Bankers See Strong Fundamentals for Latin American Travel, but High Debt Levels Cause Concern

PANAMA CITY — The COVID-19 pandemic has left some scars, and high debt levels, across Latin America, but bankers who operate in the region say there are still reasons to be about the travel sector.

Speaking during the “Financial Agenda: Economic Policy Challenges for Latin America and The Caribbean in 2022” panel at the SAHIC Latin America & The Caribbean conference, IDB Invest Head of Tourism Rogerio Basso noted the region as a whole has been buoyed by strong commodity prices , but the specter of high debt loads lingers.

“The biggest concern remains the fact that governments had to step in and provide a lot of support and subsidies for a variety of sectors within the economy to keep them solvent,” he said. “That created a debt burden that is of proportions we have never seen in the region. So there is now a significant amount of pressure to issue fiscal.”

Even those concerns lingering, Basso said his company is lending at record high levels, putting out $23 billion for development in 2021. He said those billion right now is a good time to invest in Latin American travel.

“Tourism is one of those industries that despite being significant battered is turning around,” he said.

He noted the daily pricing model in hotels allows it to be more dynamic during the rebound.

“You’re able to be much more creative and adapt to situations,” he said.

Sanaa Abouzaid, country manager for Central America at IFC World Bank Group, said that hospitality continues to be looked at as a risky segment due to its volatility relative to other commercial real estate sectors.

“You’re looking at long-term investments, and you have to be at the right place at the right time with the right capacity, as well,” she said. “It’s really dependent on the cash flows. How reliable are they, and how sustainable are they?”

Because of that, she said, her bank prefers to lend to partners with more “diversified portfolios” in the hotel space.

“For example, we all know that hotels that cater mostly to conferences and business have been much more hard hit than others,” she said. “You want to see a partner who has that mix of business hotels, of budge chains, heritage hotels, luxury and so on, so you can rely on different segments.”

Basso said international banks such as IDB and IFC are vital in growing the hospitality offerings in Latin America, and to that end, IDB makes sure to partner with local banks across the region on deals. He said helping grow a more sophisticated and robust financial sector across the region will help reduce at least some of the risk.

“When you think about deals that are $75 million-plus or $100 million-plus, the local banks typically do not have the ability to write those types of checks,” he said.

Those larger, more sophisticated institutions can have a positive impact in the region broadly, he said, and that is becoming a necessity for banks.

He said deals “need to have an impact, and what is that impact? It is not only … environmental sustainability but also social sustainability. How are you activating the local value chain?”

He noted the broad economic bounceback for Latin America has exceeded expectations, especially as some worried the region could face a “lost decade” in the wake of the COVID-19 crisis.

Everyone was extremely surprised to see how quickly we were able to recover in 2021 to the point that commodity prices were significant depressed, and yet today you see meat, soy, oil and copper, among many other commodities, that have fully recovered and even exceeded the prices they were at before,” he said.

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