COVID-19 is expected to dent Latin America’s fast-growing fintech market this year, as investment freezes up while waiting for the pandemic to stabilize.

“Growth will fall a lot,” concedes Ignacio Carballo, director of the executive program in Fintech and Digital Banking at Universidad Católica Argentina Business School. “It’s hard to see how last year’s levels will be replicated.”

Last year saw a whopping 180% investment jump to $2.7 billion, as 94 startups piqued investors’ interest, notably Colombia’s delivery app Rappi, Brazil’s digital bank Nubank and Argentine mobile wallet Ualá.

According to regional consultancy Finnova, 82 firms drew equity injections while 12 received loans. Brazil led the frenzy, attracting $1.3 billion in investment. Mexico followed, with $396 million, and Argentina with $152 million. Digital banks attracted most of the investment dollars, with loan and payment unicorns (companies valued at more than $1 billion) following closely behind. Healthcare, insurance and tax payment firms also wooed expansion currency.

While fintech investment could decline sharply, it may still eclipse flows into other asset classes such as IPOs, bonds, loans or real estate, experts say. “Fintech is on a growth highway of its own,” says Carballo. “When one looks at growth in the past few years, the sector grew at a much faster pace than other asset classes, even in some economies that were seeing paltry growth, such as Brazil, Mexico or Argentina.”

Jorge Ortiz, who leads fledgling Mexican mobile-payments and digital-identification app Tan Tan, agrees that the pandemic will stunt the sector’s rapid growth. Still, it is expected to spur digital payments and contactless interactions to avoid contagion. “This will drive investments, and I would not rule out we could still get around $1 billion [in 2020],” enthuses Ortiz. “We are seeing a brutal opportunity to develop technologies that reduce the risk of contagion, such as digital ID apps.”

And as governments force citizens to stay home, the region’s highly unbanked population should also fuel demand for mobile payments, prompting the likes of Facebook’s WhatsApp and Stripe to enter the market and take on established players such as Nubank, Ualá and Mercado Libre, analysts say.

Anko van der Werff: The plan is moving forward and has shown favorable results. We renegotiated our short-term debt, including our [$550 million] bond exchange offer, in which we got an 88% participation. We also negotiated better financial terms with our key suppliers. We secured new [investments] from our stakeholders, a $250 million loan from United Airlines and Kingsland Holdings. We got $125 million of additional financing [from the Citadel investment fund]. We improved punctuality, with on-time performance over 80%. We signed new Brazilian codeshare agreements with Azul and GOL. We launched Branded Fares to allow passengers to tailor travel to pay just for what they want.

GF: What are the remaining challenges?

Van der Werff: Throughout 2020, we will continue executing our plan based on financial sustainability, customer engagement and operational excellence. We will strengthen our financial position, lower our debt and improve our profitability to guarantee the next 100 years. We will enhance our Bogotá and San Salvador hubs, because of their favorable geographic location and human and technical resources. We will also roll out Branded Fares internationally.

GF: Latin America’s airline industry is growing and ripe for consolidation. What are your market share growth and M&A targets?

Van der Werff: Latin America’s industry is showing exponential growth, despite the challenging political and economic landscape. Proof is the 5% growth we experienced last year. The industry’s growth should be accompanied by government and industry actions to foster development. For example, regional taxes are too high, accounting for 40% of a ticket in Colombia. Simultaneously, we see it crucial to invest in airport infrastructure and have a concessions model in line with airlines, governments and customers. Avianca continues to bet on the market, recently adding capacity to US destinations and announcing new routes from Bogotá to Porto Alegre, Montevideo and Asunción and soon to Toronto. Regarding M&A acquisitions, our focus is another, to strengthen our JBA [joint business agreement] with United and Copa Airlines. 

Adrian Neuhauser: We don’t like to look at growth in market share terms. We aim to be a relevant player in the routes we serve. The industry will grow in line with Latin America’s economy, 2% to 3%. We expect to grow above that, perhaps at 4% to 5%.

GF: Your $550 million bond swap offered holders a higher interest rate (9% rather 8.375%) for later redemption (2023 vs 2020). Was it hard to persuade them? How did you do it?

Neuhauser: We told them, “Look, United Airlines and Kingsland are going to give us money, which shows they believe in us.” We had technical discussions about how we were going to make our $5 billion debt serviceable and sustainable. We explained how our transformation plan would achieve operating savings and boost profitability, which we expect to hit double-digit rates this year. It was hard to convince 150 guys to defer payments. One of the guys who was against [the swap], became a good friend. 

GF: European authorities have accused Avianca of demanding kickbacks for Airbus’ sale of 100 A320neo aircraft. You hired a law firm to investigate. How else are you addressing corruption?

Van der Werff: We don’t have additional comments, as the investigation just began. Airbus’ disclosure contains deeply concerning information regarding alleged actions by an individual at Avianca in the period prior to March 2016. Our current management team strongly rejects any conduct that does not reflect integrity and transparency in business in general, and in particular towards Avianca. 

GF: Avianca just turned 100 years old. It is the second-oldest surviving airline—after KLM—and was first in Latin America to operate the 747 jumbo. When you look at the next century, how will you innovate?

Van der Werff: The evolution of our airline will be amazing, reflected in a modern fleet operation, our network’s strength and our increasingly personalized offer through our Branded Fares scheme and Wi-Fi connectivity. We operate to more than 70 destinations in America and Europe with one of the youngest fleets (7.1 years average). We already have Wi-Fi on 17 airplanes including two 787s. The service is currently offered on our international routes across the Americas and from November 2019, on some flights to and from Europe.

Brazil will likely cut this year’s 2.4% GDP growth forecast due to coronavirus fallout by late this week, Economy Policy Secretary Adolfo Sachsida told reporters last Friday.

“It will probably be to 2.2%,” said Milton Castiel, an independent economist in Sao Paulo, who helps advise corporate finance transactions, adding that the biggest impact of Covid-19 will be onthe country’s trade balance, which accounts for roughly 20% of GDP. 

“Importers are suffering because of lower shipment volumes from China,” noted Castiel. ”They are not getting enough capital equipment or tools, screws and bolts needed to make cars or appliances,” potentially delaying deliveries and export revenues.

Falling prices for key commodity exports to China, such as oil, iron ore and soybeans are also expected to negatively impact growth, according to economists. However, they noted that Brazil’s underlying fundamentals—notably consumption and employment—have been improving and will likely offset losses from sluggish exports in coming months.

“We have rock bottom interest rates and rising employment that will keep consumption strong,” said Flavio Serrano, an economist at Haitong in Sao Paulo. “If you look at hiring stats, they are up 2% in the past two months. So while we may be running at 1.5% (year-over-year GDP growth), we really are at a potential 2.5%-3.0% growth rate.”

Serrano said Sachsida’s plan to lower this year’s forecast also partly stems from a fourth-quarter expansion that came below expectations amid slower-than-hoped manufacturing and investment.

“We were expecting 0.6% but now we think it will be 0.4%,” Serrano said of the bank’s projection for the last quarter of 2019—which likely dragged down the year’s growth to 0.5%, slowing its recovery from recession.

Castiel said coronavirus, which sickened two Brazilians as of the weekend amid 75 suspected cases, is also failing to cause alarm.

“Brazilians are not afraid of getting sick,” continued. “ When you ask young people, they don’t even care about coronavirus. It doesn’t have a high mortality rate. If you catch it, you stay at home for 10 days and you are done.”

Some say the derailing of President Jair Bolsonaro’s contentious reforms package is a bigger threat to Brazil’s economic recovery than coronavirus.

“The main concern right now is Brazil’s reform agenda and not external events,” opines Castiel. Bolsonaro’s recent support for embattled Economy Minister Paulo Guedes’ insults against government workers (such as comparing them to parasites) put the package on shaky ground politically. The administrative reform was expected to be put before Congress at bu press time but they was delayed because “the political scene remains very delicate,” Castiel notes.

If passed, the administrative overhaul will cut bloated public salaries that currently account for 14% of GDP, likely boosting investor sentiment toward Brazil and foreign direct investment, some economists say. 

Among Latin American nations, Mexico may be better poised to endure the economic shock generated by the coronavirus crisis while Chile and Peru are expected to suffer as China curbs demand for their copper and silver exports. Brazil has the first case of the disease in all of Latin America and the economic ramifications of that for Brazil remain unclear.

“There could definitely be some winners, Mexico first and foremost,” said Alberto Ramos, chief Latin America economist at Goldman Sachs, when asked if a specific Latin American supply chain and/or economy would prove more resilient to the outbreak than others. “Mexico is more of a manufacturing-based export economy whereas others like Chile, Peru and Brazil are more commodities-focused.” 

Chinese exports account for just 0.6% of Mexico’s GDP while they make up 5% for both Chile and Peru, 3% for Brazil and 1.2% for Argentina, according to Ramos.

The novel coronavirus or Covid-19—which the World Health Organization warned could become a global pandemic—is rattling supply chains across South America that depend on Chinese feedstocks to make pharmaceuticals, cars, electric appliances and other goods. “Pharmaceuticals, appliances and auto manufacturers are starting to run thin [of Chinese parts] and may have to stop production if the situation continues,” warned Ramos.

The coronavirus crisis is threatening global growth too. According to the IMF, the epidemic could dent world GDP growth this year by 0.1% and lower China’s growth to 5.6%, below Beijing’s 6% target.

Fears are high in Peru and Chile where economists are bracing for a protracted slump.

“We are seeing a 1% decline in GDP from a forecast 2.5%-3.0% growth this year as the coronavirus could become a pandemic and we have an election year in Peru,” said Antoninho Linan, an economist at BBVA bank in Lima.

Compared to Peru, things look worse for Chile since it is a bigger exporter of copper whose prices are down more than 10% since the start of 2020, adding to already sluggish expansion triggered by massive demonstrations over high inequality. 

“Chile has political problems and there is a lot of instability surrounding its constitutional vote in May which could now be postponed and lead to more protests,” added Linan. 

Bank of America added that Chile—dubbed a “fallen angel” in its latest report—could see GDP growth contract to 0.9% from a previously forecast 1.3% thanks to combination of coronavirus fallout, fiscal woes and political volatility.

By contrast, Mexico—whose economy is limping along after sub-zero growth in 2019—Ramos said the country’s cost competitiveness, logistic benefits and proximity to the world’s biggest market (the US) should help buffer it against coronavirus economic fallout. As the crisis continues with no end in sight, U.S. companies may begin shifting their supply chains away from China and US-China relations remain shaky despite the “Phase 1” agreement tamping down the trade war.

“If Mexico plays it well and adopts open, investment-friendly policies, they could turn out to be major beneficiaries of the growing trade/strategic rivalry between the US and China and also by decisions [from some manufacturers] to move suppliers closer to home,” Ramos concluded.

Honduras is working on a new economic growth strategy to curb migration and poverty after the failure of its Honduras 2020 development plan to do either.

“Nothing was achieved,” conceded Peter Fleming, president of the old plan’s leadership committee, adding that the government is in the process of naming a new management team with President Juan Orlando Hernandez set to appoint it in coming weeks.  

The five-year Honduras 2020 plan aimed to create 600,000 jobs and boost exports to $14 billion in the hopes that this would help the impoverished nation halve child migration and reduce poverty.  

The plan’s new management team will consist of industry chiefs as opposed to top businessmen with individualistic goals, Fleming revealed. “Now we will have the presidents of several industry associations such as the maquila and banking industries as well as agricultural cooperatives who will have their broader members’ interests in mind such as those operating coffee or palm oil plantations,” he said.

The hope is that by having cooperatives representing impoverished farmers or campesinos inside the new structure, financial inclusion will gain traction in a country where a large percentage of people are unbanked.

“We want to guarantee that all economic sectors have a voice and can present their own growth strategies to dynamize the economy,” Fleming mused. “We don’t just want bankers looking to lend to bankable people only or just to the textiles sector.”

While the administration works to hammer out the new charter, there is consensus about its three overarching goals: Boosting investment, promoting exports and improving the country’s image, Fleming said. That contrasts with the former strategy that sought to develop six key economic sectors: maquila manufacturing, intermediate manufacturing, agriculture, IT business services, tourism and energy/real-estate.

“These six sectors defined our three new themes of investment, exports and image in the older plan,” Fleming explained. “We want to do the opposite now. We want to provide opportunities for other sectors to attract investments.”

To boost exports, which range from $8 billion to $10 billion annually, Hernandez’s embattled government is also considering lifting so-called solidarity micro credits for small and midsize businesses to help them access new export markets.

Already, the state distributed $65 million of such aid in 2019 and is poised to provide significantly more in 2020, according to Fleming. The government will also work to create new markets for farmers and educate consumers to save remittances (which account for 20% of GDP) to start future businesses as part of a new entrepreneurship push.

Meanwhile, improving Honduras’ tarnished international image is crucial to generate new foreign investment after a disputed election in 2017 fueled calls for Hernandez’s resignation (with a stinging U.S. cocaine trafficking conviction against his brother making a bad situation worse). 

“We have to work on an image to become an investment hub by changing Honduras’ negative perception,” said Fleming, echoing analysts and economists’ views that the country could witness further political turmoil in the run-up to the 2021 elections. 

One such effort was the recent passage of a decree to extend Honduras’ free-trade zones tax breaks to 25 years from 15. The move will create 15,000 jobs and draw $500 million in new investments this year, Fleming claimed.

Observers said the job targets are overhyped and slammed the government for using Honduras 2020 as political propaganda.

“The [old] 2020 plan is wet paper,” said Joel Almendares, director of labor trades union CUTH. “It was a strategy to entertain people by saying it would create 600,000 jobs but it has not done that at all. We have less employment every day.”

Foreign multinationals are also nervous about Honduras’ growing violence and volatility with Unilever and Guatemala-based Intrefica closing soap recently, axing 2,000 workers.

“Argentina doesn’t want confrontation with creditors. It wants to be constructive,” Martín Guzmán, the country’s new economy minister, told a press conference on December 11. He added that his team would soon meet with investors in an effort to delay the amortization of some $100 billion of the nation’s debt. “We are going to fix the virtual default the country is in,” he pledged.

Some bondholders in New York, who are fretting over possible haircuts as Latin America’s No. 3 economy continues to deteriorate, have faith in the 37-year-old Brown University PhD who helped lead Columbia University’s research agenda alongside his mentor, Nobel laureate Joseph Stiglitz. One industry observer called him a “straight shooter, and definitely prepared on the academic side.” Accordingly, bondholders hope the person in charge of Argentina’s $470 billion economy will be more generous than the predecessors who forced them to take losses in restructuring after the nation’s 2001 default.

Guzmán has provided few details of his plan to restore growth in Argentina while continuing to service the country’s debt, which also includes a $57 billion loan from the International Monetary Fund (IMF). The biggest bailout in IMF history, that loan is linked to an austerity package that Guzmán and Stiglitz blame for Argentina’s economic plight. The country has recorded GDP contractions over most of the past two years, and unemployment is projected to remain above 10%. Guzmán has called for Argentina to refuse additional IMF assistance and suggested loan deferrals should be diverted to help the economy recover.

Ray Zucaro, chief investment officer at RVX Asset Management, says the IMF could do more to help. “Six percent is a very handsome interest,” he says of the fund’s current loan rate. “They should also push out maturities to make it smoother for the country to grow and make its amortizations.”

A two- to three-year freeze on the country’s debt service could also help, some say, so long as creditors can opt for warrants or higher principal payments to offset losses.

Zucaro believes Argentina can emerge from its doldrums—“as long as they are not looking to take out large chunks of flesh from creditors.”

Bolivia faces significant challenges in the wake of its violent regime change after Evo Morales was forced to resign. Notably, the country must tame a ballooning deficit, boost flagging economic growth and build a more inclusive economy in the racially segregated nation.

“The balance sheet doesn’t look good,” says Capital Economics’ Edward Glossop. The South American country’s budget deficit has soared to 8%, eclipsing recession-stricken Argentina’s 4% and a whisker above Brazil’s 7%. The nation’s debt has risen to 58% of GDP. And this year, economic growth—which topped 7% during Morales’ 14-year tenure—could slow to 3.5%, down from 4.2% in 2018.

To lift the economy, Bolivia must quickly move to tighten fiscal policy, especially as weak natural gas prices cripple export revenues, says Glossop. A new administration such as promised by Morales’ main rival, Carlos Mesa, may fuel prosperity and boost FDI, which totaled $300 million last year.

“It could be good to get a more centrist government that undertakes reforms,” muses Glossop. “The economy has been inwardly focused for a while.” Developing new revenue streams and building a more inclusive economy over time are also seen as pivotal.

“One of the problems with Morales is that we used our hydrocarbon reserves, which are fading fast,” says Armando Alvarez, a financial consultant and former president of Bolivia’s stock exchange. Agriculture, notably soy and cattle exports to China, and tourism have strong development potential, he adds.

Bolivia’s future president will also need to do more to tackle soaring inequality between the vast indigenous population and the white elite—a rift that stoked violent protests before and after Morales’ departure in October. The socialist Morales, Bolivia’s first indigenous president, is credited with halving poverty and boosting growth to twice the Latin American average. The new election is to take place by Christmas.

Bolivia’s political crisis is expected to cost businesses around $2.5 billion as the banking sector takes a hit from rising loan defaults.

“That is the consolidated loss amount,” said Carola Blanco, CEO of La Paz-based brokerage Panamerican Securities, updating last week’s National Chamber of Industries’ $2 billion loss estimate. “Those loss models don’t add the financial system. The banks will have to reprogram loans. There has been an opportunity cost as that money could have been put to work elsewhere.”

Loan defaults have doubled to 4% compared to 2% in October before Bolivia’s President Evo Morales stepped down amid a highly disputed election. The short-term lending rate has also skyrocketed to 8% from 3.5%, squeezing small and midsize companies that make up the bulk of the impoverished South American nation’s economy, worth approximately $40 billion, according to Blanco.

Despite the passage of a new law calling for elections within four months that bans Morales from participating, the situation remains volatile as supporters of Morales’party call for interim President Jeanine Áñez’s resignation. The political vacuum is causing great uncertainty over who will eventually run the country with some analysts saying Morales could make a comeback.

“There is a tense calm,” added Panamaerican investment manager Gustavo Quintanilla. “People know that tomorrow there could be another burst of conflict and more blockades and demonstrations and food supply [shortages].”

Protester blockades starting October 20 caused severe disruptions in the country’s supply chain, hitting a wide range of industries, from energy to food to retail. An explosion in a gas pipeline running through Cochabamba also stalled factories in that city as well as in Oruro and La Paz, boosting fuel prices and producing goodshortages.Roadblocks by angry protesters demanding Morales’ return from exile in Mexico also prevented workers from reaching offices and prompting major supermarkets and malls, such as a Megacenter in La Paz, to shutter for weeks, Quintanilla added.

Cement maker Sobose and dairy firm Pil are two big companies suffering from the gas shortages, analysts said.

“The private sector has been the most affected by a whole month of unrest,” said Quintanilla. “There was a whole suspension of activities in the industrial sector but also in the banking sector where many branches had to close because of security issues.”

But financial consultant Armando Alvarezis confident things will soon return to normal.

“The situation has improved with the new law to call elections though the electoral roll has to be cleaned up and that won’t be easy,” he said.

Banks have been ordered to refinance credits to give companies more time to pay amid the supply chain bottlenecks, helping them adapt to the turmoil.

Most importantly, Bolivia’s breadwinning natural gas exports have been largely unaffected, with recent spikes to Brazil helping boost state coffers.

“Brazilian demand in September and October soared to 30 million cubic feet per day from about 24 million typically,” Alvarez said. However, foreign shipments of other staples such as soy have seen delays.

Investors are nervous about the escalating protests rocking governments all over South America—Chile, Bolivia, Ecuador, Peru. Such events could become the new norm, undermining foreign direct investment (FDI) flows.

“There is a tendency in which people are realizing that they can force a government to bend to their demands. This is working, becoming a new normal, as we have seen in Chile and Ecuador,” said Rafael Elias, credit research director at Tellimer, adding that Latin America’s impoverished masses are emulating similar populist upsurges around the world including in Europe.

Elias echoed views that Bolivia’s current election turmoil, in which 14-year-strong leader Evo Morales has declared a state of emergency amid claims that his opposition is organizing a coup d’etat to force him to accept a second-election, could lead to more instability.

In a highly-disputed election Sunday, Morales was said to have won 46.4% of votes against opponent Carlos Mesa’s 37.07%—failing to win by the 10% margin necessaryto avoid a run-off that could end to his presidency.

“I see things much worse in Bolivia,” said Elias. “The fact that the Organization of American States is intervening and demanding a second round is validating the fraud claims and could usher greater unrest.”

The decline of natural gas prices—Bolivia’s key export—are also crippling economic growth, making it harder for the country to maintain its 3%—4% annual economic growth clip of recent years.

Regarding Chile, Elias said the government looks set to quickly resolve nearly a week of violent protests stemming from the subway and other transport-price increases that combined with other dissatisfaction to fuel deadly riots in the capital Santiago.

This is because President Sebastian Pinera not only bowed to demands that he scrap the transport hikes but pledged to purse a new “social agreement” to help provide new advancement opportunities to the middle and lower classes.

Meanwhile, bond investorshave made opportunistic trades betting that Chile’s crisis will soon ebb. They bought the 2028 sovereign bond, pushing its yield down to 2.35% from 2.5% before the protests began last week.

By contrast, bond buyers dumped Bolivia’s benchmark2028 sovereign notes to $0.93 versus $0.96, boosting the yield to 5.42% from 5.02%.

“So far, we are not seeing a negative effect on the Latin American curve [of the riots],”said a debt capital markets banker in New York. “Brazil is still doing well and other economies are showing strength though investors are getting a little worried.”

If Alberto Fernandez, the man expected to win Argentina’s presidential elections on October 27, makes good on his campaign rhetoric to shun the International Monetary Fund’s efforts to shore up the country’s debt crisis, a big haircut on its $100 billion-plus debt restructuring would seem highly likely.

“If on Day One he says, ‘Let’s go to Washington!’ that might suggest cooperation. But if he is more Cristina-like [referring to running mate and former nationalist leader Cristina Fernandez de Kirchner] and says the Fund doesn’t understand Argentina and delays a restructuring, they would be left to their own devices,” says Stuart Culverhouse, head of Fixed Income Research at Tellimer. “We could see a big haircut and a big creditor battle.”

Such an event—which some say could exceed the 75% haircut Argentina imposed on foreign bonds in 2005—became more likely after the IMF delayed its disbursement of $5.4 billion, the latest tranche of its $57 billion bailout package. Without these funds, Argentina’s debt malaise is only expected worsen, observers say. So far, Buenos Aires has asked for maturity extensions but no cuts on nominal values.

While the Fund could decide to issue the loan following the coming elections, Fernandez’s mixed policy messages are undermining that possibility. “A lot of what he says is contradictory and incoherent,” Culverhouse says. “On the one hand, he says Argentina will continue to meet the IMF’s obligations, but on the other, that its program is illegal.”

Even if the new administration—whose chances of winning rose after President Mauricio Macri lost a primary vote on August 11—is able to strike a win-win deal with the IMF, a milder haircut could still happen, Culverhouse says. He notes, however, that so-called collective action clauses, or CACs, now give investors greater leverage to lessen a default’s impact. Still, one bond investor notes that even with the CACs, “if they do a haircut, it’s a haircut, and it’s going to hurt everyone,” adding that Argentina would be wise to avoid a nominal cut at all costs.

With much of Argentina’s bond curve trading at 40 cents on the dollar, analysts estimate that a 30% to 65% haircut is priced in.