NEW YORK, (Reuters) – The economic consequences of Russia’s invasion in Ukraine will have a devastating impact on Latin America and Caribbean, according to a top official from the International Monetary Fund. This is in addition to the fact that the region faces further inflationary pressure.

High inflation and especially food inflation are the biggest problems facing the region’s poor. That’s why the major challenge facing the region is Ilan Goldfajn from the IMF’s Western Hemisphere Department told Reuters.

Oil prices climbed to their highest levels since 2008. Earlier this month, the wheat price, at which 30% of world exports are made by Russia and Ukraine, also reached record heights.

Russia’s invasion in Ukraine, the subsequent sanctions against Moscow and trade disruptions were responsible for current wheat price spikes. A number of developing nations are now facing shortages of wheat due to Ukraine’s dependence.

According to World Bank data, Russia was 2018’s top exporter of wheat and Ukraine fifth.

Goldfajn stated that there is an inflation in food and energy, on top of the high inflation history of the COVID-related shock.

Latin America had been reacted to the pandemic by tightening monetary policy. The major central banks increased interest rates in order to counter inflation and prevent capital fleecing to developed nations.

This could mean that they will need to tighten up even further.

Goldfajn stated that central banks would have to respond and defend themselves as they expect inflation in food and energy will be the primary channel of economic transmission.

Goldfajn said that a further increase in borrowing costs and the income-corrosive effect of inflation could hinder growth.

Latin America now faces the same backdrop of falling inflation and slowing growth as in 2018, 2019 when protests broke out in the streets. Pandemic lockdowns only ended the violence in 2020.

Goldfajn stated that governments should strengthen the targeted social safety nets and try to extend their coverage and reach.

Governments facing increased borrowing costs and tighter fiscal position after two years of lockdowns might need to increase social spending. This is especially true for many Central American countries, which are mainly dependent on imports.

Other countries of South America could find the rise in commodity price a lifeline even though consumers suffer.

Argentina and Brazil, the world’s top grain exporters could reap the benefits, while Colombia would benefit from Colombian oil exports. Chile’s vast mining potential should also provide a strong tailwind.

Goldfajn stated that “the human suffering caused by the conflict and the global negative shock do not serve anyone.”

You have mitigation factors if you take South America as an example. They export the exact same commodities globally that are affected by global warming. However, you must also be able take advantage of this opportunity.