Economic measures taken by Latin American countries to help SME APRIL 09, 20205 MIN READ
Economic measures taken by Latin American countries to help SME

Economic measures taken by Latin American countries to help SME’s (small and medium enterprises) - Helpful information for traders on

The spread of the COVID-19 virus has disrupted trade world-wide. Many SMEs (small and medium enterprises) are the life-blood for sellers on and so here we have documented the fiscal measures taken by 10 Latin American countries to help SMEs continue trading in an effort to help our sellers continue trading with them through these difficult times.



The Argentinian government has adopted the following measures. A stay on bank account closures due to bounced checks and credit extension to companies with payroll tax arrears. In addition, credit guarantees will be provided to banks’ lending to micro, small and medium enterprises (SMEs) for the production of foods and basic supplies. Part of these measures might be financed through reallocation from lower priority spending. Also the protecting of essential supplies, including certain export restrictions on medical supplies and equipment, and support for R&D in pharmaceutical firms. Measures have been aimed at encouraging bank lending through lower reserve requirements on bank lending to households and SMEs; regulations that limit banks’ holdings of central bank paper to provide space for SME lending; and temporary easing of bank provisioning needs and of bank loan classification rules (i.e. extra 60 days to be classified as non-performing).



To mitigate the impact of COVID-19, the Brazilian authorities announced a package of fiscal measures adding up to 3½ percent of GDP—mostly reallocations within the 2020 budget. Also temporary tax breaks and credit lines for SMEs with the aim of protecting employment, lower taxes and import levies on essential medical supplies, and new transfers from the federal to state governments to support higher health spending and as cushion against the expected fall in revenues. The five largest banks in the country agreed to consider requests by individuals and SMEs for a 60-day extension of their maturing debt liabilities. Also, a plan assist states and municipalities with a temporary stay of debt payments, debt renegotiation, and support for credit operations through government guarantees was also announced. Public banks are expanding credit lines for SMEs with a focus on supporting working capital.



To provide liquidity in FX markets, the Colombian central bank auctioned USD 400 million of FX swaps (in US dollars) through which reserves are sold and bought back in 60 days. In addition, a new mechanism of exchange-rate hedging was introduced through a USD 1 bn auction of Non-Deliverable Forwards with a 30-day maturity. The Central Bank has not changed the policy rate but has implemented several measures to boost liquidity in both the financial market and foreign exchange rate markets. These include: an extension of access of their liquidity overnight and term facilities to managed funds, stock brokerage companies, trusts, and investment companies, an expansion of their liquidity operations (REPOS) allotment from COP 20 to 23.5 trillion, COP 10 trillion program to purchase securities issued by credit institutions, and COP 2 trillion in TES purchases.   


Costa Rica

The Costa Rican Central Bank has cut its policy rate by a full percentage point to a record low of 1.25 percent to soften the economic damage caused by the pandemic and to improve credit conditions for households and SMEs. The rate decision builds on a series of recent rate cuts (nine since March 2019) designed to stimulate the economy, as well as on the package of measures taken on March 14 to protect workers and companies. Furthermore, the Costa Rican government has announced a package of revenue measures to protect workers and SMEs against the economic effects of COVID-19, including an interest-free three-month moratorium on the payment of value-added taxes, business income taxes, and customs duties, and making social security contributions proportional to the time worked.



On March 24th, the Ecuadorian Monetary and Financial Policy and Regulation Board issued some temporary modifications to the Monetary, Financial, Securities Code and Insurance Resolutions to support private sector SMEs, including extraordinary deferrals of credit obligations, including from public banks, and a requirement of additional generic provisioning on banks’ gross lending portfolio during 2020. On March 19th, further measures were announced to support the population and SMEs, such as deferral of payroll contributions, exceptional cash transfer amounting to USD120 to 400 thousand poor families, distribution of food baskets, and a financing of USD50 million in credit lines for small- and medium-size businesses (SMEs).


El Salvador

El Salvador’s key measures include lowering banks’ reserve requirements by 25 percent for newly issued loans; amending provisioning for NPLs through freezing credit ratings; imposing a temporary suspension on credit risk ratings; and temporarily relaxing lending conditions through a grace period for loan repayments. Key spending and tax measures include a US$ 150 salary raise for all employees of the Ministry of Health and other public institutions affected by COVID-19; a one-time US$ 300 subsidy to approximately 60 percent of all households; a 3-month deferral of utility payments; a 3-month extension for income tax payments for individuals and SMEs operating in the tourism sector with a taxable income lower than US$ 25,000; and a 3-month exemption from the special tourism tax for companies operating in the tourism industry.



In Chile the Financial Market Commission has unveiled a package of measures to facilitate the flow of credit to SMEs and households, which includes: special treatment in the establishment of provisions for deferred loans; use of mortgage guarantees to safeguard SME loans; adjustments in the treatment of assets received as payment and margins in derivative transactions; and start of a review of the timetable for the implementation of Basel III standards. The authorities presented a package of fiscal measures of up to US$11.75 billion (about 4.7 percent of GDP) focused on supporting employment and SMEs liquidity. The set of measures includes: higher healthcare spending; enhanced subsidies and unemployment benefits; a set of tax deferrals; liquidity provision to SMEs, including through the state-owned Banco del Estado; and accelerated disbursements for public procurement contracts.



The Bolivian authorities have announced a 2-month freeze on loan repayment (principal) in the financial system for natural persons and SMEs. Most commercial banks announced that they are suspending borrowers’ loan repayments for 2-4 months, with the delayed instalments to be paid at the end of the loan closure date. The Central Bank of Bolivia (BCB) injected 3.5 billion Bolivianos (more than $500 million) by purchasing bonds from the pension funds, which, in turn, are expected to deposit the money at banks, increasing the banking system liquidity by about 50 percent. The authorities also postponed the payment of some taxes (corporate income tax, VAT and transaction tax) with the possibility to pay them in later instalments.



The managers of Banks of Panama (SBP) have allowed banks to use the collected dynamic provisioning (about US$1.3 billion or 2 percent of GDP) to absorb the impact of credit losses. The SBP also allowed banks to undertake voluntary loan restructuring with troubled borrowers: banks adjust existing loan conditions, grant grace periods, reduce interest rates, and eliminate some fees for SMEs. An estimated 3¼ percent of GDP (some US$2.1 billion) of fiscal measures have been approved and are being implemented. These include payments to informal workers and SME owners through the "Panama Solidarity Plan"; also tax relief through extended payment deadlines, some tax benefits, and suspension of payments for public services (for 4 months, without interest) for clients with a salary less than US$2,000 per month.



The Uruguayan government has announced that loan payments for homes and SMEs that may be affected by the public health measures are to be delayed for up to 180 days. The fund that guarantees loans for SMEs will be expanded from US$50 million to US$500 million (utilizing financing from international organizations). That will allow to guarantee the SME loans totalling US$2.5 billion. In addition, the rate of commission charged by the fund will be reduced substantially. BROU (the country’s largest commercial bank, which is government-owned) will extend soft loans to enterprises. The financing available currently is US$50 million, which may be augmented—also with financing from international organizations—to US$120 million. In addition, direct credit program for micro and SMEs will extend working capital loans of up to 18 months to the affected businesses at subsidized rates. Loan repayments for these enterprises are being suspended for at least 30 days.


Source: International Monetary Fund

By Apr 9, 2020