Now the pandemic is turning anemic growth into a recession cannon and throwing millions back into poverty.
“Latin America came to 2020 as a plane flying with a damaged engine,” according to Eric Parrado, chief economist in the Research Department of the Inter-American Development Bank (IDB).
“Then the other one was damaged. We are now looking for a place to land to save the plane and its passengers,” he told CNN.
‘Lockdown kills’
Few Latin American countries have ‘safety nets’ to help in times of crisis, such as unemployment insurance.
Thus, governments face an unpleasant choice between tight, life-saving blockades and short-term economic pain, on the one hand, and try to keep their economies open, but are at risk of further spread of the coronavirus on the other.
Peru, which closed quickly and early, opted for the first option; Brazil for the second. Last week, Brazilian President Jair Bolsonaro bluntly repeated his point of view: “Without wages and jobs, people die. Running of the bulls kills.”
Mexican President Andrés Manuel López Obrador said in May: “My prediction is that with the coronavirus, a million jobs will be lost.”
Millions of them will fight to avoid hunger, as crops cannot be harvested or cost more to import because a currency depreciates. Poverty also has a long-term effect on the youngest. Lower and lower nutrition prevents growth; Poorer children are less likely to complete their studies and have no chance of receiving an online education.
The ‘sudden stops’
Whichever way the countries choose, the great Latin American region will not escape an unprecedented triple shock, what Parrado calls “sudden stops”.
Capital: Money is rapidly flowing from the region, as investors extract their money from stocks and bonds. At the same time, remittances from family members abroad, critical for the poorest in Mexico, the Caribbean and Central America, are forecast to decline rapidly. The IDB estimates that they may drop as much as 30% this year alone. In a country like Haiti, where remittances are worth a third of GDP, that is catastrophic.
Commerce: Parrado says the region’s imports and exports are declining “very rapidly.” Latin America is especially vulnerable because it is highly dependent on the export of basic soy products to copper and oil. As global demand declines, so does export earnings.
Take Peru. In the first quarter of 2020, its exports, which include gold, oil and fishmeal, fell almost 15% in value, as prices and volumes decreased.
Debt could haunt Latin America even after pandemic
Parrado’s triple shocks affect Latin America’s economy much more than they would with developed economies.
According to the UN, several countries, including Guatemala, El Salvador and Honduras, are already spending more on paying off their debts than on medical care.
Argentina and Ecuador are already in default on their external debt. The research group Capital Economics says that the debt of Brazil, Colombia and Mexico, three of the most powerful regional economies, is increasing rapidly relative to GDP. Some analysts expect Brazil’s debt-to-GDP ratio to rise from 75% to 100% this year, as its economy contracts about 9%. In its favor, Brazil has a relatively low foreign currency debt.
defend yourself
Governments across the region have taken a series of measures to support the most vulnerable and try to keep companies afloat.
Peru provided an initial cash transfer of approximately $ 100 to 9 million from the most vulnerable people, followed by more fees, but there were problems getting the money to people without bank accounts. Brazil extended the reach of its Bolsa Familia income support program, and Colombia reinforced its Familias en Acción program.
Last week, the Chilean government allowed people to access up to 10% of their pension in advance to compensate for the difficulties. Across the region, central banks have lowered interest rates, often nearly to zero. Brazil is providing around $ 55 billion in lines of credit to companies.
International lenders like the World Bank and the IDB are also helping. This week, the IDB granted a $ 130 million loan that will help 12,000 small businesses in Bolivia to survive. The IMF has provided around $ 5.5 billion in financing to the region, with flexible lines of credit provided to Chile, Peru and Colombia.
But budgets are already stretched; The ability to throw cash into the problem, with license payments, tax breaks, and healthcare investment, is beyond most countries as their public finances deteriorate.
Austerity – and riots – ahead
Mending your finances means austerity, and austerity delays recovery.
Capital Economics in its latest survey says that Brazil “appears to be ready to implement fairly drastic fiscal austerity in 2021 to address rising public debt.”
“By the end of 2022, we still think that the [Brazilian] the economy will be 7% smaller than it would have been if the virus had not happened, “says Capital Economics.
And austerity can also provoke more protests that seized much of the region in 2019. From Colombia to Haiti and from Bolivia to Chile, popular fury spilled into the streets, the visceral expression of mistrust in the government, which reached around 65 years. % throughout the region.
In 2021, public expectations about the quality of government services will once again be on a collision course with reality, and with chests emptied by the pandemic, there may be little that governments can do about it.
For many economists, Latin America needs to “rebuild better” after the coronavirus and “take seriously fostering innovation and entrepreneurship and competition to address low productivity,” in the words of the new World Bank vice president for the region, Carlos Felipe Jaramillo
But all that requires investment. Before it can dream of a better future, Latin America has to survive the present.
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