventional weapons or the eventual incorporation of other state and non-state security actors.
In operational and pragmatic terms, the retraction of Ukrainian, Russian and Belarusian exports of certain raw materials and industrialized goods could even create additional opportunities and demands for Latin American exporting companies, especially in the case of the so-called emerging economies (Brazil, Mexico, Argentina, Colombia, Chile and Peru).
On the other hand, a rebuilding of the depressed Venezuelan oil industry could be considered, especially if accompanied by a gradual lifting of US and European sanctions, and an effort towards reconciliation and redemocratization of the country.
Therefore, Latin American exports could replace a significant part of the production of the belligerent countries, mainly in the US market, in the European Union and in certain African and Asian countries.
However, trade opportunities will have to be confronted with the accelerated process of global inflation, turmoil, uncertainties and higher import prices.
It is worth reiterating that, in the context of the post-pandemic economic recovery, the military conflict can further delay the resumption of growth and the productive transformation with equity among Latin American countries. In addition, some analysts ponder the implications of possible deglobalization, the resurgence of protectionist pressures and neo-populism.
Despite visits by Alberto Fernández (center left) and Jair Bolsonaro (populist right) to Vladimir Putin shortly before the start of the war, it is more likely that countries in the region as a whole will seek to diversify their external partners.
In addition, many will seek to build some form of balance and equidistance in the context of the impending competition between world powers, including with regard to global economic governance. This includes an effort to avoid the internalization or importation of extra-regional conflicts in the already delicate post-Covid-19 pandemic situation. Here are the contours of a “new normal”.
Recent developments in negotiations to find a peaceful solution suggest some partial progress and even allow for cautious optimism. Naturally, almost the entire international community and our region support a negotiated solution to the conflict. This was reflected in the majority of Latin American countries voting on two United Nations General Assembly resolutions to demand an end to hostilities.
This position is based on international identity, on the historical experience of the region (the object of numerous comparable attacks by the US and European countries that at the time were labeled as imperialists), on the prevailing diplomatic culture, which opposes expansionist wars and the use of force. in international politics, and in the maturity and democratic quality of many of our societies. That said, it seems pertinent to insist on the need to build an international order of free peoples.
