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Private sector external debt triples
Latinamerica Press
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Brazil, Guatemala, Nicaragua, Paraguay and Peru are the countries of the region with the highest private sector debt.

“The private sector external debt in Latin America has more than tripled in the last 10 years, reaching virtually the same level as the external debt of the public sector,” says the Jubileo Foundation in the study “El crecimiento de la deuda externa privada en América Latina (“The growth of private sector external debt in Latin America”), released on Jan. 14.

From World Bank data, the Jubileo Foundation — a Catholic institution based in La Paz, Bolivia that is dedicated to research and dissemination of economic and sociopolitical issues — concluded that “at a total of 21 countries in the region, private external debt was approximately US$218 billion at the beginning of the 2000s, slightly more than half of the public external debt of the region. Starting in 2007, private debt increased, reaching almost the same level of public sector debt, US$611 billion in 2013.”

The Jubileo Foundation said that public sector external debt is debt that belongs to a public body or guaranteed by a public entity, while private sector external debt belongs to a private entity. However, private external debt issued by foreign subsidiaries or parent companies is considered part of foreign direct investment. The banking sector is among the leading issuers of private debt.

Between 2000 and 2013, private debt rose from 31 percent to 42 percent of total debt.

According to Patricia Mirada, author of the research, the international financial crisis of 2008 was a turning point. On that year began a steady increase in private external debt, reaching the same level of public debt in 2013.

The risks
In terms of percentage of gross domestic product (GDP), Brazil, Guatemala, Nicaragua, Paraguay and Peru are the countries with the largest private foreign debt.

Compared with public debt, private debt in Paraguay is triple the public debt. In Brazil and Peru, private debt is double the public debt, and in Nicaragua and Guatemala private debt is greater than public debt by a third.

The rating firm Fitch believes that Brazil’s private debt profile is the riskiest among emerging countries, while the credit ratings of some companies in Peru will go from stable to negative. Standard and Poor’s, another rating agency, downgraded the credit ratings of five major banks in the country, including the three largest:  Banco de Crédito, BBVA Continental and Interbank.

For the Jubileo Foundation, the so-called Public-Private Partnerships — mechanism for private investment to participate in public projects — are increasingly used by governments to carry out infrastructure projects and provide public services. They constitute “another mechanism of generating both public and private external debt through direct loans from the private sector or through joint loans with the public sector, leading to a series of direct contingent, explicit and implicit liabilities that are difficult to measure and assess, but with a fiscal impact”.

The Jubileo Foundation warned about the increase in private debt in countries such as Costa Rica, El Salvador, Guatemala, Nicaragua and Venezuela. While debt levels in these nations do not exceed 15 percent of GDP, “the slowdown in the world economy and decline in international commodity prices will generate an increase in debt indicators and less sustainable space for new debt.”
— Latinamerica Press.

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